Chapter-1

INTRODUCTION

Financial Management is that managerial activity which is concerned with the

planning and controlling of the firms financial resource. Through it was a branch of
economies till 1890, as a separate activity of discipline it is of recent origin. Still, it has no
unique body of knowledge of its own, and draws heavily on economics for its theoretical
concept even today.

The focus of financial management was mainly on certain episodic events like
formation, issuance of capital, major expansion, merger, reorganization and liquidation in the
life cycle of the firm. The approach was mainly descriptive and institutional. The instruments
of financing, the institutions and procedures used in capital markets, and the legal aspects of
financial events formed the core of financial management. The outsider’s point of view was
dominant. Financial management was viewed mainly from the point of the investment
bankers, lenders and other outsider interests.

Every business organization has to maintain appropriate funds to meet the long term
as well short term needs irrespective of nature and size and kind of the firm. Proper funds
maintaining in an enterprise increase the value of the firm.

In business organization basis for financial analysis and decision making in financial
information is required financial information is needed to predict compare and evaluate the
firms earning ability and aid in economic decision making and investment and finance
decision making .

The basic financial statements of grate significance to owners management and

investors and balance sheet, profit and loss account and cash flow statement.

Finance is nothing but drafts currency notes and coins and short-term financial
instruments, which are acquiring the funds in business and their effective utilization.
MEANING OF THE FINANCIAL MANAGEMENT:

According to “GUTMAN and DOGAL”: “The activity concerned which planning

raising controlling administrating the funds used in the business and finding out various
sources for raising funds for the firm “.

IMPORTANCE OF FINANC IAL MANAGEMENT:

 Financial management helps proper allocation of funds for increasing the

profitability.
 To increase the size o f the business enterprise the firm should deals with the
financial management.
 It deals with the separation of owners and management.

 It helps in increasing wealth of the owners and as well as nation.

 Financial management will take sound financial decision.

AN OVER VIEW OF FINANCIAL MANAGEMENT

AIMS OF FINANCIAL MANAGEMENT:

• Acquiring sufficient funds

• Proper utilization of funds
• Maximizing the profitability
• Increasing the value of the firms

Acquiring sufficient funds in the organization based on assessment of needs and

requirements of the funds. It may be short term or long term needs and acquiring funds from
long term sources or short –term sources.

FAVORABLE ARGUMENT:

Every financial decision should be based on cost benefit analysis. If the benefit is
more than the cost, the decision will help in maximizing the wealth.
UNFAVORABLE ARGUMENT :

The objective of wealth maximization may also face difficulties when ownership and
management are separated.

NATURE AND SCOPE OF FINANCIAL MANAGEMENT:

 ESTIMATING FINANCIAL REQUIREMENTS :

The first task of financial management is to estimation of the short term and long term
financial requirements. It is based on the proper financial plan. It may be either long period of
time or short period of time.

 DECIDING CAPITAL STRUCTURE :

Capital structure means build up off a funds in an organization. These funds are
receiving from long-term sources. If we want to purchase fixed assets there is a need of
determination of capital structure.

 SELECTING A PATTERN OF INVESTMENT :

After receiving the funds from various sources the next step in invest the amount
either fixed assets or working capital with the help of capital budgeting techniques and
working capital analysis we have to make the investment in a profitable line.

 PROPER CASH MANAGEMENT :

Cash management is also important task of financial management. It deals with

various day to day expenses like payment of expense and raw material purchase and payment
to creditors and other expenses for this we have to maintain optimum level of cash balance in
the organization.

IMPLEMENTING FINANCIAL CONTROLS:

In effective system if financial management how to use various control devices like
ratio analysis budgetary control and B.E.P. analysis etc..,

FINANCIAL FUNCTIONS DECISIONS:

The financial decisions broadly classified into three categories:

Investment decisions
Financial decisions
Dividend decisions

INVESTMENT DECISIONS:

It is divided into two categories

1. Long term investment decisions

2. Short term investment decisions

LONG TERM INVESTMENT DECISIONS:

These decisions to deal with the capital budgeting analysis. Capital budgeting is the
process of making investment for long period of time. That is return are received more than
one year for

EX:

Set up of new units, Expansion of present unit, Replacement of permanent assets

SHORT TERM INVESTMENT DECISIONS:

It refers the working capital analysis. It relates to the allocation of funds for cash
receivable and the trade off between liquidity and profitability influences an inventory such
decisions.

FINANCIAL DECISIONS:

The financial decision is not only concerned with how to finance new assets but also
concerned with the best overall mix of financing for the firm. The financing manager has to
select best source of finance, which will make optimum capital structure. It means where
maximizing the profits and minimizing the risk increasing the value of the firm that is called
as optimum capital structure.

DIVIDEND DECISIONS:

Dividend is nothing but simply we can say that profit. The third major financial
decision relates to the distribution of profit. The term dividend refers “TO THAT PART OF
PROFITS OF A COMPANY WHICH IS DISTRIBUTED AMONG ITS SHARE
HOLDERS.” The higher rate of dividend may raise the market price of the share and thus
maximize the wealth of share holders.

FINANCIAL ANALYSIS:

Financial analysis is a statement, which represent the changes in financial position.

The information contained in these statements is used by management creditors and investors
and others to judge the operating performance of the firm.

According to AICPA definition analysis of financial statements is an interpretation of

results there of financial analysis is the process of identifying the financial strengths and
weaknesses of the firm by property establishing relationship by means of ratios between the
items of the balance sheet and profit and loss account.

FINANCIAL SATAEMENT ANALYSIS:

In the words of MYER “Financial statement analysis largely a study of relationship among
the various financial factors in a business disclosed by a single set statements and study of
these factors as shown in a series of statements.”

STEPS INVOLVED IN THE ANALYSIS:

 Compilation of financial data

 Study of data
 Systematic classification of data
 Scientific arrangement of classified groups of data
 Establishing relationship with related data for further comparison
 Supplementing with appropriate comments analysis
 Interpretation of the analysis.

RATIO ANALYSIS:
 Ratio analysis is the most widely used tool of analysis. A ratio is a “quotient to two
numbers and is an expression of relationship between the two amounts”. It indicates a
quantitative relationship, which is used for a qualified judgment and decision-making. The
ratios may be compared with the previous year or base year ratios of the same firm.

“The relationship between two accounting figures expressed mathematically is known

as a financial ratio”.

British Institute of management has classified the ratios into two categories.

 Primary ratios
 Secondary ratios

PRIMARY RATIOS:

Ratio indicating the relationship between profits and capital employed area primary ratio.

SECONDARY RATIO:

These ratios give the information about the financial position and capital structure of the
company.

OBJECTIVES OF RATIO:
The objectives of working out ratios and consequential analysis are :

 To study the liquidity of the firm .

 To find the profitability of the organization .
 Leverage that is financing by debt or equity or preference shares .
 To know operating efficiency of the organization .
 To know Effective utilization of assets .

ADVANTAGES OF RATIO ANALYSIS:

 To identify the significant accounting data relationship.

 A ratio indicates trends in which will help in decision making and forecasting
 Ratio analysis helps in assessment of liquidity profitability and solvency of the
firm
 To know the over all operating efficiency and performance of the firm.
 It helps in understanding financial statements.
 It provides basis not only for intra-firm comparison but also for inter-firm company.
 It helps the management in controlling the affairs of the firm.

ACCOUNTING RATIOS CAN BE EXPRESSED IN VARIOUS WAYS:

Such as

• A pure ratio say ratio of current assets to current liabilities.

• A rate say current assets are two times of current liabilities.
• A percentage says current asset are 200% of current liabilities.

DIAGNOSTIC ROLE OF RATIOS:

The essence of the financial soundness of a company lies in balancing its goal
commercial strategy product, market choice and resultant financial needs. The company
should have financial capability and flexibility to purpose its commercial strategy.

Ratio analysis is a very useful analysis technique to raise permanent question on a

number of managerial issues while assessing the financial wealth and health of the company
with the help of ratio analysis answer to the following question may be sought.

1. How profitable is the company? What a accounting policies and practices

does the company follow? Are stable?
2. Is the profitability of the company high/low/average?
3. Is the return on equity high/low/average? It is due to

b. Return on investment
c. Financing Mix
d. Capitalization of Resource

4. Can the company sustain its impressive profitability or improve its

profitability given competitive and other environmental situations?
5. How effectively Does Company utilizes its assets in generating sales.
6. What are the trends in collection period inventory turnover and fixed
assets turnover?
7. What is the level of current assets relative to current liabilities? It is
reasonable given the nature of the company’s business?
 8. What is the Mix of current assets? Is the proportion of slow moving
inventories high?
9. How promptly the company pays its creditors?

The answer for all these questions can be known through the care
observation of company’s financial position through ratios.

STANDARDS OF COMPARISON:

The ratio analysis involves comparison for a useful interpretation of the financial
statements. A single ratio in itself does not indicate favorable or unfavorable condition. It
should be compared with some standards of comparison may consists of

• Ratio calculated from the past financial statements of the some firm.
• Ratio developed using the projected or performed financial statements of
the same firm.
• Ratios of some selected firms especially most progressive and successful
at the same point in time.
• Ratios of the industry to which the firm belongs some times future ratios
are used as the standard of comparison ratio can be developed from the
projected or performed financial statements. The comparison of past
ratios with future ratios shows the firm’s relative strength and weakness in
the past and future.

This kind of a comparison indicates the relative financial position and performance of
the firm can easily resort such a comparison and it is not difficult to get the published
financial statements of the similar firm.

USERS OF RATIO ANALYSIS:

The ratio analysis is on of the most powerful tools of financial Analysis. It is used as a
device to analysis and inter-prate the financial health of an enterprise.

1. Managers :

These are the persons who among the business. Financial ratios are important to
managers for evaluating the results of their decisions. Financial ratio also helps the managers
in decision forecasting and planning co-ordination and control of business activities.
2. Shareholders/Investors:

Those who are interested in buying and selling the shares of a company
are naturally interested in the financial ratios. These ratios are helps in knowing
the safety of their investment. This ratios tells that the position of the firm
whether it is good or not.

3. Creditors:

The creditors are interested to know whether their loan principal and
interest will be paid when due suppliers and other creditors are also interested to
know their dues in time.

4. Workers:

Generally the workers are entitled to payment of bonus in which depends

on the size of profit earned. The knowledge also helps them in conducting
negotiations for wages and bonus.

5. Government:

The ratio analysis of a company or industry is useful to the management

in framing the policies and then the financial ratios are useful to the government
in taking decision relating to taxes.

6. Researchers:

The financial ratios being a mirror of business condition of great interest to

undertaking in accounting theory as well as business affairs and practices.

SIGNIFICANCE OF RATIO ANALYSIS:

Ratio analysis stands for the process of determining and presenting the relationship
items and groups of items in the financial statements. It is an important technique of financial
analysis. It is a way by which financial stability and health of a concern can be judged. The
following are the main points of importance of ratio analysis.
USEFUL IN FINANCIAL POSITION ANALYSIS:

Accounting ratios reveal the financial position of the concern. This helps the banks,
insurance companies and other financial institution in lending and making investment
decisions.

USEFUL IN SIMPLIFYING ACCOUNTING FIGURES:

Accounting ratios simplify summarizes and systematize the accounting figures in

order to make them more understandable and in lucid form. They highlight the
interrelationship, which exists between various segments of the business as expressed by
accounting statements. Often the figures standing alone cannot help them to convey any
meaning and ratios help them to relate with other figures.

USEFUL IN ASSESSING THE OPERATINAL EFFICIENCY:

Accounting ratios helps to have an idea of the working of a concern. The efficiency of
the firm becomes evident when analysis is based on accounting ratio. They diagnose the
financial health by evaluating liquidity, solvency profitability the capabilities of various
units.

USEFUL IN FORECASTING PURPOSE:

If accounting ratios are calculated for a number of years, then a trend is established.
This trend in setting up of future plans and forecasting. For Example: expenses as a
percentage of sales can be easily forecasted on the basis of sales and expenses of the past
years.

USEFUL IN LOCATING THE WEAK SPORTS OF THE BUSINESS:

Accounting ratios are of great assistance in locating the weak spots in the business
even though the overall performance may be efficient weakness in financial structure due to
in correct policies in past are reveals through accounting ratios. If a firm finds that increase in
distribution expenses is more than proportionate to the results expected for achieved it can be
remedial measures to overcome this adverse situation.

USEFUL IN COMPARISON OF PERFORMANCE:

Through accounting ratios comparison can be made between one department of a

firm with another of the same firm in order to evaluate the performance of various
department in the order to evaluate the performance of various departments in the firm
manager is naturally interested in such comparison in order to know the proper and smooth
functioning of such departments ratios also help him to make any change in the organization
structure.

Management has to protect the interest of all concerned parties. Their survival
depends on their operating performance from time to time. Management uses ratios analysis
to determine the firm’s financial strength and weakness and according takes actions to
improve the firm’s position.

The various concerned parties include the owners, investors, creditors, customers,
consumers etc…, they are interested to know the firms operating performance to get their
expected returns.

The owners of the company will observe the profitability of the firm and the effective
utilization of the assets of the firm. The investors can observe about the net profit tax, which
can be available for them to get the desired, dividends;

The creditors will think about the debt payment capacity of the firm. Ratio analysis is
very useful yardstick to determine the financial position of the firm and it will protect the
interest of the parties, through careful security of financial statements.

LIMITATIONS OF RATIO ANALYSIS:

Ratio analysis provides an indication of company’s profitability, liquidity, leverage

and solvency, ratio do not provide answers, and they are a guide to management and others of
the areas of weakness and strengths of a company.
 Many firms are much diversified and are engaged in number of different
activities. This makes it difficult to developed meaningful set of averages in order
to compare performance.

No company or firm is content being average. They to be the best. Thus it

may be argued that comparing a company’s performance against an overage is
not flattering or indicative of a company’s position in an industry.

Ratios can be purposely distorted by companies to make it look better

than it actually is. A company could sell its receivable at a discount for cash. As a
result, its collection ratio of account receivables would be low, leading one to
believe its efficiency is better than it actually.

In order to state whether a ratio is good or bad it must be intelligently

interpreted. A high current ratio may indicate a liquidity position, which is
positive or excessive liquidity cash, which is negative.

It is difficult to compare companies as they very often follow different accounting

principles. A company may value inventory under “Last in First out” principle, where as
another may depreciate under the straight-line method, while its competitor may use
accelerated depreciation.
 TYPES OF RATIOS:
Several ratios calculated from the accounting data, can be grouped into various
classes according to financial activity or function to be evaluated management is interested in
evaluating every aspect of the firms performance. They have to protect the interests of all
parties and see that the firm grows profitably. In view of requirements of the various users of
ratios, we may classify them into the following four important categories.

1. Liquidity ratios
2. Leverage ratios
3. Activity ratios
4. Profitability ratios

1. LIQUIDITY RATIOS:

Liquidity ratios are measures the firm’s ability to meet current obligations. It is
externally essential for a firm to be able to meet preparation of cash budgets and cash flow
and find flow statements. It’s establishing a relationship between cash and current assets to
current obligations. The failure of a company to meet its obligations due to lack of sufficient
liquidity will result in poor credit worthiness cost of creditors confidence a very high degree
of liquidity is also bad idle assets earn nothing.

The most common ratios, which indicate the extent of liquidity

a. Current ratio.
b. Quick ratio or Acid test or liquid ratio.
c. Absolute liquid ratio or cash position. Ratio

(a) CUURENT RATIO

Current ratio may be defined as the relationship between the current assets and
liabilities. This ratio is also known as working capital ratio. It is most widely used to make
the analysis of a short-term financial position. It is calculated by dividing the total of current
assets by the total current liabilities.

Current assets include cash and those assets that can be converted into
cash within a year such as marketable securities debtors and inventories and
prepaid expenses also considered as current assets.

Current liabilities are those obligations which are payable within a short period generally
within a year.

Current Ratio=current assets /current

liabilities

(b) QUICK ASSETS RATIO:

Quick ratio may be defined as the relationship between quick/liquid assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon
without a loss of value and Inventories are considered to be less liquid.

Quick Ratio=Quick assets/ Current liabilities

(c) ABSOLUTE LIQUID RATIO OR CASH RATIO:

Receivables, debtors and bills receivable are generally more liquid then inventories
yet there may be doubts regarding their realization into cash immediately or in time.

LEVERAGERATIOS:

Leverage ratios may be calculated from the balance sheet items to

determine the preparation of debt in total financing. Many variations of the
ratios exist, but all these ratios indicate the same thing. Leverage ratios are
also computed from the profit and loss items by determining the extent to
which operating profits are sufficient to cover the fixed cha(a) Debt equity ratio

(b) Total debt ratio

(c) Capital equity ratio

(d) Proprietary ratio

 (e) Fixed assets ratio

Leverage ratios are designed to measure the contribution of owners against

following information.

 The company’s ability to cover all its obligations including short term
and long term obligations
 The margin of safety afforded to the creditors by the equity
 The extent of control of share holders over the enterprise
 The potential ratio earnings from the long term funds

(a) DEBT EQUITY RATIO

The ratio relates to all the creditors on assets to the owners funds. It is
computed by dividing the total debt, both the current and long term by it’s
tangible net worth consisting of common stock and invested more in the
business than the owners.

Debt equity ratio=long term liabilities/capital employed

(b)TOTAL DEBT RATIO

In order to know the long term solvency of the firm we may know by
computing several debt ratios. Total debt ratios show the relation between total
debt to net assets or capital or capital employed.

Total debt ratio=total debt/capital employed

(c) CAPITAL EQUITY RATIO:

 It is another form of leverage ratio are may want to know how much
funds are contributed together by lenders and owners for rupee of owners
contribution. This can be found out by calculating the ratio of capital employed
or net assets to net worth.

Capital equity ratio=Net assets/Net wort

(d) PROPRIETARY RATIO

This ratio indicates the general financial strength of the concern. It is a

test of the soundness of the financial structure of the concern. The total
shareholders fund (net worth) is compared with the tangible assets of the
company.

Proprietory Ratio=Net worth or proprietary fund/Total assets

(e) FIXED ASSETS TO CAPITAL EMPLOYED RATIO

This ratio indicates the extent of fixed assets the firm employed in the
total capital employed during the period. It is calculated by dividing fixed assets
by capital employed.

Fixed assets to capital employed turn over ratio=fixed assets/capital

employed

ACTIVITY RATIOS:
Activity ratios reflect how effectively the company is managing its resources. These
ratios express the relationship between the level of sales and the investment assets like
inventory receivable fixed assets etc.

The important activity ratios are

a. Stock or inventory turnover ratio

b. Total assets turnover ratio
 c. Fixed assets turnover ratio
d. Working capital turnover ratio
e. Current assets turnover ratio

(a) INVENTORY TURNOVER RATIO

A ratio showing how many times the company’s inventory is soled and
replaced over a period. It is calculated as.

Inventory turn over ratio=sales/inventory

(b) TOTAL ASSETS TURNOVER RATIO

This ratio ensures whether the capital employed has been effectively used
or not. This is also the test of managerial efficiency and business performance.
Higher total capital turnover ratio is always required in the interest of the
company. This ratio is measured on the basis of the following formula.

Total assets turnover ratio=sales/total assets

c) FIXED ASSETS TURNOVER RATIO

This ratio expresses the number of times fixed assets are being over in a
given period and how well the fixed assets are being used in the business.
 Fixed assets turnover ratio= sales/ Net fixed assets

(d) WORKING CAPITAL TURNOVER RATIO

This ratio shows the number of timers capital is turned over in a stated period. It
is calculated as follows. The higher is the ratio is lower is the investment in
working capital and greater are the profits.

Working capital turnover ratio=sales/net working capital

(e) CURRENT ASSETS TURNOVER RATIO:

The firm may wish to know its efficiency of utilizing currents in organization.

A high gross profit margin ratio is assign of good management. A gross profit margin
ratio may increase due to any of these factors.

1. Higher sales prices and cost of goods sold remaining constant.

2. Lower cost of good a sold sale price remaining constant.
3. Combination of variations in sales price and cost and margin widening.

Current assets turnover ratio= sales / net fixed assets

PROFITABILITY RATIOS:

1. Gross profit ratio

2. Net profit ratio
3. Operating profit ratio

PROFITABILITY AS RELATED TO INVESTMENT

 1. Return on investment
2. Return on shareholders
3. Return on capital employees

PROFITABILITY RATIOS:

Profit is the main objective of the every organization. A company should earn profits
to serve and grow over a long period of time. It is a fact that sufficient profits must be earned
to sustain the operations of the business to be able to obtain funds from investors for
expansion and growth and to contribute towards the social overheads for the welfare of the
society.

The profitability ratios are calculated to measure the operating efficiency of the
company. Creditors and owners are also interested to know the profitability of the firm.
Creditors want to get interest and repayment of principal regularly and return on investment
to investors. This is possible only when the company earn the enough profits.

GROSS PROFIT MARGIN RATIO:

The gross profit margin reflected the efficiency with which management produces
each unit of product. The high gross profit margin relative to the industry average implies that
the firm is able to produce at relatively lower cost.

A high gross profit margin ratio is assign of good management. A gross profit margin
ratio may increase due to any of these factors.

1. Higher sales prices cost of goods sold remaining constant.

2. Lower cost of goods sold sale price remaining constant.
3. Combination of variations in sales price and cost margin widening.

OPERATING EXPENSE RATIO:

The operating expense ratio explains the changes in the profit margin ratio. The ratio
is computed by dividing operating expenses by net sales. The operating expense ratios a
yardstick of operating efficiency but it should be used cautiously. It is affected by a number
of factors such as external uncontrollable factors and internal factors and managerial
efficiency.

EXPENSES RATIO:

Expenses ratio indicate the relationship of various expenses to net sales. The
operating ratio reveals the average total variations in expenses. But some of the expenses may
be increasing while some may be falling. Expense ratios are calculated by dividing each item
of expenses or group of expenses with the net sales to analysis the causes of variation of the
operating ratio. The lower the ratio the greater is the profitability and higher the ratio and
lower the profitability.

GROSS PROFIT RATIO:

This ratio shows the relationship between gross profits with sales to measure the
relative operating efficiency of the company. It also reflects its pricing policies. It is
computed by dividing sales minus the cost of goods sold by sales sometimes, it is calculated
by taking cost of goods sold instead of sales. It indicates the position of trading result.

Gross profit can be measure by deducting the “Cost of Goods Sold” from
the net sales. Gross profit is the relationship between prices, sales volume and
costs. The Gross profit margin reflects the efficiency of the management.

Gross profit ratio=gross profit/net sales*100

NET PROFIT RATIO:

Net profit to sales is also called net profit margin ratio. It is calculated by dividing net
incomes by net sales. This ratio provides good insight into the overall efficiency of the
business. A higher ratio shows the higher overall efficiency of the business and better
utilization of the total resources and at the same time the ratio indicates poor financial
planning and low efficiency also.
 Net profit is obtained by deducting operating expenses, interest and taxes
from the gross profit. This ratio indicates the firm’s capacity to withstand adverse
economic conditions.

Net profit ratio= Net profit/ Net sales*100

OPERATING PROFIT RATIO:

This ratio indicates the relationship between Operating profit and sales. It
is worked out by dividing Operating profit by net sales. The net profit ratio may
mislead by showing high efficiency even though the efficiency is extremely low.

Operating profit ratio= Operating profit/ Net sales*100

RETURN ON CAPITAL EMPLOYED:

This ratio explains the relationship between net profit after tax and capital employed.

This ratio explains about the amount of return that was attained through the
investment of capital. Net profit after tax is the profit that was available after the deduction of
all operating expenses. This ratio reveals the earnings and earning capacity of the capital
employed in the business.

Return on capital employed= Net profit/ Capital employed

RETURN ON SHAREHOLDERS FUNDS (or) EARNING PER SHARE:

The returns on shareholders funds explain the relationship between profit after tax and the
total shareholders funds. Shareholders equity consists of performance share capital ordinary
share capital and reserves and surplus. This ratio shows the owners funds have been used by
the firm and may be used in comparing the profitability of similar firms.

The ratio carries the relationships of return to the sources of funds provided by the owners
of the firm. This measures the rate of return on shareholders funds. The higher the ratio, the
safer an and advantage the financial position.
Earning per share= (profit after tax-preference share)/number of equity shares

Chapter-2

OBJECTIVES OF METHODOLOGY & CONCEPTS

In this chapter an attempt is made to present the objectives, scope,

methodology, limitations of the study and various concepts used.

Objectives of the study:

 To analyze financial performance of P.N.B during 2006-10.

 To suggest necessary measures for improving the financial performance of
the bank.
 To analyze the working capital of the company.
 To suggest measures with regard to loans and advances of the bank.

Scope of the study:

The study is a longitudinal study. It considers a period of five years.

Methodology:

The following lines described the methodology adopted.

Primary sources:
 Interaction with guide to understand the general and specific aspects of
the problem, executives to understand the implication of the ratios, the
perspective measures to rehabilitate the bank and employees of the company to
know cost reduction possibilities.

Secondary sources:

Annual reports of the company, journals, magazines and books.

Data collection:

Data are collected through interview with five executives-senior manager

(finance), senior manager(purchase), senior manager (personnel), senior
manager (production), senior manager (marketing) using an unstructured
interview method in a phased manner and from annual reports of the five years
selected for study.

Data analysis:

The collected data are analyzed by applying ratio analysis, break even and
indexed analysis.

Significance of the study:

The study will be helpful to executive to make a review of the changes in

financial situations and deliberate on the measures to be taken to improve the
performance.
Chapter-3

BANK’S PROFILE & HISTORY

VISION
“To be a Leading Global Bank with Pan India footprints and become a household
brand in the Indo-Gangetic Plains, providing entire range of financial products
and services under one roof.”

MISSION

“Banking for the unbanked”

Punjab National Bank (PNB), was registered on May 19, 1894 under the Indian Companies
Act with its office in Anarkali Bazaar, Lahore. The Bank is the second largest government-
owned commercial bank in India with about 4,500 branches across 764 cities. It serves over
37 million customers. The bank has been ranked 248th biggest bank in the world by Bankers
Almanac, London. The bank's total assets for financial year 2007 were about US$60 billion.
PNB has a banking subsidiary in the UK, as well as branches in Hong Kong and Kabul, and
representative offices in Almaty, Shanghai, and Dubai
History
1895: PNB commenced its operations in Lahore. PNB has the distinction of being the first
Indian bank to have been started solely with Indian capital that has survived to the present.
(The first entirely Indian bank, the Oudh Commercial Bank, was established in 1881 in
Faizabad, but failed in 1958.) PNB's founders included several leaders of the Swadeshi
movement such as Dyal Singh Majithia and Lala HarKishen Lal, Lala Lalchand, Shri Kali
Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan
Dass. Lala Lajpat Rai was actively associated with the management of the Bank in its early
years.

1904: PNB established branches in Karachi and Peshawar.

1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi circle.

1947: Partition of India and Pakistan at Independence. PNB lost its premises in Lahore, but
continued to operate in Pakistan.

1951: PNB acquired the 39 branches of Bharat Bank (est. 1942), Bharat Bank became Bharat
Nidhi Ltd.

1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue.

1961: PNB acquired Universal Bank of India.

1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon).

September 1965: After the Indo-Pak war the government of Pakistan seized all the offices in
Pakistan of Indian banks, including PNB's headoffice, which may have moved to Karachi.
PNB also had one or more branches in East Pakistan (Bangladesh).
1969: The Government of India (GOI) nationalized PNB and 13 other major commercial
banks, on July 19, 1969.
1976 or 1978: PNB opened a branch in London.
1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980.

1998: PNB set up a representative office in Almaty, Kazakhstan.

2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. Rao Bahadur
T.M. Appu Nedungadi, author of Kundalatha, one of the earliest novels in Malayalam, had
established the bank in 1899. It was incorporated in 1913, and in 1965 had acquired selected
assets and deposits of the Coimbatore National Bank. At the time of the merger with PNB,
Nedungadi Bank's shares had zero value, with the result that its shareholders received no
payment for their shares. PNB also opened a representative office in London.

2004: PNB established a branch in Kabul, Afghanistan. PNB also opened a representative
office in Shanghai. PNB established an alliance with Everest Bank in Nepal that permits
migrants to transfer funds easily between India and Everest Bank's 12 branches in Nepal.

2005: PNB opened a representative office in Dubai.

2007: PNB established PNBIL - Punjab National Bank (International) - in the UK, with two
offices, one in London, and one in South Hall, Middlesex. Since then it has opened a third
branch in Leicester, and is planning a fourth in Birmingham.

2008: PNB opened a branch in Hong Kong.

Chairmen of Punjab National Bank :
1895-1898 Sardar Dyal Singh Majithia
1898-1905 Rai Bahadur Lala Lal Chand
1905-1910 Bhagat Ishwar Dass
1911-1912 Rai Bahadur Lala Lal Chand
1912-1913 Rai Bhadur Lala Sukddyal
1913-1915 Bhagat Ishwar Dass
1917-1920 Dr. Hira Lal Bhatia
1920-1931 Lala Dhanpat Rai
1931-1937 Dr. Maharaj Krishana Kapoor
1938-1942 Rai Bahadur Diwan Badri Dass
1943-1953 Lala Yodh Raj
1953-1954 Shriyansh Parshad Jain
1954-1959 Seth Shanti Parkash Jain
1960-1964 Ram Nath Goenka
1964-1967 Kamal Nayan Bajaj
1968-1972 Somesh Chander Trikha
1972-1975 Parkash Lal Tandon
1975-1977 Tirath Ram Tuli
1977-1980 Om Parkash Gupta
1980-1981 Syam Lal Chopra
1981-1985 Sudarshan Lal Baluja
1985-1990 Jagdish Sharan Varshney
1990-2000 Rashid Jilani
2000-2005 Surinder Singh Kohli
2005-2007 Satwant Chand Gupta
2007- 2009 Dr. K.C. Chakrabarty
2009- K. R. Kamath
Acquisitions by PNB
1939: PNB acquired Bhagwandas Bank
1951: PNB acquired the 39 branches of Bharat Bank.
1961: PNB acquired Universal Bank of India
1960s: PNB amalgamated Indo Commercial Bank
1986: PNB acquired Hindustan Commercial Bank
1993: PNB acquired New Bank of India
2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala

PERFORMANCE DURING THE LAST 5 YEARS

The Bank’s performance in the last 5 years has been impressive in all major
parameters with business doubling to reach Rs. 286000 crore in 2007-08. The
Bank’s average growth in major parameters and achievement in the last 5
years is given below:
PARAMETERS Mar, 04 Mar, 05 Mar, 06 Mar, 07 Mar, 08 Dec, 08
Total Deposit 87916 103167 119685 139860 166457 197069
Total Advances 47224 60413 74627 96597 119502 141659
Operating Profit 3121 2404 2917 3617 4006 4156
Net Profit 1109 1410 1439 1540 2049 2225
Interest Income 7780 8460 9337 11236 14265 14083
Non - Interest Income 1867 1676 1521 1730 1998 2064
Gross NPA 4670 3741 3138 3391 3319 3264
Net NPA 449 119 210 726 754 552
Gross NPA (%) 9.35 5.96 4.10 3.45 2.74 2.28
Net NPA (%) 0.98 0.20 0.29 0.76 0.64 0.39
Cost of Deposits (%) 5.01 4.43 4.32 4.53 5.59 6.26
Yield of Advances (%) 9.08 8.10 8.31 9.17 10.36 11.51
Business Per employee 2.28 2.77 3.31 4.07 5.05 6.06

Profit Per Employee (in lac) 1.88 2.42 2.48 2.68 3.66 5.38

Return on Assets (%) 0.92 1.17 1.09 1.03 1.15 1.37

Recent Initiatives Taken by the Bank in brief

 The Bank in the recent past has moved away from a hybrid 4 tier to a 3 tier structure with a
nomenclature of Circle Offices for the intermediate tier. The objective was to have a cost
effective delayered structure to expedite decision making at all levels.

Having taken aggressive IT initiatives, 100% CBS enabled Bank to centralize many activities
thereby increasing the efficiency and productivity across the Bank. The activities are being
centralized to transform the branches as points of sales for customer acquisitions, customer
retention and better customer service.

Bank proposes to set up one lac touch point to realize the target of 15 crore customers and 10 lac
crore business figures by extensive deployment of technology. We expect to increase our branch
network to 5000, Number of ATMs to 8000. The bank will engage 12,000 Business
correspondents for existing branches; four such BCs will be attached to one branch (25000 touch
points). Bank will set up 15,000 kiosks in branchless location with CBS and internet facility each
kiosk will have four business correspondent attached to it (75,000 touch points).

To further improve the customer service alternate delivery channels like ATMs and Internet
banking are promoted and are enabled for Transfer of funds, bill payments, ticket booking, tax
payment and donations to charitable organizations. E-bays have been set up for faster customer
service.

The Bank has been giving greater thrust towards Financial Inclusion, SME Business and
Agriculture lending. The Bank has achieved 100% Financial Inclusion in 11,043 villages. The
Bank is gearing up for Metro/Urban Financial Inclusion in a big way and is committed to cover
unbanked rural & urban areas under its commitment to Financial Inclusion, both at geographical
and functional levels. Rajasthan Govt. Financial Inclusion project has brought in more than 25
lakhs customers in our fold. Several other Special Schemes have been launched for BPL
Customers including a Micro Finance Branch in Mukundpur, Delhi; 9 Financial Literacy &
Education Counselling Centres in Punjab & Haryana; Scheme for Rickshaw Pullers launched at
Varanasi, Allahabad, Lucknow & Patna; Common Service Centre at Village Panapur Bihar. For
Agriculture Sector we have introduced PNB Krishak Saathi Scheme, increased limit of loans
without collateral to 1 lakh and introduced several other facilities to promote rural development.

New products have been launched like MIBOR linked deposit schemes, Depository services,
Gold Coin business; CMS, Score Based Lending Schemes, Centralization of backend activities
etc.
For faster processing of retail loans, separate Retail Processing Hubs have been set-up
at centralized locations. Facility of submission of online application for Car,
Education, Personal & Pension Loans is provided.

Towards the objective of having a larger international presence, a subsidiary at UK

has been made operational. A new branch of PNB – IL has been made functional in
Leicester, besides the existing two branches. The Bank also has a branch at Kabul; an
Off-Shore Banking Unit at Mumbai; a new branch at Hongkong and Representative
Offices at Dubai, Kazakhstan, Shanghai & Norway. The Bank has joint venture in
Nepal with Everest Bank Limited. We are having arrangements with various
exchange houses abroad. The technology solutions for all the overseas operations of
the bank are provided from India, thereby ensuring cost effective services to the
overseas clients.

The Bank has launched two variants of Consumer credit card i.e. Gold and Classic.
For customer convenience, host of features like photo card, SMS alerts and interface
with PNB’s Internet Banking are being offered. The credit card will be globally
accepted. This card will be accepted at over 3.5 Lac merchant establishments and
30,000 ATMs in India as well as at over 29 million merchants establishments and
over 1 million ATMs throughout the world who are linked to Visa Payment system.
For faster processing of retail loans, separate Retail Processing Hubs have been set-up
at centralized locations. Facility of submission of online application for Car,
Education, Personal & Pension Loans is provided.

Towards the objective of having a larger international presence, a subsidiary at UK

has been made operational. A new branch of PNB – IL has been made functional in
Leicester, besides the existing two branches. The Bank also has a branch at Kabul; an
Off-Shore Banking Unit at Mumbai; a new branch at Hongkong and Representative
Offices at Dubai, Kazakhstan, Shanghai & Norway. The Bank has joint venture in
Nepal with Everest Bank Limited. We are having arrangements with various
exchange houses abroad. The technology solutions for all the overseas operations of
the bank are provided from India, thereby ensuring cost effective services to the
overseas clients.

The Bank has launched two variants of Consumer credit card i.e. Gold and Classic.
For customer convenience, host of features like photo card, SMS alerts and interface
with PNB’s Internet Banking are being offered. The credit card will be globally
accepted. This card will be accepted at over 3.5 Lac merchant establishments and
30,000 ATMs in India as well as at over 29 million merchants establishments and
over 1 million ATMs throughout the world who are linked to Visa Payment system.
 SWOT ANALYSIS OF THE BANK
Strength Weaknesses

• Fundamentally sound bank � P redominant presence in less

developed areas leading to high
operating cost
• 3.7 crore strong customer base

�Complacency (Structural &

• Well-entrenched Brand Image Environmental)

• Dominant position in Indo-Gangetic Plain –No �Weak & Inconsistent MIS

competition rendering decision making difficult

• A leader amongst Public Sector Banks �Limited International presence.

Low NRI business

• High proportion of customer base in deposits

�More dependence on
conventional low margin business
• Strong Risk Management Practices

�No Income from Financial

• Redefined processes through technology initiatives like Products such as Insurance, Mutual
CBS, ATM, Internet Banking Fund, Credit Card etc.

• 100% CBS branches �“State” Ownership has affected

level playing field and competitive
ability
• High tech platform incorporating EDW, CRM etc.

�Less flexibility in dealing with

• Large network of branches with 66% in Rural & Semi- strategic HR & operational issues
urban areas
�Imbalance in distribution/
deployment of staff

�Inadequate skills for modern

banking

�Changing environment, adoption

of technological advancement,
marketing of products requires
change in the mind-set of
employees

�Low per employee productivity

 Threats
�Aggressive marketing by competitor banks
�Expansion of peer Banks/Private Sector Banks in Indo-
Gangetic belt eroding our dominance
�Loss of savings business to Mutual Fund/ Insurance
Products which are aggressively marketed as being more
remunerative
�Technological parity of competitor banks
�Aggressive strategy and innovative products, larger risk
appetite of other banks
Threats have since been converted into Opportunities.
Opportunities
�Rural India is the next growth horizon
with an opportunity 3 times the size of
Urban India
�Financial Inclusion is a clear-cut
opportunity with overall exposure to
formal services of finance being about
20%
�Great opportunity for expanding
business with over 60% population
outside the banking service net
�IT Initiative creating a back bone for
increasing reach. It provides an
opportunity to go beyond the Brick &
Mortar
�Bank has a visionary leadership
which can transform the bank
�Large workforce of 55398 number of
employees. Each and every employee
has to believe we can do it, usher in
change in our attitudes/conventional
wisdom, be a learner willing to adapt to
the changing
 PNB VISION 2013

a) QUANTITATIVE DIMENSIONS

• Deposits to increase from Rs.166457 Crore in March 2008 to Rs.582000 Crore in

March 2013, at an average growth of 32%.

• Advances to increase from Rs.119502 Crore in March 2008 to Rs.418000 Crore in

March 2013, at an average growth of 28%.

• Total business to increase from Rs.285959 Crore in March 2008 to Rs.1000000 Crore
in March 2013, at an average growth of 28%.

• Operating Profit to increase from Rs.4006 Crore in March 2008 to Rs.15000 Crore in
March 2013 with a CAGR of 30.2%.

• Net Profit to increase from Rs.2049 Crore in March 2008 to Rs.7500 Crore in March
2013, at an average growth of 30%.

• The Return on Assets [RoA] to increase from 1.15% in March 2008 to 1.30% in March
2013 [This ratio is comparable to the RoA of the Peer Banks and is also better than
all bank’s ratio of 1% as on March 08].
• The Return on Equity [RoE] to increase from 19% in March 2008 to 21% in March
2013.

• Customer base to increase from 3.7 Crore in March 2008 to 15 Crore in March 2013.

• Number of touch points to be 100000 by March 2013.

• To have a rural coverage of 100000 villages in the Indo-Gangetic Plains by March

2013.
 ASPIRATIONS - QUANTITATIVE DIMENSIONS
[Amt in Crore]
Particulars Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13
Total Business 285959 360000 458500 604100 782500 1,000,000

Deposits 166457 210000 262000 351500 457000 582000

Advances 119502 150000 196500 252600 325500 418000
Operating Profit 4006 5650 6750 8700 10900 15000

Net Profit 2049 2650 3450 4500 5800 7500

RoA 1.15 1.18 1.23 1.25 1.27 1.30
RoE 19.00 19.17 19.91 20.16 20.62 21.00
Number of 3.7 5 6 9 11 15
Customers [ In Crore
]
Rural Coverage - 55000 70000 75000 85000 100000

Touch Points - 12000 22000 40000 75000 100000

QUALITATIVE DIMENSIONS

� A leader and front runner amongst nationalized banks

�In Financial Inclusion

�In all domestic operations

�In adopting best risk management practices

�In adopting global best practices in Corporate Governance & Corporate Social
Responsibility

�In HR policies to raise skills, morale and productivity

 �To be Global Bank

�Among the top 3 Indian banks with global presence in Middle East, South East
Asia, China, UK, Australia, Canada, etc.

�Bring best global practices to effectively compete with global players in India.

�Become a Universal Bank

�To be the most profitable bank amongst nationalized banks by

focusing on:

�Fee based income/off-balance sheet exposures

�Mid Cap segment, Retail lending, SME Advances & Agriculture

�Reduction in Gross NPAs

�Expenditure Control

�Low cost deposits

�Ensuring higher spreads (return on advances minus cost of deposits/funds)

�Capitalize on IT initiatives
�Provide more value added services

�Expand reach of ATMs

�Back Office Centralization of all CBS branches

�Promote internet banking

�Provide IT advisory services to other banks

�Explore options of in-organic growth

�Merger of Private/Public Sector Banks

�Enlargement of customer base and retention of existing

customers.

�Ensure smooth transition to adopting Basel II norms ahead of

schedule.

�Develop robust Management Information System for better

decision making & policy prescription.

�Further entrench brand image of the Bank.

Chapter-4

RATIO ANALYSIS IN P.N.B

Financial analysis enables us to understand and assess the financial

position of a business organization. Ratio analysis is one of the most important
techniques used for effective financial analysis. A Ratio is used as a yard stick for
evaluating the financial performance.

According to Webster “a ratio shows the relationship between two or more

things.” The relationship between two accounting figures, expressed
mathematically is known as “financial ratio.” A ratio is used as an index or
yardstick for evaluating financial position and performance of an enterprise.

The following types of ratios are used

Liquidity Ratios

Leverage Ratios

Activity Ratios

Profitability Ratios
 I. LIQUIDITY RATIOS

A class of financial metrics that is used to determine a company’s ability

to pay off its shirt-terms debts obligations. Generally, the higher the value of the
ratio, the larger the margin of safety that he company possesses to cover short-
term debts.

Common liquidity ratios include the current ratio, the quick ratio and
operating cash flow ratio. Different analysts will calculate only the sum of the
cash and equivalents divided by current liabilities because they feel that they are
the most liquid assets, and would be the most likely to be used to cover short-
term debts is of utmost importance when creditors are seeking payment.
Bankruptcy analysts and mortgage originators frequently use the liquidity ratios
to determine whether the company will be able to continue as going concern.

(a) CURRENT RATIO

A liquidity ratio that measures a company’s ability to pay short-term obligations.

The current ratio formula is:

1.Current Ratio=current assets /current liabilities

The ratio is mainly used to give an idea of the company’s ability to pay
back its short-term liabilities (debt and payables) with its short-term assets
(cash, inventory, receivables). The higher the current ratio, the more capable the
company is paying its obligations. A ratio under 1 suggests that the company
would be unable to pay off its obligations if they came due at that point. While
this shows the company is not in good financial health, it does not necessarily
mean that it will go bankrupt as there are many ways to access financing – but it
is definitely not a good sign. The current ratio can give a sense of the efficiency
of a company’s operating cycle or its ability to turn its product into cash.
Companies that have trouble getting paid on their receivables or have long
inventory turnover can run into liquidity problems because they are unable to
alleviate their obligations.

Year Current Assets Current Liabilities Ratios

(Rs. In crores) (Rs. In croress)

2006 135891.03 122060.77 1.11

2007 151987.04 138038.43 1.0

2008 186702.02 166162.1 1.12

2009 232265.99 213077.8 1.09

2010 278909.9 249610.6 1.117

Interpretation:

The current ratio for the last five years is almost exceeds 1.1 except 2009.

That means the company is in a better position to pay its current liabilities which
are

going to mature with in one year.

(b) QUICK RATIO

It is a measure of judging ability of the company

to payoff its current obligations. It is obtained by dividing quick liabilities. Quick
ratio is 1:1 is usually considered adequate, but again while using this ratio as a
means of immediate ability to pay off its short-term obligations, liquidity of
receivable which are not collectable, are not adequate to support the liquidity of
the concern.

2.Quick Ratio=Quick assets/ Current liabilities

 Year Quick Assets Current Liabilities Ratios

(Rs. In cr) (Rs. In cr)

2006 135891.03 122060.77 1.11

2007 151987.04 138038.43 1.0

2008 186702.02 166162.1 1.12

2009 232265.99 213077.8 1.09

2010 278909.9 249610.6 1.117

Interpretation:
Generally for Quick Ratio 1:1 is taken to be ideal.

In the above calculations for the years 2004-05 and 2005-06 the quick
ratio is less than 1. That is the current liabilities exceed the quick assets.

And for the last three years the quick ratio exceeds 1. That means the
company is concentrating in increasing its quick assets.

3.Solvency ratio

Solvency ratio=Total liabilities

Total assets

year Total liabilities Total assets Ratios

2006 145267.39 145267.40 0.9

2007 162267.50 162428.49 1.006

2008 199020.37 199020.36 1

2009 246918.62 246918.62 1

2010 296632.78 296632.79 1

Interpretation:

Generally the best solvency ratio to any firm is 1:1 .in the year 2006 the ratio is
less than 1, after that the bank’s solvency ratio is exceeds & equal to 1 by this
we can say that the bank is having a good solvency ratio and performing well.

4.Gross profit ratio

Gross profit ratio=gross profit/net sales

year Gross profit (cr) Net sales(cr) ratio

2006 7173.46 21466.91 0.33
2007 5744.35 19326.16 0.29
2008 4006.24 14265.02 0.28
2009 3230.64 11537.48 0.28
2010 2874.77 9584.15 0.29
 Interpretation: This gross profit reveals the operating efficiency of
the company. Gross profit ratio may be indicated to what extent the selling
prices of goods per unit may be reduced without incurring losses on operations.
It reflects efficiency with which a firm produces its products. As the gross profit is
found by deducting cost of goods sold from net sales, higher the gross profit
better it is. There is no standard GP ratio for evaluation. It may vary from
business to business The gross profit ratio for the year 2006 is 0.33 and for 2007
is 0.29 This reveals thattheoperatingefficiency in this year is decreased than the
previous year. From this year it was decreased until the year 2010. That means
the bank is in a better position.

5.Return on share holder’s investment:

Return on share holder’s investment=net profit/shareholder’s funds

year Net profit(cr) Share holders Ratio

funds(cr)
2006 1439.3 9389.28 0.15
2007 1540.08 10456.91 0.14
2008 2048.76 11097.95 0.18
2009 3090.88 13455.19 0.22
2010 3095.35 16546.23 0.18
Interpretation:
The bank’s performance in share market is very good and year by year the
investors are getting a appreciable returns on their investment except the year
2007. This means the bank is in a very good position.

6.Ratio of reserves to equity capital:

Ratio of reserves to equity capital=reserves/equity share capital

Year Reserves (cr) Equity share Ratio

capital (cr)
2006 8758.68 315.30 27.77
2007 9826.31 315.30 31.16
2008 10467.35 315.30 33.19
2009 12824.519 315.30 40.07
2010 15915.63 315.30 50.47
Interpretation:
The ratio of reserves to equity capital is increasing in a constant growth rate by
the growth from the reserves to equity capital we can say that the bank is
performing very well.

7.Total debts to assets ratio

Total debts to assets ratio=total liabilities/ total assets

year Total liabilities Total assets ratio

2006 145267.39 145267.40 0.99
2007 162422.50 1624222.50 1
2008 199020.37 199020.36 1.005
2009 246918.62 246918.62 1
2010 296632.78 296632.79 1
Interpretation

Provides information about the company's ability to absorb asset

reductions arising from losses without jeopardizing the interest of
creditors.

In the year 2006 the ratio is just below 1.

In the next years it is 1 and just exceeding 1.

8.Net profit ratio

Net profit ratio= net profit/net sales *100

Year Net profit(cr) Net sales (cr) Ratios

2006 1439.31 21466.91 6.7
2007 1540.08 19326.16 7.9
2008 2048.76 14265.02 14.3
2009 3613.23 11537.48 31.3
2010 3095.88 9584.15 32.3
Interpretation:

NP ratio is used to measure the overall profitability and hence it is very useful to proprietors.
The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to
achieve a satisfactory return on its investment.

This ratio also indicates the firm's capacity to face adverse economic conditions such as price
competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But
while interpreting the ratio it should be kept in mind that the performance of profits also be
seen in relation to investments or capital of the firm and not only in relation to sales

9.Epense Ratio
Expense ratio=expense/net sales *100

year Total expense Net sales ratio

2006 9623.07 21466.91 44.82

2007 11341.04 19326.16 58.68

2008 14213.80 14265.02 62.33

2009 19154.96 11537.48 78.98

2010 21126.81 9584.15 84.76

INTERPRETATION

The ratio can be calculated for individual items of expense or a group of items of a particular
type of expense like cost of sales ratio, administrative expense ratio, selling expense ratio,
materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability and
higher the operating ratio, lower is the profitability.

While interpreting expense ratio, it must be remembered that for a fixed expense like rent,
the ratio will fall if the sales increase and for a variable expense, the ratio in proportion to
sales shall remain nearly the same

10. OPERATING PROFIT TO SALES RATIO

This ratio indicates the relationship between operating profit and sales. It
is worked out by dividing the operating profit by net sales. This enables to
judge the material efficiency which may not be declared in net profit ratio.

Year Operating Net Net Sales Ratios

profit

2006 1980.91 21466.91 10.84

2007 1575.08 19326.16 24.41

2008 857.50 14265.02 16.50

 2009 559.79 1153.48 9.42

2010 464.54 9584.15 7.60

INTERPRETATION

The operating profit to sales ratio of P.N.B for the year 2006 is
10.84. It was increased to 24.41 for the next year 2007. This means the
company possessed high operating efficiency in this year. After that it was
decreased until the year 2010. That is the company is concentrating on
minimizing its costs.

11. WORKING CAPITAL TURNOVER RATIO

This ratio shows the number of timers capital is turned over in a stated period. It is
calculated as follows. The higher is the ratio is lower is the investment in working capital and
greater are the profits.
Working capital turnover ratio=sales/net working capital

Year Sales Net working Ratios

capital

2006 5752.69 313.80 18.33

2007 6453.21 1494.74 4.32

2008 5196.79 1835.80 2.83

2009 5935.72 2060.79 2.88

2010 6110.11 2400.98 2.54

Interpretation:

In the year 2006, the working capital results 18.33 times in the sales. After that it was
decreased for the next two years continuously. Then after that it was increased to 2.88 times
in the sales for that year. Again it was increased in the year 2010. That means the company is
concentrating on decreasing cost of production

FIXED ASSETS TURNOVER RATIO

This ratio expresses the number of times fixed assets are being over in a
given period and how well the fixed assets are being used in the business.
Fixed assets turnover ratio= sales/ Net fixed assets

Year Sales Net Fixed Ratios

Assets

2006 5752.69 263.64 21.82

2007 6453.21 262.04 24.62

2008 5196.79 264.19 19.67

2009 5935.72 288.24 20.59

2010 6110.11 324.63 18.82

Interpretation:

The fixed assets turnover ratio of P.N.B for the year 2006 was 21.82 and it was for 2007was
18.82. There is highest fixed asset turnover ratio for the year 2007. For this year the cost of
production is higher than the remaining years because fixed assets. And for the last year the
company utilized high amount of fixed assets. That is the company is maintaining high rate of
production with lower rate of cost of production at presently.

Chapter-5

SUMMARY AND SUGGESTIONS

INTRODUCTION:

The road map to success has changed the environment in which

many organization operate “quality” is the priority, which guides the
organization cut throat competition has initiated efforts to satisfy
customers both internal and external at PUNJAB NATIONAL BANK an
attempt was made to integrate this thoughts in performance in finance.
  A ratio must measure a material factor of the business. The costs of
obtaining information should be born in mind. It is observed that
process of producing ratio is primarily concerned with the
identification of significant accounting data relationships which
gives the decision maker into the bank that is assessed.

Basing on the conclusion upon a through understanding of the

importance of each ratio, the analyst can recommend and indicate
positive action.

The primary data:

Primary data collection with the help of the, employees, managers

of Punjab national bank, information with personal interviews with
managers and leaders give me needful information, they gave the
information in personal way.

Secondary data:

Secondary data collected both from the published and unpolished

records for the bank. In addition to these standard books a management
of industrial relations and journals were used to prepare the data, and
some of the important data has collected by browsing the internet and the
web sites Google,accountingformanagement.com, etc.

Findings
 The Bank in the recent past has moved away from a hybrid 4 tier to a 3 tier structure
with a nomenclature of Circle Offices for the intermediate tier. The objective was to
have a cost effective delayer structure to expedite decision making at all levels.

 Having taken aggressive IT initiatives, 100% CBS enabled Bank to centralize many
activities thereby increasing the efficiency and productivity across the Bank. The
activities are being centralized to transform the branches as points of sales for
customer acquisitions, customer retention and better customer service

 Bank proposes to set up one lac touch point to realize the target of 15 crore customers
and 10 lac crore business figures by extensive deployment of technology. We expect
to increase our branch network to 5000, Number of ATMs to 8000. The bank will
engage 12,000 Business correspondents for existing branches; four such BCs will be
attached to one branch (25000 touch points). Bank will set up 15,000 kiosks in
branchless location with CBS and internet facility each kiosk will have four business
correspondent attached to it (75,000 touch points).

 To further improve the customer service alternate delivery channels like ATMs and
Internet banking are promoted and are enabled for Transfer of funds, bill payments,
ticket booking, tax payment and donations to charitable organizations. E-bays have
been set up for faster customer service.

 The Bank has been giving greater thrust towards Financial Inclusion, SME Business
and Agriculture lending. The Bank has achieved 100% Financial Inclusion in 11,043
villages. The Bank is gearing up for Metro/Urban Financial Inclusion in a big way
and is committed to cover unbanked rural & urban areas under its commitment to
Financial Inclusion, both at geographical and functional levels. Rajasthan Govt.
Financial Inclusion project has brought in more than 25 lakhs customers in our fold.
Several other Special Schemes have been launched for BPL Customers including a
Micro Finance Branch in Mukundpur, Delhi; 9 Financial Literacy & Education
Counselling Centres in Punjab & Haryana; Scheme for Rickshaw Pullers launched at
Varanasi, Allahabad, Lucknow & Patna; Common Service Centre at Village Panapur
 Bihar. For Agriculture Sector we have introduced PNB Krishak Saathi Scheme,
increased limit of loans without collateral to 1 lakh and introduced several other
facilities to promote rural development.

 Towards the objective of having a larger international presence, a subsidiary at UK

has been made operational. A new branch of PNB – IL has been made functional in
Leicester, besides the existing two branches. The Bank also has a branch at Kabul; an
Off-Shore Banking Unit at Mumbai; a new branch at Hongkong and Representative
Offices at Dubai, Kazakhstan, Shanghai & Norway. The Bank has joint venture in
Nepal with Everest Bank Limited. We are having arrangements with various
exchange houses abroad. The technology solutions for all the overseas operations of
the bank are provided from India, thereby ensuring cost effective services to the
overseas clients.

 The Bank has launched two variants of Consumer credit card i.e. Gold and Classic.
For customer convenience, host of features like photo card, SMS alerts and interface
with PNB’s Internet Banking are being offered. The credit card will be globally
accepted. This card will be accepted at over 3.5 Lac merchant establishments and
30,000 ATMs in India as well as at over 29 million merchants establishments and
over 1 million ATMs throughout the world who are linked to Visa Payment system

 CASA Deposits as percentage to the Total Deposits of the Bank is higher at 40.85%

 (YoY growth of 25.0%)

 Net Interest Income grew by 24.8%, while NIM improved to 3.57%

 •Capital Adequacy Ratio (Basel II) is comfortable at 14.16%

 • Earnings per Share increased to Rs. 123.86

 • Backed by the profit of the Bank, the Board of Directors proposed a final Dividend
of 120%, in addition to 100% interim dividend already paid

 Total Business of the Bank crossed the landmark of Rs 4 lakh crore to reachRs
435,931 crore as against Rs. 3,64,463 crore in March 2009, showing a y‐o‐y growth
of 19.6%.

 Deposits of the Bank rose to Rs. 2,49,330croreason31.03.2010fromRs2,09,760

crore as on 31.03.2009, exhibiting a y‐o‐y growth of 18.9%.
o CASA share improved to 40.85% in FY 10 from 38.83% a year ago.
• Advances of the Bank at Rs. 1,86,601 crore as on 31.03.2010 grew by 20.6% (YoY)
as
against Rs.1,54,703 crore as on 31.03.2009.
 Credit Deposit Ratio improved to 74.84% as at March’10 from 73.75% in
March’09.

 Gross NPA to Gross Advances ratio stood at 1.71% as at March’10.

 Bank has recognized Rs 338 crore as NPAs on account of Agricultural

Advances eligible for debt relief due to non‐payment of their share amount
by the farmers by 31.03.2010, though the Govt has extended the scheme till
June 2010. Excluding this amount, gross NPA ratio improves to 1.53%.

 Net NPA to Net Advances ratio stood at 0.53 % as at March’10.

 Excluding agricultural advances eligible for debt relief, net NPA ratio
improves to 0.35%.
 Provision Coverage Ratio is at 81.17% compared to RBI’s stipulation of 70%.
  Excluding amount provided for debt waiver, the ratio is higher at 86.80%.

 Net Interest Margin (NIM) has improved to 3.99% for the quarter 31.03.2010
from 3.33% in corresponding quarter of last year.
 NIM rose to 3.57% for FY ended March 2010 from 3.52% in FY ended
March’09.

 Return on Assets improved to 1.58% in the quarter ended March 2010 as

against1.44% last year (FY 10 : 1.44% against 1.39% last year).
 Low interest/operating expenses and a satisfactory non‐interest income growth
ledto substantial reduction in Cost to Income Ratio of 32.05% for the quarter
ended.

 March 2010 as against 43.29% last year (FY 10 : 39.39% against 42.50% last
year).

BIBLIOGRAPHY

Financial management -I.M Pandy

-Prasanna Chandra

Management Accounting -Sharma & Sai K. Gupta

Financial management -P.N Reddy

-Rastthogo

Daily’s & Weekly’s -Deccan Chronicle, The Hindu,

Indian Express, Readers Digest India Today,
Business Line & Google Search