AMARE DAME

59 Pages·2015·0.21 MB·English

ST. MARY’S UNIVERSITY
BUSINESS FACULTY
DEPARTMENT OF ACCOUNTING

MEASUREMENT OF FINANCIAL PERFORMANCE
USING FINANCIAL RATIOS
IN THE CASE OF NIB INTERNATIONAL BANK S.C.

BY:
AMARE DAME
HANA EFA
TESFAYESSUS ABREDO

SMU
JUNE,2014
ADDIS ABABA
MEASUREMENT OF FINANCIAL PERFORMANCE
USING FINANCIAL RATIOS
IN THE CASE OF NIB INTERNATIONAL BANK S.C.

A SENIOR ESSAY SUBMITTED
TO THE DEPARMENT OF ACCOUNTING
BUSINESS FACULTY
ST. MARY’S UNIVERSITY
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
OF THE DEGREE OF BACHELOR OF ARTS IN
ACCOUNTING

BY:
AMARE DAME
HANA EFA
TESFAYESSUS ABREDO
SMU
JUNE, 2014
ADDIS ABABA
ST. MARY’S UNIVERSITY
MEASUREMENT OF FINANCIAL PERFORMANCE
USING FINANCIAL RATIOS
IN CASE OF NIB INTERNATIONAL BANK S.C.
BY:
AMARE DAME
HANA EFA
TESFAYESSUS ABREDO
FACULTY OF BUSINESS
DEPARTMENT OF ACCOUNTING

APPROVED BY THE COMMITTEE OF EXAMINERS
_______________________ __________________________
Department Head Signature
_______________________ __________________________
Advisor Signature
_______________________ __________________________
Internal Examiner Signature
_______________________ __________________________
External Examiner Signature
ACKNOWLEDGEMENTS

First of all we would like to thank the non-tiresome contributions impacted by our advisor
AtoMuezGebreselassiefor the generous and in stretchable assistance which enhanced us to prepare this
research paper in more efficient manner.
We also wish to express our appreciation to managers and employees of NIB International Bank S.C
who gave us all the necessary data and relevant source documents, more especially for Ato Lemma
H/Michael and AtoSelam. With the same gesture of admiration we would like to strike all the
individuals who cemented their grateful contribution, financially and psychologically, for this research
paper to be in a point of achievement.

i
TABLE OF CONTENTS

CHAPTER ONEPAGE
1. Introduction………………………………………………………………………………..1
1.1. Background of the Study……………………………………………………………...1
1.2. Statement of the problem………………………………………………………….......2
1.3. Research Questions……………………………………………………………………3
1.4. Objective of the Study…………………………………………………………………4
1.5. Significance of the Study………………………………………………………………4
1.6. Scopeof the Study……………………………………………......................................5
1.7. Research design and methodology……………………………………………………..5
1.7.1. Research Design…………………………………………………………….5
1.7.2.Sources of Data………………………………………………………………5
1.7.3. Methods of Data Collection………………………………………………….5
1.7.4.Population and Sampling Technique………………………………………...6
1.8. Limitation of the study………………………………………………………………….6
1.9. Organization of Study…………………………………………………………………..7
CHAPTER TWO
II. Review of Related Literature…………………………………………………………………..8
2.1. An overview of financial management………………………………………………………8
2.2. Financial statement analysis…………………………………………………………………9
2.3. Nature of ratio analysis………………………………………………………………………9
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2.4. The purpose of ratio analysis………………………………………………………………..10
2.5. Major standards of comparison……………………………………………………………...11
2.6. Types of ratio………………………………………………………………………………...11
2.6.1. Liquidity ratio………………………………………………………………………......11
2.6.2. Activity ratio……………………………………………………………………………12
2.6.3. Profitability ratio………………………………………………………………………..13
2.6.4. Leverage ratio……………………………………………….………………………….14

CHAPTER THREE
III. Data Analysis and Interpretation of the Study……………………………………….……16
3.1. Characteristics of the Study Population…………………………………….….…….16
3.2. Analysis of the Findings of the Study…………………………………………….…………..22
CHAPTER FOUR
iv. Summary, Conclusions and Recommendations………………………………………….........37
4.1.Summary………………………………………………..…………………………..……37
4.2. Conclusions………………………………………………………………………………39
4.3.Recommendations…………………………………………………………………………41

Bibliography
Appendixes

iii
LIST OF TABLES
Title page

Table 1. Sample Size………………………………………………………………………………..6
Table 2. Demography Table………………………………………………………………………..16
Table 3. Table of Financial Performance…………………………………………………………..18
Table 4. Summarized Balance Sheetduring 2008/09 – 2012/13…………………………………...23
Table 5. Summarized Profit and Loss Accountduring 2008/09 – 2012/13…………………………25
Table 6. Analysis of Current Ratio during 2008/09 – 2012/13…………………………………..….27
Table 7. Analysis of Current Asset Turnover during 2008/09- 2012/13……………………….........28
Table 8. Analysis of Fixed Asset Turnover during 2008/09-2012/13……………………………….29
Table 9. Analysis of Total Asset Turnover during 2008/09-2012/13……………………….………30
Table 10. Analysis of Debt Ratio during2008/09 – 2012/13……...……………………………….31
Table 11. Analysis of Debt Equity ratioduring 2008/09 – 2012/13…………………………………32
Table 12. Profit Margin Ratioduring 2008/09 – 2012/13 ……………………………………………33
Table 13 Return on Investment during 2008/09 – 2012/13…………………………………………..34
Table 14. Return on Equityduring 2008/09 – 2012/13……………………………………………….35
Table 15. Basic Earning Power Ratioduring 2008/09 – 2012/13…..………………………………..36

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ACRONYMS

BEP-Basic earning power
EBIT-Earning before interest and tax
NCA- Net current asset
NFA-Net fixed asset
NW-Net worth
ROA-Return on asset
ROE- Return on equity
FR- Financial ratio

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ABSTRACT

This study is conducted on NIB International Bank S.C. The purpose of this study is to analyze the
financial statement of the bank. To assess the strength and weakness of the bank’s financial
performance and come up with alternative solutions.

In most firms, whether manufacturing, merchandising or service rendering, there is the absence of
organized information showing the trend performance and position of each bank in the industry they
are computing. This problem leads creditor, investor and other with no information about the financial
condition of the bank.

To conduct this study, primary and secondary data are collected from the interview, questionnaire and
financial report of the bank. To analyze these data financial ratio analysis and trend analysis are used.
Finally, depending on discussions and analysis conclusions & recommendations are made.

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CHAPTER ONE
1. INTRODUCTION

1.1. BACKGROUND OF STUDY
Financial performance is primarily related with analysis of financial statement to get or obtain better
understanding of the firm’s position and performance. Financial ratios are highly used and applied for
the case of analyzing accounts for both internal & external purposes of a given firm. Financial ratios
assists a given firm to summarize large quantities of financial data and qualitative evaluations,
judgments & enquiries about its overall performance. [www.slideshare.net/wilbertfrank. (2010)]

The researchers preferred this scope of topic, the topic of financial performance using financial ratio, in
a case of exposing, disclosing and exploiting the absence of organized information showing the trend
performance, efficiency & position of NIB International Bank. These problems, hindrances & obstacles
forces creditors, investors, depositors and others with no appropriate information about the financial
conditions of the bank.
Financial statements are the channels of conveying and communicating a concise picture of the
profitability and financial position of the business both to the management and interested outsiders.
This statements are prepared for the purpose of enlightening, illustrating and disclosure of financial
condition at the terminating period of the fiscal year and the day to day operating results during the
year. Financial ratios are fundamentally & mainly means of analyzing, dealing & organizing financial
statement accounts for both outside and inside parties regarding the organization. They are very
important applications of instruments for management, and as an instruction of directions for investors,
depositors, tax authority and other parties. Imagine-the ratio analysis is not modified and adopted by a
given bank-then, the bank cannot identify, estimate and measure its strength, weakness & compare its
performance with other banks.[IM Pandey, Financial Management, 8thEdition, 2001, Page. 29 -30.]
NIB International Bank was established in 1999A.D, on October 22 with a number of 717 shareholders
with a paid up capital of birr 27.6 million to enhance the provisions of domestic and international
banking services. The bank has abled to objectify a remarkable achievement, through various
inclinations, starting from its foundation. As of June 30, 2013, the total capital of the bank is estimated
to be 2,000,000,000. The member of shareholders is in a line of increment to a level of 400,000 of birr
each 500 each. At this moment the bank has 71 various district affiliations and branches with a total of
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