CAR = Tier I capital + Tier II capital / Risk weighted assets Not all assets are classed as cash assets. Profitability Ratios: Profit making is the main objective of business. Let us take the example of a Local Bank A it’s Non-Interest Expenses is $1,050,000 and its Net Revenue is $2,200,000. Table 1 shâ¦ Loan to Deposit Ratio. Quick Ratio defines a companyâs ability to meet its short-term debt obligations with its most liquid assets. ALL RIGHTS RESERVED. A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements.Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. The ratio ensures that the bank do not expand their business without having adequate capital. Let’s take one more example of Green Bank Corp. Below is the historical data of the bank, Following are observations of the above case –. Debt to Income Ratio (D/I) Loan - Balloon Balance. Analysts also use this ratio to measure banks with the peer company within the same industry. One of the primary objectives is identification of major changes in trends, and relationships and the investigation of the reasons underlying those changes. Common liquidity ratios include the following:The current ratioCurrent Ratio FormulaThe Current Ratio formula is = Current Assets / Current Liabilities. Cost of Ending Beginning Purchases = goods sold inventory inventory ++. Current ratio referred as a working capital ratio or bankerâs ratio. It is a solvency ratio measuring the ability of a business to pay off its debts. For the purposes of calculating a liquidity ratio, a bank would consider only those assets that could be sold off and increase the cash on hand within a specified period of time. Efficiency ratio = Noninterest Expenses/ (Operating Income â Loan Loss Provision) A lower efficiency ratio is preferable: it indicates that a bank is spending less to generate every dollar of income. Bank Efficiency Ratio is calculated using the formula given below, Bank Efficiency Ratio = Non-Interest Expenses / Net Revenue. This refers to the percentage of total advances divided by the total deposits of a bank/branch. Contact us at: Bank’s Provision for credit losses is $ 9000. The efficiency ratio is reducing because of multiple factors here, as you can see there is a downward trend in Non-Interest expenses, that means the bank is managing its business very well with low operation cost and this will leads to increase the profitability in future. Financial institutions such as banks, financial service companies, insurance companies, securities firms and credit unions have very different ways of reporting financial information. or her own discretion, as no warranty is provided. Net Interest Income is calculated using the formula given below, Net Interest Income= Total Interest Income – Total Interest Expenses, Bank Efficiency Ratio is calculated using the formula given below, Bank Efficiency Ratio = Non-Interest Expense / (Net Interest Income + Non-Interest Income -Provision for Credit Losses). Current Ratio = Total Current Assets / Total Current Liabilities. The RBI has set the minimum capital adequacy ratio at 9% for all banks. Financial ratios are usually split into seven main categories: liquidity, solvency, efficiency, profitability, equity, market prospects, investment leverage, and coverage. This is a guide to Bank Efficiency Ratio Formula. It is used for determining the paying capacity of the company towards its short term liabilities. Financial statement analysis is a judgmental process. The debt ratio shows the overall debt burden of the companyânot just the current debt. From the above calculation, it can be concluded that this bank is working very efficiently with a ratio of 36.8%. This first type of accounting ratio formula is used for ascertaining the liquidity position of the company. subject to the same rigor as academic journals, course materials, While not part of the official financial statements, most banks disclose this average somewhere near the front of their detailed annual reports. Net Interest Spread. Using the above-explained formula we have got value 48.6%, which means the company spent $ 0.486 to generate a dollar. First, this means that the bank is having high loan recovery rate which is a positive side. To calculate return on assets, simply divide the net income by the total assets, then multiply by 100 to express it as a percentage. CD ratio is the credit to deposit ratio in banking parlance. The debt ratio is calculated by dividing total liabilities by total assets. 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