Analysis that the higher return on assets

Analysis and Findings

 

3.1 Comparative
Analysis EXIM Bank with IBBL Bank:

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The objective of this report is
evaluating EXIM Bank Limited’s and IBBL bank financial performance.

 

3.1.2The
Return on Assets (ROA):

Return on Assets (ROA) Return on assets (ROA)
is a financial ratio that
shows the percentage of profit a company earns in relation to its overall
resources. It is commonly defined as net income divided by total assets.

Return
on Assets = Net Income/Total Assets percentage

The
return on assets (ROA) percentage exhibition how beneficial a company`s assets
are in create revenue. It is known as a profitability or productivity ratio,
performance is a bank’s return on assets (ROA). When calculating ROA, remember
that banks are highly leveraged, so a 1% ROA indicates huge profits. The
formula for;

Fig: 1 Return on assets
EXIM AND IBBL (2011-15)

In 2011, EXIM Bank ROA was 1.55%
and it some fall into 1.29% in 2012. After the slightly increase and decrease
in 2013 and 2014 the percentage highly fall shows 0.83% in 2015. The fall in
2012, caused by an economic downturn and reduced interest spread with a lower
net profit after tax, relative to total interest revenue. IBBL also 2011 ROA
was 1.24.And continue same procedure by EXIM Bank criteria and finally 2015 ROA
had 0.42.  We know that the higher return
on assets is the better, while the company is impute more money on asset.
Remember that banks are highly leveraged, so a 1% ROA indicates huge profits.

 

In year 2011, total assets as well
as net profit grew faster by EXIM AND IBBAL comparing to previous years, spread
fell as interest on deposit soared, but the interest on loan could not increase
as much due to the lending cap. Bring
the return on asset to upturn by a time of high profitability. The growth in
assets resulted from a significant growth in total credit as well as stable
assets. The return on asset drastically fell in 2013 because profits took a
huge hit from the failing capital market and shrinking net interest margin.
This time EXIM Bank position almost fine than IBBL.

 

3.1.3 Return on Equity (ROE):

Return on equity (ROE) is the
amount of net income returned as a percentage of shareholders equity. Return on
equity dimension a corporation’s profitability by declaring how much profit a
company raise with the wealth that shareholders have offered. It mean a firm’s
efficiency in applying common-stockholders’ (usual-shareholders’) money. Return
on equity measures a corporation’s profitability by revealing how much profit a
company generates with the money shareholders have invested. The formula for:

Return on Equity = Net
Income/Shareholder’s Equity

Fig:
02
Return on Equity
EXIM AND IBBL (2011-15)

 

EXIM bank
the return on equity was 13.87% in 2011. After that, it started to downfall and
became 12.97% in 2012. Then the position went little better and it turns into
10.74% in 2014 but again it decrease constantly 9.28% and 8.67% respectively in
the years of 2013 and 2015. IBBL ROE 2011 was 17.42 than continuously downfall
after 2015 that time ROE had 6.42.