Kasun Madhushanka Abeysiriwardhana

NATIONS TRUST BANK KEY FINANCIAL ANALYSIS Analysis by: Kasun Abeysiriwardhana ( CBA, B.B.A. (SP) Bus. Econ -Col. ) Partner - K W Associates INDEX A. Bank background & history 3 B. Banking industry Sri Lanka 4 C. Ratio Analysis 5 D. References 15 A. Bank background & history Founded in July 1999. Currently having 95 branches, 127 ATMs, 48 CDMs Nations Trust Bank Asset base: Rs. 301 Billion Fitch Rating: A (LKA) as at 01/04/2019 Highly oriented on corporate sector Innovations on digital banking - Frimi Chairman: Mr. Gihan Kooray Since: 01 December 2018 - - Company auditors: Ernst & Young Chartered Accountants 10 Years Performance trends Year 2018 CEO: Ms. Renuka Fernando Since: 15 September 2012 Profit before tax Shareholders' funds Profit before- tax & Shareholder funds- - 5000 10000 15000 Shareholders' funds 20000 Profit before tax 25000 30000 B. Banking industry Sri Lanka Combination Public sector commercial banks Private sector commercial banks Licenced specialized banks 2 23 8 Sri lanka has strong foundation to banking sector by the two public sector banks - People's Bank & Bank of Ceylon. Bank Founded in Bank of Ceylon People's bank Commercial bank PLC Hatton National Bank PLC Sampath Bank PLC Seylan Bank PLC NDB Bank PLC DFCC Bank PLC Nations Trust Bank PLC No. Of branches - Asset base ( Rs. Billion) - - 95 Nations Trust Bank - Market Value Per Share (Average) 120 - Market value 80 2011 57 2012 56 - - - 2017 78 86.3 83.4 60 - 80.9 89.2 78 62.2 57 56 2011 2012 40 20 0 2010 2013 2014 year 2015 2016 2017 2018 - C. Ratio Analysis Several investor related ratios have analyzed below, as a comparison to each year during recent 10 years time. Also we have selected National Development bank as a competitive business to compare ratio analysis figures based on the factors mentioned below. 1). Both the banks founded in 1990's 2). Operating on similar capacity ( Asset base, market, branch network etc.) Ratios to evaluate: 1). Market prospect ratios 1.1 Earnings per share 1.2 Price earnings ratio 1.3 Dividend payout ratio 1.4 Dividend yield ratio 2). Efficiency ratios 2.1 Asset Turnover ratio 3). Liquidity ratio 3.1 Current ratio 4). Profitability ratios 4.1 Return on assets 4.2 Return on capital employed (ROCE) 4.3 Return on equity (ROE) 1). Market prospect ratios Market Prospect ratios are used to compare publicly traded companies’ stock prices with other financial measures like earnings and dividend rates. Investors use market prospect ratios to analyze stock price trends and help figure out a stock’s current and future market value. 1.1 - Earnings per share Earning per share (EPS), also called net income per share, is a market prospect ratio that measures the amount of net income earned per share of stock outstanding. In other words, this is the amount of money each share of stock would receive if all of the profits were distributed to the outstanding shares at the end of the year. Earnings Per share = Year EPS - NTB Bank EPS - NDB Bank Net income - Preferred dividends Weighted average common shares outstanding - - - - - Earnings Per Share - Movement 30 25 EPS - 2015 2016 2017 YEAR NTB Bank NDB Bank 2018 1.2 Price Earnings Ratio The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market prospect ratio that calculates the market value of a stock relative to its earnings by comparing the market price per share by the earnings per share. In other words, the price earnings ratio shows what the market is willing to pay for a stock based on its current earnings. Price earnings ratio = Market value per share Earnings per share Year 2014 PE - NTB Bank PE- NDB Bank 9.41 9.94 2015 2016 8.33 9.02 2017 7.06 9.58 2018 4.46 6.93 6.69 4.06 Price Earnings Ratio - Movement 12 10 PE RATIO - 2015 2016 2017 YEAR NTB Bank NDB Bank 2018 1.3 Dividend payout ratio The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year. In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders. Dividend payout ratio (%) = Year Total dividends Net income 2014 NTB Bank % NDB Bank % - 2015 2016 20.26 51 2017 - 2018 12 35.47 - Dividend payout - Movement 60 DIVIDEND PAYOUT - 2015 2016 2017 YEAR NTB Bank NDB Bank 2018 1.4 Dividend yield ratio The dividend yield is a financial ratio that measures the amount of cash dividends distributed to common shareholders relative to the market value per share. The dividend yield is used by investors to show how their investment in stock is generating either cash flows in the form of dividends or increases in asset value by stock appreciation. Dividend yield ratio = Cash dividends per share Market value per share Year 2014 NTB Bank NDB Bank 10.63 4.4 2015 2016 - 2017 - 2018 22.44 6.6 - Dividend Yield - Movement 25 DIVIDEND YIELD - 2015 2016 2017 YEAR NTB Bank NDB Bank 2018 2). Efficiency ratios Efficiency ratios also called activity ratios measure how well companies utilize their assets to generate income. Efficiency ratios often look at the time it takes companies to collect cash from customer or the time it takes companies to convert inventory into cash—in other words, make sales. These ratios are used by management to help improve the company as well as outside investors and creditors looking at the operations of profitability of the company. 2.1 Asset Turnover ratio The asset turnover ratio is an efficiency ratio that measures a company’s ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales. This ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio is always more favorable. Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios mean that the company isn’t using its assets efficiently and most likely have management or production problems. Asset turnover ratio = Year Net Sales Average total assets 2014 NTB Bank NDB Bank 2015 1.69 1.72 2016 1.56 0.96 2017 1.48 0.8 1.41 1.22 - Asset turnover ratio 2 1.8 1.6 ASSET TURNOVER - 2015 2016 2017 YEAR NTB Bank NDB Bank 2018 3). Liquidity ratio Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current. In other words, these ratios show the cash levels of a company and the ability to turn other assets into cash to pay off liabilities and other current obligations. Liquidity is not only a measure of how much cash a business has. It is also a measure of how easy it will be for the company to raise enough cash or convert assets into cash. Assets like accounts receivable, trading securities, and inventory are relatively easy for many companies to convert into cash in the short term. Thus, all of these assets go into the liquidity calculation of a company. 3.1 Current ratio The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. The current ratio helps investors and creditors understand the liquidity of a company and how easily that company will be able to pay off its current liabilities. This ratio expresses a firm’s current debt in terms of current assets. So a current ratio of 4 would mean that the company has 4 times more current assets than current liabilities. Current ratio = Current Assets Current Liabilities Year 2014 NTB Bank NDB Bank 2015 - - - 2017 2018 - Current Ratio - Movement- CURRENT RATIO - 2015 2016 YEAR NTB Bank NDB Bank 2017 2018 - 4). Profitability ratios Profitability ratios compare income statement accounts and categories to show a company’s ability to generate profits from its operations. Profitability ratios focus on a company’s return on investment in inventory and other assets. These ratios basically show how well companies can achieve profits from their operations. profitability ratios can be used to judge whether companies are making enough operational profit from their assets. In this sense, profitability ratios relate to efficiency ratios because they show how well companies are using their assets to generate profits. 4.1 Return on assets The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period. Return on assets = Year Net income Average total assets 2014 NTB Bank NDB Bank 2015 - 2016 - 2017 - - - Return on Assets - Movement- ROA - 2015 2016 YEAR NTB Bank NDB Bank 2017 2018 4.2 Return on capital employed (ROCE) Return on capital employed or ROCE is a profitability ratio that measures how efficiently a company can generate profits from its capital employed by comparing net operating profit to capital employed. ROCE is a long-term profitability ratio because it shows how effectively assets are performing while taking into consideration long-term financing. Return on capital employed = Year Net operating profit Capital employed 2014 NTB Bank NDB Bank - 2015 2016 - 2017 - 2018 - - ROCE - Movement 0.25 AXIS TITLE - 2015 2016 YEAR NTB Bank NDB Bank 2017 2018 4.3 Return on equity (ROE) The return on equity ratio or ROE is a profitability ratio that measures the ability of a firm to generate profits from its shareholders investments in the company. In other words, the return on equity ratio shows how much profit each dollar of common stockholders’ equity generates. ROE is also and indicator of how effective management is at using equity financing to fund operations and grow the company. Return on equity= Net income Shareholder's equity Year 2014 NTB Bank NDB Bank - - - 2017 2018 - Return on equity - Movement 25 RETURN ON EQUITY 20 15 10 5 0 2014 2015 2016 2017 YEAR NTB Bank NDB Bank 2018 - D. References Investor relations - Nations trust bank https://www.nationstrust.com/about/investor-relations Colombo Stock Exchange - Nations trust bank profile https://www.cse.lk/home/company-info/NTB.N0000/company-profile Sri Lanka banking sector status - Daily FT article http://www.ft.lk/special-report/Sri-Lanka-Banking-Sector--Status-quo-as-of-June-2018/- Banking & finance industry - Sri Lanka by lanka business online https://www.lankabusinessonline.com/category/industry/banking-and-finance/ Association of professional bankers - Corporate web site http://www.apbsrilanka.org/banks_in_sri_lanka/ Ratio analysis for bankers https://bizfluent.com/how--analyze-bank-s-financial-ratios.html National Development Bank - Investor relations https://www.ndbbank.com/investor-relations Nations trust bank - Annual report 2018 https://www.nationstrust.com/images/pdf/annual_reports/ntb-annual-report-2018.pdf Financial ratios - comparison, introduction. https://www.myaccountingcourse.com/financial-ratios