Free «Financial Analysis» Essay Sample

Inevitably, every organization has to take different strategic decisions in order to compete with the other organizations operating in the same line of businesses. Among different departments, marketing department is one of them which have its own recognition and significance in the long run productivity of the company (Brealey, Myers & Marcus, 2001).

Among different departments, the name of finance department is one of them, which has its own recognition and importance in the long run productivity of the company. Organizations always use different tools to analyze the company both from financial as well as strategic viewpoint. Stock Analysis, is one of those analysis which would have been performed and done from the standpoint of an investor of a country.

The main perspective of this assignment is to do a stock based analysis of a selected bank. The bank which has been selected for this assignment is Samba Bank. The next section of the report will detail down the background of the bank followed by the analysis from year 2007 to 2011. Different provisions would have been taken consideration for the same.



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We will use some investment as well as profitability ratios in order to analyze the company from the standpoint of the external investors.

Net Profit Margin

In finance, net means the figure which has been subtracted all the direct and indirect costs and expenses. It is one of the most important measures to find the productivity of the company. Below mentioned is the table and graph of the same.

Year Sales Net Income NPM
2007 8386264 4807632 57.32746
2008 8425855 4442871 52.72902
2009 6351394 4553344 71.69047
2010 5194654 4432106 85.32052
2011 4854527 4304849 88.677
Mean NPM     71.14889

From the analysis, it is found that the company is doing a good job as far as generating net income is concerned (Brealey, Myers & Marcus, 2001). Samba Bank is one of those companies of the world which has a high Net Profit Margin (NPM). The sales of the actually decreased every year as so the net income but the NPM of the company is actually increasing every year by reasonable percentage. The average NPM of Samba Group is 71.14%, which is showing that the company is able to generate net income of SR 71.14 from the sales of sales of SR 100. This particular ratio is in the favor of the company and investors as well.

Earning Per Share:

Earning Per share means, how much the company has earned through its shares and shareholders equity. High Earning per Share (EPS) would always be welcome from the standpoint of the investors, as it means that the company is able generate net income from its shares and equity. Below mentioned table and graph would reveal rest of the story.

Year EPS
2007 5.36
2008 4.95
2009 5.07
2010 4.93
2011 4.78

From the above mentioned analysis and graph, it is clear that the company is able to generate income from its shareholder’s equity (Brealey, Myers & Marcus, 2001). The EPS of the bank which was 5.36 SR decreased by 41 basis points in the fiscal year 2009 as compared to the EPS of the year 2008. Apart from this year, the EPS of the company decreased by 14 and 15 basis points for two consecutive years in 2010 and 2011 respectively. The average EPS of the bank is 5.018 SR which is showing that the company is able to generate satisfactory income from it shares.

Current Ratio Analysis

Current ratio is one of the most important ratios from the standpoint of the investors as it analyzes the efficiency of a company as far as meeting its short term financial obligations and promises (Brealey, Myers & Marcus, 2001). Stable CR always bring positivity for the shareholders and apprise them that the company is able to meet with its financial promises, hence the chance of dividends would be on a higher side. The CR of the selected bank is mentioned below,

Year Current Assets Current Liabilities CR
2007 11097630 11424999 0.971346
2008 13799946 12089957 1.141439
2009 35847246 7319219 4.897687
2010 32580918 19800635 1.645448
2011 33508745 20628293 1.624407
Mean CR     2.056066

From the analysis, it is clear that the CR of the company is in a good range in almost all the selected analytical years. The CR of the company increased by 0.17% and 3.75% for years (FYs) 2008 and 2009 respectively as compared to the same period of last year. From the analysis, it is clear that the average CR of the company is 2.05, which is showing that the company is in good financial position and always meet with its short term financial promises. This thing could be very positive from the viewpoint of the investors and it will certainly enhance most of the investors in entering and investing in the company.

Price/Earning Ratio

A valuation ratio of a company's current share price compared to its per-share earnings (Brealey, Myers & Marcus, 2001). In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. The analysis from the table and graph is mentioned below,

Year Market Value EPS P/E
2007 39 5.36 7.276119
2008 40.12 4.95 8.105051
2009 40.95 5.07 8.076923
2010 43.22 4.93 8.766734
2011 44.56 4.78 9.322176
Mean P/E     8.309401

The Price to Earning ratio of the company is in excellent range, and it is also increasing with reasonable percentages after every year of operations. The P/E of the company is 7.27 in the year 2007 that increased by 82 basis points in the year 2008 as compared to the P/E of last year. The average P/E of the company is 8.30 which is quite high as compared to a bank.


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