Financial Management OF BRAC BANK
COMPANY PROFILE
Brac Bank Limited
BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shore cap International, has been the fastest growing Bank from 2004 to 2007. The Bank operates under a “double bottom line” agenda where profit and social responsibility go hand in hand as it strives towards a poverty-free, enlightened Bangladesh.
A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last six years of operation, the Bank has disbursed over BDT 7500 core in loans to nearly 200,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh. Since inception in July 2001, the Bank’s footprint has grown to 56 branches, 30 SME Service Centers, 427 SME unit offices and 112 ATM sites across the country, and the customer base has expanded to 465,000 deposit and 187,000 advance accounts till December 2008. In the years ahead BRAC Bank expects to introduce many more services and products as well as add a wider network of SME unit offices, Retail Branches and ATMs across the country.
Corporate Vision
“Building a profitable and socially responsible financial institution focused on Markets and Business with growth potential, thereby assisting BRAC and stakeholders build a “just, enlightened, healthy, democratic and poverty free Bangladesh”.
Corporate Mission
» Sustained growth in ‘small & Medium Enterprise’ sector
» Continuous low cost deposit growth with controlled growth in Retained sets
» Corporate Assets to be funded through self-liability mobilization. Growth in Assets through Syndications and Investment in faster growing sectors
» Continuous endeavor to increase fee based income
» Keep our Debt Charges at 2% to maintain a steady profitable growth
Bank Asia Limited
Bank Asia Limited, with institutional shareholders. International Finance Corporation (IFC) and Shore cap International, has been the fastest growing Bank from 2004 to 2007. The Bank operates under a “double bottom line” agenda where profit and social responsibility go hand in hand as it strives towards a poverty-free, enlightened Bangladesh.
Mission
To assist in bringing high quality service to our customers and to participate in the growth and expansion of our national economy.
To set high standards of integrity and bring total satisfaction to our clients, shareholders and employees.
To become the most sought after bank in the country, rendering technology driven innovative services by our dedicated team of professionals.
| Vision
Bank Asia’s vision is to have a poverty free Bangladesh in course of a generation in the new millennium, reflecting the national dream. Our vision is to build a society where human dignity and human rights receive the highest consideration along with reduction of poverty. Services provided by Bank Asia are- KIOSK Credit Card |
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Introduction
Very often EPS is used as a considerable tool-indicator of a bank’s financial performance. It measures performance from the perspective of investors and potential investors. Additionally, it shows the amount of earnings available to each ordinary shareholder, so that it indicates the potential return on individual investments. Sometimes, the trend in EPS may be more accurate performance indicator than the trend in profit, though it is based on profit on ordinary activities after taxation. These results can be achieved by comparing the EPS of either different banks or the same bank’s in different accounting periods, or even better, using both.
What Does Earnings Per Share – EPS Mean?
The portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability.
EPS = Net Earnings / Number of Outstanding Shares
When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.
Types of EPS
There are several types of EPS. They are as follows:
Basic EPS– The portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability.
Cash EPS- A measure of financial performance that looks at the cash flow generated by a company on a per share basis. This differs from basic earnings per share (EPS), which looks at the net income of the company on a per share basis. The higher a companies cash EPS, the better it is considered to have performed over the period. A company’s cash EPS can be used to draw comparisons to other companies or to the company’s own past results.
Diluted EPS- Diluted earnings per share (Diluted EPS) takes the basic earnings per share figure one step further. Basic EPS only takes into account the number of shares outstanding at the time. Diluted EPS, on the other hand, estimates how many shares could theoretically exist after all stock options, warrants, preferred stock and / or convertible bonds have been exercised.
Trailing EPS – It includes numbers from the previous year and represents the only actual EPS
Current EPS – It includes numbers from the current year, but which represent projections for the stocks.
Forward EPS – It includes projection numbers.
Outstanding Shares
Stock currently held by investors, including restricted shares owned by the company’s officers and insiders, as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock.
Also referred to as “issued and outstanding” if all repurchased shares have been retired.
This number is shown on a company’s balance sheet under the heading “Capital Stock” and is more important than the authorized shares or float. It is used to calculate many metrics, including market capitalization and earnings per share (EPS).
One of the challenges of evaluating stocks is establishing an “apples to apples” comparison. What I mean by this is setting up a comparison that is meaningful so that the results help you make an investment decision.
Comparing the price of two stocks is meaningless as I point out in my article “Why Per-Share Price is Not Important.”
Similarly, comparing the earnings of one company to another really doesn’t make any sense, if you think about it. Using the raw numbers ignores the fact that the two companies undoubtedly have a different number of outstanding shares.
Evaluation of earning per share
While the math may be simple … there are many varieties of Earnings per Share (EPS) being used these days, and investors must understand what each represents so they can make informed investment decisions.
For example, the EPS announced by a company may differ significantly from what is reported in its financial statements and could also be different from what appears in the headlines!
As a result, a stock may appear over or under valued depending on the EPS being used.
By definition, EPS is net income divided by the number of shares outstanding. However, both the numerator and denominator can change depending on how you define “earnings” and “shares outstanding.” Shares outstanding can be classified as primary (“primary EPS”) and fully diluted (“diluted EPS”). Primary EPS is calculated using the number of shares that have been issued and held by investors. These are the shares that are currently in the market and can be traded.
Diluted EPS entails a complex calculation that determines how many shares would be outstanding assuming all exercisable warrants, options, etc. were converted into shares at a point in time, generally the end of a quarter. We prefer diluted EPS because it is a more conservative number that calculates EPS as if all possible shares were issued and outstanding.
Companies report both primary and diluted EPS, and the focus is generally on diluted EPS, but investors should not assume this is always the case. Sometimes, diluted and primary EPS are the same because the company does not have any warrants or convertible bonds outstanding. As has been evident in recent headlines, EPS can be whatever the company wants it to be, depending on assumptions and accounting policies! Based on a set of assumptions, a company can report a high EPS, which reduces the P/E multiple and makes the stock look undervalued. This is why it is critical for investors to read carefully and know how the EPS is calculated. There are many types of EPS being used and investors need to know what the “EPS” represents and determine if it is a valid representation of the company’s earnings. A stock may look like a great value because it has a low P/E …But that ratio may be based on assumptions we may not agree with! When deciding on the investment in certain stocks, many times investors are facing the challenge of comparing stocks from different industries and types. This is especially hard when the investor has to choose from stocks that differ a lot. Many of us make the fundamental mistake of comparing stocks by their price. However, this is absolutely pointless. Another mistake that we commit when we compare stocks is to use their earnings as a basis for evaluation. However, this method is also meaningless since even if the two companies have equal earnings, they may have different number of shares outstanding at the same time. As you can see it will be difficult to decide on which stocks to own just based on this information.
Some important considerations when making investment decision are-
PRICE EARNINGS RATIO
The most important ratio that investors should look at is the Price Earnings (P/E) Ratio. In layman’s terms this is the share price divided by the profit per share. The P/E Ratio of a Company should be compared against other companies in the sector and against the market as a whole. I also believe a good test is to compare the P/E Ratio of a company with other similar companies quoted on other international stock exchanges.
The P/E Ratio to be used in investment decisions should be the prospective P/E Ratio and not the historical P/E Ratio. Unfortunately in most of the financial press the P/E Ratio stated is the historic one that may not reflect the future prospects of a business. Hence investors should look at the P/E Ratio based on current and future earnings and not the previous year’s figure.
NET ASSET VALUE (NAV)
A useful ratio for the evaluation of investment companies is the net asset value per share. In Cyprus most companies disclose their NAV on a two weekly basis whereas some companies go as for as to disclose the figure on a weekly basis.
In my opinion, those companies that have an NAV that is lower than the share price should be tread on carefully by investors since they have a higher risk. The opposite is true for investment companies that are at a huge discount to their NAV.
Growth Rate in Earnings per Share (EPS) Ratio:
Earnings per Share (EPS) Growth Rate = (EPS at end of period – EPS at beginning of period) / EPS at beginning of periodThe earnings per share growth rate indicate the amount of growth for investors. This ratio helps determine the multiplier used in calculating the company’s market value. A higher ratio yields a higher multiplier. The trend in this ratio indicates whether growth is steady, sporadic, accelerating or declining. |
Financial Information (at-a-glance)
Bank Asia Ltd.
| Particulars/Year | EPS | Net Asset Value P/S | Price Earnings Ratio |
| 2001 | 29.33 | 129.73 | n/a |
| 2002 | 48.51 | 159.37 | n/a |
| 2003 | 35.98 | 148.29 | 11.56 |
| 2004 | 39.48 | 197.25 | 12.35 |
| 2005 | 41.24 | 158.49 | 8.11 |
| 2006 | 42.63 | 174.71 | 10.04 |
| 2007 | 47.30 | 184.76 | 11.97 |
| 2008 | 39.38 | 191.14 | 11.97 |
BRAC Bank Ltd.
| Particulars/Year | EPS | Net Asset Value P/S | Price Earnings Ratio |
| 2001 | -.60 | 99.40 | n/a |
| 2002 | -15.15 | 84.25 | n/a |
| 2003 | 12.09 | 97.75 | n/a |
| 2004 | 23.16 | 118.04 | n/a |
| 2005 | 38.54 | 156.58 | n/a |
| 2006 | 63.31 | 210.72 | 8.40 |
| 2007 | 54.95 | 256.55 | 29.33 |
| 2008 | 61.46 | 343.28 | 17.52 |
Bank Asia Ltd.
EPS – Trend Analysis
Here Earning per Share of Bank Asia was high as 48.51 in years 2002. EPS Stood at 39.38 as on Dec. 31, 2008 compared to Tk. 47.30 at the end of the previous year. It shows the year in 2007 was in better position compare to 2008. So now it is the challenge for the bank to make the shareholder attract towards the bank by increasing the EPS.
Bank Asia Ltd.
Net Asset Value P/S – Trend Analysis
s
Net Asset Value per share is a useful ratio for the evaluation of investment companies.
As more the Net Asset Value per share, higher the return for the investor, so now the investor are in better position. In the year 2008 the NAV is Tk.191.14 compared to Tk. 184.76 At the end of the previous year. The net asset value is frequently below from the amount of the year 2008.
Bank Asia Ltd.
Price Earnings Ratio – Trend Analysis
The most important ratio that investors should look at is the Price Earnings (P/E) Ratio
Here Price Earning Ratio of Bank Asia was high as 12.35 in years 2004. P/E Stood at 11.97 as on Dec. 31, 2008 compared to Tk. 11.03 at the end of the previous year. It shows that the year 2008 was in better position compare to 2007. That’s why investors should look at the P/E Ratio based on current and future earnings and not the previous year’s figure.
BRAC Bank Ltd.
EPS – Trend Analysis
Here Earning per Share of BRAC Bank was high as 63.31 in years 2006. EPS Stood at 61.46 as on Dec. 31, 2008 compared to Tk. 54.95 at the end of the previous year. It shows that the year 2008 was in better position compare to 2007. So now it is the challenge for the bank to make the shareholder attract towards the bank by increasing the EPS. It shows that the earning per share is gradually increasing from the year 2002 to 2008 though it has a negative trend in 2001 and 2002.
BRAC Bank Ltd.
Net Asset Valued P/S – Trend Analysis
The most useful ratio for the evaluation of investment companies is Net Asset Value per share. As more the Net Asset Value per share, higher the return for the investor, so now the investor are in better position. In the year 2008 the NAV is Tk. 343.28 compared to the previous year. The net asset value is frequently below from the amount of the year 2008. This analysis shows that there is a positive trend from the beginning of the bank.
BRAC Bank Ltd
Price Earning Ratio – Trend Analysis
Price Earnings (P/E) Ratio is the most important ratio that investors must consider.
Here Price Earning Ratio of BRAC Bank was high as 29.33 in years 2007. P/E Stood at 17.52 as on Dec. 31, 2008 compared to Tk29.33 at the end of the previous year. It shows that the year 2007 was in better position compare to 2008. That’s why investors should look at the P/E Ratio based on current and future earnings and not the previous year’s figure.
The term is “EPS” Statistical analysis of the two banks:-
Bank Asia Ltd.
| Year | EPS | ||
| 2000 | .5 | -29.9 | 894.01 |
| 2001 | -0.6 | -31 | 961 |
| 2002 | -15.15 | -45.55 | 2074.8 |
| 2003 | 12.09 | -18.31 | 335.3 |
| 2004 | 23.16 | -7.24 | 52.42 |
| 2005 | 38.54 | 8.14 | 66.26 |
| 2006 | 63.31 | 32.91 | 1083.1 |
| 2007 | 54.95 | 24.55 | 602.7 |
| 2008 | 61.46 | 31.06 | 964.7 |
| 2009 | 65.5 | 35.1 | 1232.01 |
| N =10 | ?X =303.76 | ?()2 =8266.3 |
Mean:
= = 303.76 ÷10
= 30.4
Standard Deviation:
=
= 28.75
Brac Bank Ltd.
| Year | EPS | ||
| 2000 | 2.63 | -29.9 | 894.01 |
| 2001 | 29.33 | -31 | 961 |
| 2002 | 48.51 | -45.55 | 2074.8 |
| 2003 | 35.98 | -18.31 | 335.3 |
| 2004 | 39.48 | -7.24 | 52.42 |
| 2005 | 41.24 | 8.14 | 66.26 |
| 2006 | 42.63 | 32.91 | 1083.1 |
| 2007 | 47.30 | 24.55 | 602.7 |
| 2008 | 39.38 | 31.06 | 964.7 |
| 2009 | 45.7 | 35.1 | 1232.01 |
| N =10 | ?X =372.18 | ?()2 =1616.38 |
Mean:
= = 372.18 ÷10
= 37.2
Standard Deviation:
=
= 12.71
Comment:
After analyzing the statistical tool we can comment that Brac Bank has the better position than Bank- Asia. The average position of EPS of Brac Bank is higher than the Bank- Asia; at the same time the Standard deviation of Brac Bank is lower than the Bank Asia which indicates Brac Bank is more consistent than Bank Asia. That means Brac Bank is more profitable than Bank- Asia. So we can comment that in the market Brac Bank’s share price is higher than Bank Asia as well as Brac Bank’s share has great demand than Bank Asia. Shareholders also get more dividends from Brac bank than Bank Asia.
Conclusion
Brac bank and Bank Asia is the two leading bank of the country. Since it launched its operation it is trying to provide better service to the customer .At the same time it also performing it corporate social responsibility. The position in the banking sector is strong. Building a profitable and socially responsible financial institution focused on Markets and Business with growth potentiality enlightened, healthy, and democratic and poverty free Bangladesh two banks are in the way of their vision. EPS of Brac Bank and Bank Asia is almost well. The statistical analysis such as mean, median, mode, correlation analysis and regression analysis show that the bank is running well. The banks also contribute in poverty alleviation. Nevertheless both the bank should concentrate on bettering their performance and reach the top position. If they can do so their overall performance will improve.
References
01. Annual report of Brac Bank
02. Annual report of Bank Asia
03. www.bankasia.com
04. www.bracbank.com