Financial Statements of ICICI Bank Limited-Analysis of Businesses Banks Companies, Products and Consumers-Report, Study Guides, Projects, Research of Business Administration

Download Financial Statements of ICICI Bank Limited-Analysis of Businesses Banks Companies, Products and Consumers-Report and more Study Guides, Projects, Research Business Administration in PDF only on Docsity! A PROJECT REPORT ON “ANALYSIS OF FINANCIAL STATEMENTS OF ICICI BANK LTD.” CONDUCTED AT: ICICI BANK LTD. SUBMITTED TO Degree of Master in Business Administration (Session 2008-2010)-MBA 4TH Semester Under Supervision of : Submitted By: Docsity.com INTRODUCTION TO TOPIC Financial Statements Financial statements refer to such statements which contains financial information about an enterprise. They report the profitability and the financial position of the business at the end of accounting period. The term financial statement includes at least two statements which the accountant prepares at the end of an accounting period. The two statements are:- 1. The Balance Sheet 2. Profit And Loss Account They provide some extremely useful information to the extent that balance Sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owners equity, and so on and the Profit And Loss account show s the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Thus the financial statement provides a summarized view of financial positions and operation of a firm. Meaning of Financial Analysis: Financial statements present a mass of complex data in absolute monetary terms and reveal little about the liquidity, solvency and profitability of the business. In financial analysis, the data given in financial statements is classified into simple groups and a comparison of various groups is made one another to pin-point the strong points and weaknesses of a business. For instance, if all items relating to current assets are placed in one group while all items relating to current liabilities are placed in another group, the comparison between the two groups will provide useful information. Actually the figures given in financial statements do not speak anything themselves. The analysis of these figures helps the interested reader by giving tongue to these mute heaps of figures. Docsity.com SIGNIFICANAE OF FINANCIAL ANALYSIS The significance of the financial statement analysis may be studied from the point of view various parties as follows: 1. Significance for Management: Management of a firm is always interested in the solvency, profitability and the capital structure of the firm. They want to make sure that the business must be in a solvent position to pay the debts as and when they fall due. 2. Significance for Investors: Investors and shareholders of the business are interested in the longevity of the business enterprise and therefore, they want to know the earning capacity of the business and its prospects for future growth and prosperity. 3. Significance for Creditors: There are two types of creditors, (i) Short-term creditors, and (ii) Long-term creditors. (i) Short-term creditors want to know the liquidity of the business, i.e., to know whether the company will have sufficient current assets and cash to pay their debts or not. (ii) Long-term creditors want to know two things namely: (1) Whether the company will be able to pay the interest consistently, and (2) Whether the company will be able to pay their debts when they fall due. 4. Significance for Government: Government can judge on the basis of analysis of financial statements, which industry is progressing on the desired lines and which industry needs the financial help. 5. Significance for other Financial Institutions: All the financial institutions which provide finance to the industries such as Banks, Insurance Companies, Unit Trust etc. 6. Significance for Stock Exchange Authorities: They analyse the financial statements of a company to determine its price earning ratio and earning per share (E.P.S.). With the help of such analysis, the market price of a company's share is determined. Docsity.com 7. Significance for Researchers: Analysis of financial statements of a company is of much importance to a researcher who is conducting research in respect of the profitability, efficiency, financial soundness and future growth potential of that company. TYPES OR METHODS OF FINANCIAL ANALYSIS Financial analysis is an art and as such there are various approaches towards financial analysis. Two basic approaches or types of analysis are: (i) Horizontal Analysis (ii) Vertical Analysis (i) Horizontal Analysis: In such type of analysis, financial statements for a number of years are reviewed and analysed. Figures for two or more years are contained in such type of analysis and these figures are placed side-by-side to facilitate comparison. Such analysis indicates the increase or decrease in these items not only in absolute figures but also in percentage form. Thus, it involves making comparisons and establishing relationship among related items of an enterprise for a number of years. When data about sales, cost of production, profits etc., are compared for two or more years of a firm, they indicate the areas of strength and weakness of the enterprise. It also helps in knowing the trend of the business. Since such type of analysis is based on the data from year-to-year rather than only one year, it is also called 'Dynamic Analysis'. (ii) Vertical Analysis: In such type of analysis, financial statements for a single ratios. It involves a study of the quantitative relationship among various items of Balance Sheet or Profit & Loss Account of a single period. The items in the financial statement are expressed as a percentage to total and the total is taken as equivalent to 100. Statements containing such analysis are termed as 'Common Size Statements'. The Common Size Profit and Loss Account shows each element of Cost as a percentage of sales. It helps in analysng cost and operating results of the year. Docsity.com similarly in a common size Balance Sheet various assets can be expressed as percentage o total assets. OBJECTIVES OF STUDY To overview and understand the procedure & financial and accounts department of ICICI Bank and suggest recommendations to make the existing system more effective.  To analyse the financial statements of ICICI Bank  To determine changes in financial conditions of business.  To spot out strengths and weakness of company.  To give suggestions for the improvement of existing system so that it could be implemented effectively with minimum cost and time.  To analyse the balance-sheet of ICICI Bank by making comparative balance sheet of 2006 and 2007.  To spot out opportunities of ICICI Bank by calculating trend values of netprofits. Docsity.com LITERATURE REVIEW  Jain T.R1., Statistics for M.B.A., page no. 1-15, 281-284, 301-305(second part), second edition: 2006-2007, V.K. (India) enterprise, Ambala city: these pages help me to understand the meaning of my statistical tools and also help in applying them.  Goel D.K.2 Management accounting and financial management, page no.4.1 to 4.83, third edition 2004, Avichal publishing company, New Delhi: this text book helps me out to understand the meaning of different ratios and their meaning..  Gupta Shashi K. & Sharma R.K.3 Financial Management, and page no. 88- 110, second edition V.K publication Delhi: form this book I have cleared my financial concepts and their meanings.  Maheshwari S.N.4 management accounting and financial control, page no. 206- 219, third edition, Avichal publication: from the above pages I got light on some analytical tools.  Kothari C.R.5 quantitative technique, page no.168-174, vikas publishing house pvt. Ltd.New Delhi, 2005: this book helps me to know the meaning of various steps in the marketing research.  Beri G. C.6 Marketing Research, page no. 1-13, third edition Tata McGraw Hill, New Delhi: this book give me the knowledge of basic meaning of research that what it means and what are its limitations..  Gupta S.P.7 statistical methods, page no. 221-249,321-356, fifth edition, V.K. publishing: this book helps me in understanding the meaning and application of statistical tools. Docsity.com  Pandey I.M.8 Financial Management page no. 215-239, fifth edition, Vikas publication New Delhi: from this book I got the interpretation of various parameters.  Sharma R.K.9 Management and Business Finance, page no. 77-89, second edition, kalyani publication: help me to clear the meaning of varios terms in the financial statements.  Lev. Baruch10 In this how analysis of financial statements of organization is done and on the basis of that comment upon the financial position of the organization.  Hooda R.P.11 (209-212): Calculation of Trend Analysis and its interpretation.  Ciaran Walsh12 P.No. (113-122): Analysis of liquidity of any firm by calculating current & liquid ratio.  Mittal.R.K13 (28-30): It explains the preparing of comparative Balance Sheet and way of interpreting it.  www.icicibank.com: This website provides me balance sheet and profit & loss account of ICICI Bank.  www.icicidirect.com: This website helps in analysis of financial statements  www.financemaster.com: This website helps in theory about analysis of financial statements. Docsity.com INTRODUCTION OF ICICI BANK ICICI Bank is India's second-largest bank with total assets of about Rs. 1 trillion and a network of about 540 branches and offices and over 1,000 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital, asset management and information technology. ICICI Bank's equity shares are listed in India on stock exchanges at Chennai, Delhi, Kolkata and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. Docsity.com Research Design can be categorized as:  Exploratory Research  Descriptive Research  Diagnostic Research  Experimental Research The present study is descriptive in nature, as it studies only the existing financial statement and no change is carried out. Research design is flexible enough to provide opportunity for considering different aspects of problem under study. It helps in bringing into focus some inherent weakness in enterprise regarding which in depth study can be conducted by management. Sampling design: A sample design is a definite plan for obtaining a sample from the sampling frame. It refers to the technique or the procedure that is adopted in selecting the sampling units from which inferences about the population is drawn. Sampling design is determined before the collection of the data. Several decisions have to be taken in context to the decision about the appropriate sample selection so that accurate data is obtained and efficient results are drawn. Following questions have to be considered while sampling design-  What is the relevant population?  What is the parameter of interest?  What is the sampling frame?  What is the type of sample?  What sample size is needed?  How much will it cost? The sample size of past one year is taken for present study due to time limitation. Docsity.com Data Collection: The task of data collection is begins after a research problem has been defined and research designed/ plan chalked out. Data collection is to gather the data from the population. The data can be collected of two types:  Primary data  Secondary data Primary Data: The Primary data are those, which are collected afresh and for the first time, and thus happened to be original in character. There are several methods of primary data collection:  Observation Method  Interview Method  Schedules Questionnaires Secondary Data: The Secondary data are those which have already been collected by some one else and which have already been passed through the statistical tool. Methods of collection of Secondary data are:  Books  Website  Journal. In the present study I have made use of secondary data collected from their website and from their records. Analysis and Interpretation of Data The data collected in the aforesaid manner have been tabulated in condensed from to draw the meaningful results. The different techniques are adopted to analyze the data. All the data and material is arranged through internal resources and the last part of the project consists of the conclusions drawn from the report, a brief summary and recommendation and giving the final touch to the report by stating a conclusion. Docsity.com STATISTICAL TOOLS (1)Correlation Introduction in our day to day life, we find many examples when a mutual relationship exists between two variables i.e. with fall or rise in the value of one variable, the fall or rise take place in the value of other variable. For example, price of a commodity rises as the demand for the commodity goes up. upto a certain time period, weight of a person increases with the increase in the age. Similarly, the temperature rises with the rises in the sunlight. These facts indicates that there is certainly some mutual relationship that exists between the demand for a commodity and its price, the age of a person and his commodity and the sunlight and temperature. The correlation refers to the statistical technique used in measuring the closeness of the relationship between the variables. Definition of Correlation: 1. "Correlation analysis deals with the association between two or more variables " – Simpson and Kafka 2. "If two or more quantities vary in sympathy, so that movement in the one tend to be accompanied by corresponding movements in the other, then they are said to be correlated- Conner Degree of Correlation Sr. No. Degree of correlation Positive Negative 1. Perfect correlation +1 -1 2. High Degree of correlation Between +0.75 to +1 Between -0.75 to –1 3. Moderate Degree of correlation Between +0.25 to +0.75 Between -0.25 to - 0.75 Docsity.com 8.417217164222689 1.9874736 r  0.21051538 1.974736 2.141213.90801 1.9874736 r     r = 0.83 It shows high degree positive correlation between financial expenses and retained earnings. XLSTAT 7.1 - Correlation Tests - 9/27/2007 at 6:57:56 PM Variable 1: workbook = Book1 / sheet = Sheet1 / range = $E$8:$E$12 / 5 rows and 1 column Variable 2: workbook = Book1 / sheet = Sheet1 / range = $F$8:$F$12 / 5 rows and 1 column Significance level: 0.05 Pearson's correlation coefficient test (parametric test): Observed value 0.832 Two-tailed p- value 0.081 Alpha 0.05 0 500 1000 1500 2000 2500 0 5000 10000 15000 20000 re ta in e d e a rn in g financial exp. Scattergram of the data Docsity.com Decision: At the level of significance Alpha=0.050 the decision is to not reject the null hypothesis of absence of correlation. In other words, the correlation is not significant. (2)TREND ANALYSIS Meaning Trend refers to long-term tendency of data over a period of time. The data of time series are subject to change over a period of time. But over a long period of time, the data of time series have a tendency to increase or decrease or remain constant. According to Prof. Hirsch “By Trend sometimes also called secular trend we mean the long run gradual growth or decline in the series.” Objective of Trend Analysis/ Time series 1. Study of Past Behaviour- Analysis of time series studies the past behaviour of data and indicates the changes that have taken place in the past. 2. Prediction for future - On the basis of analysis of time series, future predictions can be made easily. 3. Estimation of Trade Cycles- Cyclical fluctuations in time series give idea about the changes taking place in the business like Boom, Recession, Depression and Recovery. 4. Comparison with other Time Series- By comparing the different time series together, their cause and effect relationship can be more elaborately analyzed. 5. Study of Present Variations- It is also helpful in studying the present variations in different economic variables like national income, export-import, price etc. 6. Universal Utility- Time series analysis benefits all classes like businessmen, Docsity.com TREND ANALYSIS OF REPORTED NET PROFIT OF ICICI BANK YEAR Profit Y (Rs. in Crore) Deviations from 2005 X XY x2 2003 1206.18 -2 - 2412.36 4 2004 1637.11 -1 -1637.11 1 2005 2005.20 0 0 0 2006 2540.07 1 2540.07 1 2007 3110.22 2 6220.44 4 Y=10498.78 X=0 XY=4711.04 x2 = 10 The equation of the straight line trend is Y= a + bX Since x=0 a = y/N, b = xy/x2 Substituting values, we get a = 10498.78/5 = 2099.756 = 2100 (app.) b = 4711.04/10 = 471.104 = 471 Thus the straight line trend is y = 2099 + 471x, Origin = 2006, X unit = 1 Year, Docsity.com (4) ANOVA Anova is essentially a procedure for testing the difference among different groups of data for homogeneity. Let us take the null hypothesis that there is no significant difference between the variables. YEAR PROFIT BEFORE TAX(CR.) PROFIT AFTER TAX(CR.) 2003 947.28 1212.68 2004 2001.21 1640.30 2005 2537.88 2007.28 2006 3112.17 2532.95 2007 3557.95 2995 TOTAL 12156.49 10388.21 MEAN OF SAMPLES Mean of PBT = M1 = 2431.298 Mean of PAT = M2 = 2077.642 M12 = 2431.298+2077.642/2=2254.47 SS BETWEEN n( M1 – M12 ) 2 + n( M2 – M12 ) 2 5(2431.298 – 2254.47)2 + 5(2077.642-2254.47 )2 = 313889 Docsity.com SS WITHIN ∑( 947.28 –2431.298 )2 + (2001.21 –2431.298 )2 + (2537.88 – 2431.298)2 + (3112.17 – 2431.298)2 + ( 3557.95 –2431.298)2 =4130055 ∑( 1212.68– 2077.642)2 + ( 1640.30– 2077.642)2 + ( 2007.28 – 2077.642) + (2532.95 – 2077.642)2 + ( 2995– 2077.642)2 = 1993843 TOTAL VARIANCE = 4130055+1993843=6123898 Source of variation SS D – F MS Between sample 2254.47 2-1=1 2254.47 Within sample 6123898 4+4=8 765487 F ratio 2254.47 / 765487= .0029 F (1, 8) = 5.32 The above table shows that the calculated value of F is .0029 which is less than the table value of 5.32 at 5% significant level. So, null hypothesis is accepted and we can say that there is no significance difference between PBT and PAT. Interpretation  According to above graph the null hypothesis is accepted that there is not so much variation between PAT and PBT.  This simply means company is not paying so much tax.  It is very good for the company that there is a very low rate taxes. Docsity.com CHAPTER SCHEME CONTENTS  Acknowledgement  Preface  Executive Summary  Chapter/Contents  Introduction  Profile of the study  Justification of study  Organization Structure  Objectives of study  Literature Review  Research Methodology and Analytical Tools  Sampling &Sampling Design  Analytical Tools – Statistical Tools  Data Collection  Hypothesis Testing  Limitations of Study  Findings  Recommendations  Policy Implications  Bibliography  Annexure Docsity.com BIBLIOGRAPHY Books: 1. Jain T.R., Statistics for M.B.A., page no. 1-15, 281-284, 301-305(second part), second edition: 2006-2007, V.K. (India) enterprise, Ambala city 2. Goel D.K. Management accounting and financial management, page no.4.1 to 4.83, third edition 2004, Avichal publishing company 3. Gupta Shashi K. & Sharma R.K., Financial Management, and page no. 88- 110, second edition V.K publication Delhi 4. Maheshwari S.N., management accounting and financial control, page no. 206- 219, third edition, Avichal publication 5. Kothari C.R., quantitative technique, page no.168-174, vikas publishing house pvt. Ltd.New Delhi, 2005: 6. Beri G. C., Marketing Research, page no. 1-13, third edition Tata McGraw Hill, New Delhi 7. Gupta S.P., statistical methods, page no. 221-249,321-356, fifth edition, V.K. publishing 8. Pandey I.M. Financial Management page no. 215-239, fifth edition, Vikas publication New Delhi 9. Sharma R.K, Management and Business Finance, page no. 77-89, second edition, kalyani publication 10. Baruch, Lev., Financial Statement Analysis-A new approach, Englewood cliffs, N.J., Prentice Hall of India, 2006,p-11 Docsity.com 11. Hooda R.P.,Statistics for Business and Economics, Macmillan India Ltd., NEW DELHI, p. no. 209-212 12. Ciaran Walsh, Key Management Ratios, Macmillan India Ltd., NEW DELHI,1999 P.No.(113-122) 13. Mittal.R.K, Management Accounting & Financial Management, V.K. (India) Enterprises, New Delhi P. No. (28-30) 14. Sharma S.C., Jain R.C., Business Statistics, pp.250-251. Websites: 1. www.icicibank.com 2. info@icicibank.com 3. www.icicidirect.com 4. www.myris.com 5. www.financemaster.com Docsity.com Docsity.com