ANALYSING PERFORMANCE OF FINANCIAL INSTITUTIONS CLEMENT MUMBO (Bsc Banking &Finance)

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Presentation transcript:

ANALYSING PERFORMANCE OF FINANCIAL INSTITUTIONS CLEMENT MUMBO (Bsc Banking &Finance)

Key topics  Financial statements  Income statements  Balance sheet  Financial statement Manipulation  key measurements and ratios

WHO ARE THE USERS OF FINANCIAL STATEMENTS Employees Managers Suppliers The government Customers Investors

Why financial statements Employees will need financial statements for the purpose of bargaining/negotiations. Managers use financial statements to make important business decisions. Investors use it to assess the risk and return of their investment. The government for the purpose of tax and regulating

Income statements

Interpreting Profitability Ratios Each of the foregoing ratios looks at a slightly different aspect of profitability. Thus, return on assets (ROA) is primarily an indicator of managerial efficiency; it indicates how capable management has been in converting assets into net earnings. Return on equity (ROE), on the other hand, is a measure of the rate of return flowing to shareholders. It approximates the net benefit that the stockholders have received from investing their capital in the financial industry

Areas of Focus  non interest expense is defined as a non expense not associated with attracting and keeping depositors funds 1.Personal expense -wages -salaries 2.Occupancy expense -rent -depreciation on buildings and equipment 3.Other operating expenses -general overhead -Data processing -

Financial statement Manipulation  The usefulness of financial statements depends on the quality and consistency of data.  Nonrecurring extraordinary transactions:  Discretionary interpretation reporting requirement  Off balance sheet items  Special purpose vehicles (SPV)  Window dressing: increasing period ending assets or liabilities

Sources  Bank Management,5 th edition Timothy W and S. scott  I'.Kimball, Ralph, "Innovations in Performance Measurement in Banking,"Nen'  England Economic Review,, Federal Reserve Bank of Boston, May June  Il)tC Study of Bank Overdraft Programs, November 2008, rmwv.fdic.gov.  Gatti, Stenfano Project Finance in Theory and Practice, Elsevier Inc