Financial evaluation

Analysis and interpretation of bank accounts will give an indication of the bank’s performance. They would usually involve;

Analysis and interpretation of bank accounts will give an indication of the bank’s performance. The would usually involve; 

1.  Ratio analysis

a.       Profitability; to evaluate as to how well the bank performed.

Gross profit Margin = Gross profit* 100/ Revenue

Operating Profit= EBIT *100/Revenue

Net Profit= Net profit*100/ Revenue

b.      Liquidity analysis; to identify the short-term financial health of the bank.

Current Ratio= Current Assets/ Current Liabilities

Quick Ratio = Current Assets (less inventory)/ Current Liabilities

c.       Leverage analysis; to identify and measure the risk.

Gearing Ratio= Debt*100/ Equity

2.   Trend analysis; to evaluate the growth or performance trend over the period.

Taking ratios of different periods and comparing for appreciation or deterioration.

3.  Cash flow; identify and ascertain the positive or negative cash generation over the period. It analyzes the deficit/ surplus of cash generated by Operating activities, investing activities, and financing activities.

4.   Evaluate the off-balance sheet item to identify contingent assets and liabilities. 

Non-financial evaluation

Balanced Scorecard Approach

Kaplan and Norton in their book “The balanced Scorecard” have described the framework for performance measurement for a service industry. The balance scorecard approach consists of a variety of indicators both financial and non-financial. The method focuses on four different perspectives and aims to establish goals for each together with measures that can be used to evaluate whether these goals have been achieved. These are;

1. Financial perspective; this is a financial measurement as mentioned above.
2. Internal business perspective; what and where the bank must excel at
3. Customer perspective; how customers see us, customer perspective about the bank
4. Innovation and Learning perspective: Can we continue to improve and create value.

 Building Blocks Model

Moon and Fitzgerald in their model propound that a performance measurement system in a service entity can be analyzed as a combination of three building blocks.

1. Dimensions of performance; These are determinants and include profit, Competitiveness, Quality, Resource allocation, Flexibility, and innovations.
2. Standards: these are the targets of performance i.e. Ownership, Achievability, Equity
3. Rewards; these are the rewards system for achievers and include Clarity, Motivation, Controllability