Essays on Business Analaysis: Analyising The Balance Sheet For The Bank Assignment

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Investment Securities 10Investment in associates 11Fixed assets 12Derivative Financial Instrument 12Investment Properties 13Property & equipment 14References 16IntroductionFinancial statement forms an important aspect for all organization and the importance multiplies for banks as they mobilize the savings of people into loans. The report hereby presents the manner in which the funds were mobilized by analyzing the asset side to check the efficiency of the management and to find out whether the increase is good or bad. This will thereby help the bank to take the necessary steps to ensure that it is able to grow and win public confidence.

Purpose of the reportTo look into the assets side of the bank financial statement and see whether it has grown or decreased in comparison with the previous yearTo identify whether the increase or decrease is good and why is it soTo provide recommendation to the bank to improve its working by taking necessary steps for each individual assetsCurrent AssetsCurrents assets are those “assets which can be converted into liquid cash within an operational cycle”. (Hafez, 2010) Operating cycle differs on the nature of business as some business has it less than a year and some more than a year.

Normally assets which are converted into cash in a year is considered as current assets. This is an important aspect for every business because it determines the manner a business has liquidity. Current assets thus are in the following formsCash formWill be realized as cash in short term like debtorsStocks or other units which will be converted into cash within an operating cycle or one yearEvery organization has to maintain current assets irrespective of its size.

This is true for the banking sector as they provide liquidity by providing money to the borrowers. It is important to maintain liquidity and assets which will be shortly converted to cash. The current assets held by banks are as followsCash & Balances with Central BankThis is the amount which banks have parked with the central bank. Every bank is required to deposit a certain percentage of cash with the central bank as the reserve requirements. Every country has prescribed a certain percentage of money which has to be kept with the central bank to ensure liquidity.

This helps the economy as it ensures that banks don’t fail. (Heller & Lengwiler, 2003) Central bank pays interest on the reserves kept with it by other banks. The analysis of the cash and balances with central bank looks as follows2009 = 4,139,015,000 (in AED)2008 = 3,911,009,000 (in AED)Increase = 2009 – 2008 = 4,139,015,000 – 3,911,009,000 = 228,006,000 (in AED)Percentage Increase = (Increase / 2008) *100 = (228,006,000 / 3,911,009,000) * 100 = 5.83%The figures show that there has been a growth in cash and balances with central bank which shows that the reserve requirement has grown.

This is due to the fact that banks deposit and loans have grown. The money circulation has grown which makes it mandatory for banks to keep a certain percentage with the central bank. This is a good sign and needs to continue similarly. This signals that the bank has grown in its operation which has increased the size of deposit with the central bank. Another factor which could lead towards an increase is the growth in the reserve requirement.

This forces banks to park more funds with the central bank. This reduces the lending capacity for banks and acts as a drawback as their lending power falls. On the other hand it ensures that banks don’t fail as the reserve requirement helps to ensure liquidity and bank failures reduces.

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