Essays on Ratios for Emirates Islamic Bank and Commercial Bank of Dubai Case Study

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The paper 'Ratios for Emirates Islamic Bank and Commercial Bank of Dubai" is a good example of a finance and accounting case study.   Financial analysis is very important for all business. Analyzing the statement helps in “ planning, budgeting, monitoring, forecasting and improving the financial performance by taking the vital decision” . (Micro Strategy, 2010) Proper analysing helps a long way to “ understand financial health” . (Micro Strategy, 2010) It helps to identify trends and compare with competitors and industry to gain an advantage. The following is the ratios for Emirates Islamic Bank and Commercial Bank of Dubai. Liquidity Ratios This ratio plays an important part and helps “ to identify the firm's ability to meet its short term obligations and plays a huge role in the performance” .

(Financial Modelling Guide, 2010) The ratios for Emirates Islamic Bank and Commercial Bank of Dubai are Current Ratio: “ It measures the ability to pay the short term liabilities out of short term assets” . (Financial Modelling Guide, 2010) This ratio helps creditors, suppliers and investor to identify the liquid position. It is calculated as “ Current Assets / Current Liabilities” . The current ratio for both the companies are as (appendix) The graph looks as follows The ratio shows that the Commercial Bank of Dubai has a better liquidity position as compared to Emirates Islamic Bank.

Emirates Islamic Bank needs to improve the ratio as it is a concern as the short term obligations are higher. This might make investors and suppliers stay away. Commercial Bank of Dubai, on the other hand, is in a better position but still needs to take it slightly up. When we consider the two companies together it shows that Commercial Bank of Dubai has better policies and strategies as compared to Emirates Islamic Bank. The positive for Emirates Islamic Bank and Commercial Bank of Dubai is consistency.

They need to work more and ensure that it reaches around 2. Emirates Islamic Bank and Commercial Bank of Dubai, on the other hand, needs an immediate strategy as it is showing the business is not liquid and facing obstacle. This might make investors stay away. Cash Flow Ratio: It is defined as “ the ability of the firm to meet the current liabilities out of its operating activities” .

(Financial Modelling Guide, 2010) It is calculated as “ Net Cash from Operating Activities / Current Liabilities X 100” . The ratios for both the companies are as follows The graph looks as follows The ratio for Emirates Islamic Bank and Commercial Bank of Dubai has fallen in 2010 as compared to 2009 and 2008. It shows that the inability of Emirates Islamic Bank and Commercial Bank of Dubai to pay its current bills has decreased. Commercial Bank of Dubai, on the other hand, has shown improvement. It is placed better compared to Emirates Islamic Bank.

Both the companies need to ensure that the operating activities contribute more as it suggests the line of business the company is in and the ability to meet its current obligations from those. Capital Structure Ratio This ratio is of prime importance and provides relevant information about the company. “ It identifies how much of the firm’ s assets are financed through debt and includes long term debt” . (Transtutor, 2010)

References

Commercial bank of Dubai, (2010), retrieved on November 28, 2010 from http://www.cbd.ae/about_Annual.aspx

Emirates Islamic bank, (2010), retrieved on November 28, 2010 from http://www.emiratesislamicbank.ae/nr/eib/aboutus/financials/annualreport.htm

Financial Modelling Guide, (2010), “Liquidity ratios”, retrieved on November 28, 2010 from http://www.financialmodelingguide.com/financial-ratios/liquidity-ratios/

Joseph K, (2010), “Analyzing an income statement: Return on Assets”, about.com guide, The New York Times Company

Joseph K, (2010), “Analyzing an income statement: Return on Equity”, about.com guide, The New York Times Company

Kennon J, (2010), “Analyzing an income statement: Net Profit Margin”, about.com guide, The New York Times Company

Micro Strategy, (2010), “Financial Analysis”, retrieved on November 28, 2010 from http://www.microstrategy.com/financial-analysis/

Transtutor, (2010), “Capital Structure Ratios”, retrieved on November 28, 2010 from http://www.transtutors.com/finance-homework-help/dividend-decisions-and-tools-of-financial-planning/Capital-Structure-Ratios.aspx

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