logging in or signing up ICICI Analysis rejaulmeister Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1152 Category: Business & Fin.. License: All Rights Reserved Like it (1) Dislike it (0) Added: November 13, 2010 This Presentation is Public Favorites: 0 Presentation Description This is a technical analysis of ICICI financial statement, many values has been derived from NIFTY, and many from BLOOMBERG, moneycontrol, ICICI website. As all the internal details of ICICI cannot be derived, so we cannot claim 100% legitimacy of the valuations performed Comments Posting comment... By: sourav4u2005 (8 month(s) ago) nice ppt Saving..... 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Edit Comment Close Premium member Presentation Transcript Analysis of Financial Statement of ICICI : Analysis of Financial Statement of ICICI FLOW OF PRESENTATION : FLOW OF PRESENTATION Introduction to Corporate History Cost of Capital of ICICI Risk in Share Return Capital Structure Capital Budgeting Leverage Dividend Policy Review of Cash Management and Working Capital Comparative analysis of ICICI and HDFC Conclusion Corporate Introduction : Corporate Introduction ICICI Bank is a major banking and financial services organization in India It is the largest private sector bank in India ICICI showed over 20% compounded annual growth over a 24-year period ICICI was provided with AAA rating given by CRISIL The profit after tax of ICICI showed a growth over last year’s value of 37.58 billion and stands at 40.25 billion for FY2010. Cost of Capital for ICICI : Cost of Capital for ICICI We are using Cost of Debt and Cost of Equity to find out the cost of capital for ICICI Cost of Debt- The cost of Debt measures the current cost of the firm of borrowing funds to finance projects The formula used for finding Cost of Debt is I*(1-t) Where I= Interest Rate of the Company = Long term Bond Rate + Default Spread Rate And t= marginal tax rate of the company which is found out in the next slide Calculation of Marginal Tax : Calculation of Marginal Tax Profit Before Tax- 53.45 bn Profit After Tax- 40.25 bn Tax- 13.20 Tax Rate= 13.20*100/53.45= 24.7% Cost of Debt : Cost of Debt Cost of Equity : Cost of Equity E=Rf+β(Rm-Rf) Here Rf= Risk free Rate of Return or Long term Government Bond Rate in India= 7.82 Rm= Market Rate of Return β = Beta of Investment Firstly we have to find β To find Beta, we use the Formula β = Covariance of asset w.r. t Market Portfolio/ Variance of Market Portfolio CONTD…. : CONTD…. Covariance of asset w.r.t Market Portfolio = ∑ (X*Y)/ (n-1) = -0.365558676 N= no. of rows Variance of the Market Portfolio = ∑ (Y²)/ (n-1) = 4.070557038 Beta = (Covariance/Variance) -0.089805565 Rm= 52.75 So, Cost of equity = 8.5222 Cost of Capital : Cost of Capital Cost of capital (Kc) = Ke (E/(D+E)) + Kd (D/(D+E)) Given, Value of Equity capital= Rs. 516.18 bn in b/s Value of debt= Rs. 329.67 bn in b/s RISK IN SHARE RETURN : RISK IN SHARE RETURN The returns deviated around 40% from the mean value. The calculation is given below Capital Budgeting : Capital Budgeting Capital Budgeting: There are various methods available to know whether an investor should invest in a company or not. Here, Return on Equity and Return on Capital are the two methods used to understand whether one should invest in ICICI or not. Return on equity= Net income/ Average Book Value of Equity and Reserves Return on equity= EBIT(1-t)/Average Equity and Reserves. The table below calculates the Return on Equity Return on Equity : Return on Equity Cash Return on Capital : Cash Return on Capital Cash Flow Returns on Equity and Capital- One simple modification to the accounting returns on equity and capital is to use the cash earnings to compute these returns rather than the accounting earnings. Adding the noncash accounting expenses to operating earnings yields the cash operating earnings Cash Operating income= EBIT (1-t) + Depreciation and other Non Cash Charges When the cash operating earnings are divided by the average book value of capital invested in the project, we obtain a cash return on capital Cash ROC= Cash Operating Income/ Average Book Value of Capital Cash ROC : Cash ROC Leverage : Leverage Degree of Financial Leverage It is considered to be the % change in EPS due to 1% change in EBIT. Degree of Financial Leverage : Degree of Financial Leverage Another method of calculating Degree of Financial Leverage is by dividing total assets by share holders’ equity Degree of Operating Leverage : Degree of Operating Leverage Degree of operating leverage is the % change in EBIT due to 1 % change in Sales Degree of Total Leverage : Degree of Total Leverage Degree of Total Leverage is the % change is EPS due to 1 % change in sales turn over Dividend Policy : Dividend Policy Dividend Yield: We generally measure the dividends paid by a firm using one of two measures. The first is Dividend Yield, which relates the dividend paid to the price of the stock. Dividend Yield= Annual Dividends per share/ price per share The second widely used measure is Dividend Payout Ratio, which relates dividend paid to the earning of the firm Dividend payout ratio= Dividends/ Earnings (EBIT(1-t)) Calculated value of Dividend Yield and Dividend Payout Ratio : Calculated value of Dividend Yield and Dividend Payout Ratio Graphical Representation of Dividend : Graphical Representation of Dividend This graph clearly shows that the dividend earning is in proportion to the Earning made by the company. Rather we can say that the Dividend graph is smoother than the Earnings graph Review of Cash Management : Review of Cash Management ICICI Bank has its Capital Adequacy ratios at 19.4 percent much above the mandatory 9% requirement stipulated by RBI. Financial Leverage has been decreased from 10.24 to 7.67 which shows ICICI is not in the mood to take risk, it is increasing its equity wealth instead of relying on debt Contd… : Contd… Deposits decreased by 7% The efficiency ratio measures non-interest expense, or operating costs, as a percentage of income. Total Assets showed a decline of 4.2% by coming down to Rs. 3634 bn from Rs. 3793.01 bn. in March 31, 2009. COMPARATIVE ANALYSIS OF ICICI AND HDFC : COMPARATIVE ANALYSIS OF ICICI AND HDFC ICICI Bank has its Capital Adequacy ratios at 19.4 percent and HDFC has Capital Adequacy Ratio of 15.10 %. So ICICI scores better ICICI Bank has shown a drastic falling margins trend, with FY10 Return on Assets being 1.1%. HDFC continues to show upward trend with Return on Assets at 1.4%. Return on Equity figures show a dismal 7.79 percent. Compare this with the other leading private sector bank HDFC Bank with RoE at over 17.77 percent. CONTD… : CONTD… For ICICI cost efficiency ratio is just under 55%. Even PSUs have better cost efficiency ratio. HDFC has a cost efficiency ratio of 43% For ICICI Interest Income has declined by 17.3% while Fee Income has declined by about 13.4%. Deposits too have declined by ~7.5% For HDFC interest income increased by 61.25 % for FY09 and Fee Income has increased by 47% for FY09. Deposits too increased by 41.75%. Conclusion : Conclusion In case of ICICI, the Balance sheet shows that the bank continues to grow but the growth is very slow. The trend of last few years shows that the bank is losing assets, losing investor confidence and losing the competition to HDFC whose growth has been phenomenal for the past few years. The bank should pay attention to profitability and try to increase its Return on Equity and Return on Assets References & Bibliography : References & Bibliography www.icicibank.com www.moneycontrol.com www.yahoofinance.com Corporate Finance : Theory & Practice By Aswath Damodaran Slide 29: THANK YOU You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
ICICI Analysis rejaulmeister Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1152 Category: Business & Fin.. License: All Rights Reserved Like it (1) Dislike it (0) Added: November 13, 2010 This Presentation is Public Favorites: 0 Presentation Description This is a technical analysis of ICICI financial statement, many values has been derived from NIFTY, and many from BLOOMBERG, moneycontrol, ICICI website. As all the internal details of ICICI cannot be derived, so we cannot claim 100% legitimacy of the valuations performed Comments Posting comment... By: sourav4u2005 (8 month(s) ago) nice ppt Saving..... Post Reply Close Saving..... Edit Comment Close By: rejaulmeister (9 month(s) ago) Leave a comment on what you think about the presentation Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Analysis of Financial Statement of ICICI : Analysis of Financial Statement of ICICI FLOW OF PRESENTATION : FLOW OF PRESENTATION Introduction to Corporate History Cost of Capital of ICICI Risk in Share Return Capital Structure Capital Budgeting Leverage Dividend Policy Review of Cash Management and Working Capital Comparative analysis of ICICI and HDFC Conclusion Corporate Introduction : Corporate Introduction ICICI Bank is a major banking and financial services organization in India It is the largest private sector bank in India ICICI showed over 20% compounded annual growth over a 24-year period ICICI was provided with AAA rating given by CRISIL The profit after tax of ICICI showed a growth over last year’s value of 37.58 billion and stands at 40.25 billion for FY2010. Cost of Capital for ICICI : Cost of Capital for ICICI We are using Cost of Debt and Cost of Equity to find out the cost of capital for ICICI Cost of Debt- The cost of Debt measures the current cost of the firm of borrowing funds to finance projects The formula used for finding Cost of Debt is I*(1-t) Where I= Interest Rate of the Company = Long term Bond Rate + Default Spread Rate And t= marginal tax rate of the company which is found out in the next slide Calculation of Marginal Tax : Calculation of Marginal Tax Profit Before Tax- 53.45 bn Profit After Tax- 40.25 bn Tax- 13.20 Tax Rate= 13.20*100/53.45= 24.7% Cost of Debt : Cost of Debt Cost of Equity : Cost of Equity E=Rf+β(Rm-Rf) Here Rf= Risk free Rate of Return or Long term Government Bond Rate in India= 7.82 Rm= Market Rate of Return β = Beta of Investment Firstly we have to find β To find Beta, we use the Formula β = Covariance of asset w.r. t Market Portfolio/ Variance of Market Portfolio CONTD…. : CONTD…. Covariance of asset w.r.t Market Portfolio = ∑ (X*Y)/ (n-1) = -0.365558676 N= no. of rows Variance of the Market Portfolio = ∑ (Y²)/ (n-1) = 4.070557038 Beta = (Covariance/Variance) -0.089805565 Rm= 52.75 So, Cost of equity = 8.5222 Cost of Capital : Cost of Capital Cost of capital (Kc) = Ke (E/(D+E)) + Kd (D/(D+E)) Given, Value of Equity capital= Rs. 516.18 bn in b/s Value of debt= Rs. 329.67 bn in b/s RISK IN SHARE RETURN : RISK IN SHARE RETURN The returns deviated around 40% from the mean value. The calculation is given below Capital Budgeting : Capital Budgeting Capital Budgeting: There are various methods available to know whether an investor should invest in a company or not. Here, Return on Equity and Return on Capital are the two methods used to understand whether one should invest in ICICI or not. Return on equity= Net income/ Average Book Value of Equity and Reserves Return on equity= EBIT(1-t)/Average Equity and Reserves. The table below calculates the Return on Equity Return on Equity : Return on Equity Cash Return on Capital : Cash Return on Capital Cash Flow Returns on Equity and Capital- One simple modification to the accounting returns on equity and capital is to use the cash earnings to compute these returns rather than the accounting earnings. Adding the noncash accounting expenses to operating earnings yields the cash operating earnings Cash Operating income= EBIT (1-t) + Depreciation and other Non Cash Charges When the cash operating earnings are divided by the average book value of capital invested in the project, we obtain a cash return on capital Cash ROC= Cash Operating Income/ Average Book Value of Capital Cash ROC : Cash ROC Leverage : Leverage Degree of Financial Leverage It is considered to be the % change in EPS due to 1% change in EBIT. Degree of Financial Leverage : Degree of Financial Leverage Another method of calculating Degree of Financial Leverage is by dividing total assets by share holders’ equity Degree of Operating Leverage : Degree of Operating Leverage Degree of operating leverage is the % change in EBIT due to 1 % change in Sales Degree of Total Leverage : Degree of Total Leverage Degree of Total Leverage is the % change is EPS due to 1 % change in sales turn over Dividend Policy : Dividend Policy Dividend Yield: We generally measure the dividends paid by a firm using one of two measures. The first is Dividend Yield, which relates the dividend paid to the price of the stock. Dividend Yield= Annual Dividends per share/ price per share The second widely used measure is Dividend Payout Ratio, which relates dividend paid to the earning of the firm Dividend payout ratio= Dividends/ Earnings (EBIT(1-t)) Calculated value of Dividend Yield and Dividend Payout Ratio : Calculated value of Dividend Yield and Dividend Payout Ratio Graphical Representation of Dividend : Graphical Representation of Dividend This graph clearly shows that the dividend earning is in proportion to the Earning made by the company. Rather we can say that the Dividend graph is smoother than the Earnings graph Review of Cash Management : Review of Cash Management ICICI Bank has its Capital Adequacy ratios at 19.4 percent much above the mandatory 9% requirement stipulated by RBI. Financial Leverage has been decreased from 10.24 to 7.67 which shows ICICI is not in the mood to take risk, it is increasing its equity wealth instead of relying on debt Contd… : Contd… Deposits decreased by 7% The efficiency ratio measures non-interest expense, or operating costs, as a percentage of income. Total Assets showed a decline of 4.2% by coming down to Rs. 3634 bn from Rs. 3793.01 bn. in March 31, 2009. COMPARATIVE ANALYSIS OF ICICI AND HDFC : COMPARATIVE ANALYSIS OF ICICI AND HDFC ICICI Bank has its Capital Adequacy ratios at 19.4 percent and HDFC has Capital Adequacy Ratio of 15.10 %. So ICICI scores better ICICI Bank has shown a drastic falling margins trend, with FY10 Return on Assets being 1.1%. HDFC continues to show upward trend with Return on Assets at 1.4%. Return on Equity figures show a dismal 7.79 percent. Compare this with the other leading private sector bank HDFC Bank with RoE at over 17.77 percent. CONTD… : CONTD… For ICICI cost efficiency ratio is just under 55%. Even PSUs have better cost efficiency ratio. HDFC has a cost efficiency ratio of 43% For ICICI Interest Income has declined by 17.3% while Fee Income has declined by about 13.4%. Deposits too have declined by ~7.5% For HDFC interest income increased by 61.25 % for FY09 and Fee Income has increased by 47% for FY09. Deposits too increased by 41.75%. Conclusion : Conclusion In case of ICICI, the Balance sheet shows that the bank continues to grow but the growth is very slow. The trend of last few years shows that the bank is losing assets, losing investor confidence and losing the competition to HDFC whose growth has been phenomenal for the past few years. The bank should pay attention to profitability and try to increase its Return on Equity and Return on Assets References & Bibliography : References & Bibliography www.icicibank.com www.moneycontrol.com www.yahoofinance.com Corporate Finance : Theory & Practice By Aswath Damodaran Slide 29: THANK YOU