A Comparative Study Between Axis Bank and ICICI Bank by Ratio Analysis
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A Comparative Study Between Axis Bank and ICICI Bank by Ratio Analysis

Pallavi Bhoyar

Student, Department of Business Management,

Jhulelal Institute of Technology.

Prof. Geetika Bhutani

Assistant Professor, Department of Business Management

Jhulelal Institute of Technology, Nagpur

Abstract:

Banking industry plays an important role in development of a country. Bank is the backbone of a country. International studies showed that Indian banking performing well during recession period of 2008. Purpose of present study is measure and compares the financial performance and health of ICICI bank and Axis bank. Present study is descriptive in nature and researcher take a sample of two banks namely ICICI bank and Axis bank. Present study tries to compare the financial performance of two bank on different parameters like operating profit ratio, earning per share, assets turnover ratio, debt-equity ratio etc. this study purely based on secondary data that gathered from audit annual reports of bank, published research article, newspapers and websites. Study is relevant for the period of 2009-14. Ratio and percentage methods are used for analysis of data. For testing of hypothesis independent sample t-test is used. In the last, researcher concluded that performance of banking industry not only influenced by domestic factors but also a number of international factors influenced the banks performance. Despite all these challenges, we concluded that both performing well on net profit parameter. It also concluded that Axis bank generating more return on net worth compares to its rival ICICI bank. Axis bank performs well on earning per share, assets turnover and debt-equity parameters. Overall performance of Axis bank is good compare to ICICI Banks.


Keywords: Financial performance, Ratio analysis, Operating profit ratio, Current ratio.

INTRODUCTION

Financial ratios are mathematical comparisons of financial statement accounts or categories. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and of areas needing improvement.

Financial ratios are the most common and widespread tools used to analyze a business’ financial standing. Ratios are easy to understand and simple to compute. They can also be used to compare different companies in different industries. Since a ratio is simply a mathematically comparison based on proportions, big and small companies can be use ratios to compare their financial information. In a sense, financial ratios don’t take into consideration the size of a company or the industry. Ratios are just a raw computation of financial position and performance.

Ratios allow us to compare companies across industries, big and small, to identify their strengths and weaknesses. Financial ratios are often divided up into seven main categories: liquidity, solvency, efficiency, profitability, market prospect, investment leverage, and coverage.

Following ratios will be used to determine financial performance-

1.Current Ratio

The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short- term liabilities are due within the next year.

This means that a company has a limited amount of time in order to raise the funds to pay for these liabilities. Current assets like cash, cash equivalents, and marketable securities can easily be converted into cash in the short term. This means that companies with larger amounts of current assets will more easily be able to pay off current liabilities when they become due without having to sell off long-term, revenue generating assets.

Formula

The current ratio is calculated by dividing current assets by current liabilities. This ratio is stated in numeric format rather than in decimal format. Here is the calculation:

GAAP requires that companies separate current and long-term assets and liabilities on the balance sheet. This split allows investors and creditors to calculate important ratios like the current ratio.

Analysis

The current ratio helps investors and creditors understand the liquidity of a company and how easily that company will be able to pay off its current liabilities. This ratio expresses a firm’s current debt in terms of current assets. So a current ratio of 4 would mean that the company has 4 times more current assets than current liabilities.

A higher current ratio is always more favorable than a lower current ratio because it shows the company can more easily make current debt payments.

If a company has to sell of fixed assets to pay for its current liabilities, this usually means the company isn’t making enough from operations to support activities. In other words, the company is losing money. Sometimes this is the result of poor collections of accounts receivable.

The current ratio also sheds light on the overall debt burden of the company. If a company is weighted down with a current debt, its cash flow will suffer.

2. Quick ratio

The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are considered quick assets.

Short-term investments or marketable securities include trading securities and available for sale securities that can easily be converted into cash within the next 90 days. Marketable securities are traded on an open market with a known price and readily available buyers. Any stock on the New York Stock Exchange would be considered a marketable security because they can easily be sold to any investor when the market is open.

The quick ratio is often called the acid test ratio in reference to the historical use of acid to test metals for gold by the early miners. If the metal passed the acid test, it was pure gold. If metal failed the acid test by corroding from the acid, it was a base metal and of no value.

The acid test of finance shows how well a company can quickly convert its assets into cash in order to pay off its current liabilities. It also shows the level of quick assets to current liabilities.

Formula

The quick ratio is calculated by adding cash, cash equivalents, short-term investments, and current receivables together then dividing them by current liabilities.

Sometimes company financial statements don’t give a breakdown of quick assets on the balance sheet. In this case, you can still calculate the quick ratio even if some of the quick asset totals are unknown.

Simply subtract inventory and any current prepaid assets from the current asset total for the numerator.

Here is an example.

Analysis

The acid test ratio measures the liquidity of a company by showing its ability to pay off its current liabilities with quick assets. If a firm has enough quick assets to cover its total current liabilities, the firm will be able to pay off its obligations without having to sell off any long-term or capital assets.

Since most businesses use their long-term assets to generate revenues, selling off these capital assets  will not only hurt the company it will also show investors that current operations aren’t making enough profits to pay off current liabilities.

OBJECTIVES OF THE STUDY

  • To compare and evaluate the financial health of Axis and ICICI Bank.
  • To calculation of Net Profit and Operating Profit Ratio.
  • To calculation of quick ratio.
  • To calculation of return on Net worth ratio and Current Ratio.

RESEARCH METHODOLOGY

1. RESEARCH METHODOLOGY

Research methodology is an important tool in any research work. It acts as guideline and road in completion of research. It is scientific search for data and information on as particular topic research is search for knowledge.

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying now research is done systematically. In that various steps,  those are generally adopted by a researcher in studying his problem along with the logic behind them. It is important for research to know not only the research method but also  know methodology.

DEFINITION:-

“ The procedures by which researcher goes about their work of describing, explaining and predicting phenomenon are called methodology. Methods comprise the procedures used for generating, collecting and evaluating data. All this means that it is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem”.

TYPES OF RESEARCH Primary Research Vs. Secondary Research

Conducting primary research occurs when a company is gathering information directly for

themselves. This type of research is often conducted through the medium of questionnaires, observations and interviews. This method can often be very useful to companies because the results are specific to that particular business. The findings can also be regarded as being reliable and accurate because the company has conducted the research independently. Secondary research differs from primary research because it involves a company using research that has been conducted by someone else. For example, an organization may use findings through a relevant journal, website or newspaper article.

Basic / Fundamental Research vs. Applied Research

Basic research whether in business or any other field has as its basic goal, to expand one’s knowledge? Basic questions such as, How can we increase production and save money at the same time, might be a question for business. If, we increase production, we also increase the cost of payroll by hiring additional production employees. How can this save money? Curiosity lies at the heart of all business and it is this curiosity,

Applied research is solutions designed from basic research information, aimed at the solution of business problems within the company. The goal of applied research is change for the better, improvements in business management and practice aimed at improving the human condition.

Qualitative Research Vs. Quantitative Research

Qualitative research, is merely explained in words and descriptions of what the studies found. For example, if the researcher found that they found the people in debt to be very funny, care-free, friendly individuals, Quantitative research is of course, the complete opposite, and again, the clue is in the name. It is called quantitative research because it works with numbers, quantities and statistics.

Finding

The study provide the some key factor on the behalf we take some important decision

  • The average net profit of ICICI bank is 15.38 and Axis bank is 11.65, which is the more than 3.73 of Axis bank.it mean that ICICI bank performance is better than Axis bank.
  • The average operating profit of Axis bank is 12.67 and ICICI bank is 3.58, which is more than 9.09 of ICICI bank .it mean that Axis bank performance is better than of ICICI bank.
  • The average net operating profit of Axis bank is 179.97 and ICICI bank is 90.44, which is more than 89.53 of ICICI bank. It mean that Axis bank performance is better than of ICICI bank.
  • The average current ratio of Axis bank is 0.08 and ICICI bank is 0.11, which is more than 0.03 of Axis bank .it mean that ICICI bank is better performance.
  • The average liquid ratio of Axis bank is 20.27 and ICICI bank is 16.84, which is the more than 3.43 of ICICI bank .it mean that Axis bank performance is better than ICICI bank.
  • The average return on net worth ratio of Axis bank is 9.19 and ICICI bank is 9.002, which is the more than 0.19 of ICICI bank .it mean that Axis bank performance is better than ICICI bank.
  • The average total asset turnover ratio of Axis bank is 0.08 and ICICI bank is 0.07, which is the more than 0.01 of ICICI bank .it mean that Axis bank performance is better than ICICI bank.

CONCLUSION

  • Overall if you look at the ratios of AXISand ICICI in past 5 financial years we can see that the values indicated reasonably satisfactory financial position of the company however some key issue must be addressed.
  • The liquidity of the company is quite good but still there is an opportunity for converting short term assets into long term investment.
  • The market demand of the company’s share is quite good since it is being sold in the market above its book value more than 10 times on an average.
  • From the values of retune on equity it can be concluded that the company has a capacity to earn higher returns but the declining trend of return on equity is a key issue for the company.
  • In first three financial year all turnover ratio look good means the efficiency of the company resources is gradually decreasing and the company must address this problem as a high priority.

BIBLIOGRAPHY

BOOKS

  • Arun T.G. Turner, G.D. (2002), financial sector reforms in developing (countries), the Indian experience (pp. 429.445) India. Blackwell publisher Ltd.
  • Gizaw K. D. &Pagidimarri V (2013), Impact of service quality of customer loyalty A study of Ethiopian policy holder, The india Journal of Commerce, 66 (4) 1 – 10.

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