How efficient have commercial banks been in utilizing their assets and equity? Does your bank provide the highest return?

In the stock market, before investing in a stock, one has to go through different numbers from the financial report of a company to make sure the company’s financial health is great. For starters indicators such as Net profit, earnings per share, net worth per share, P/E ratio, Margin ratios are mandatory. These indicators give an idea about the financial strength of the company and its future prospects. However, the above-mentioned indicators fail to assess the efficiency of the company is utilizing its assets and equity. Both indicators are expressed in percentages.

To make sure the company utilizes shareholders' money, Return on Equity (ROE) is an indicator to look at. ROE is calculated by dividing the net profit by total shareholders’ equity. The following table demonstrates the Return on Equity (ROE) of the company which is based on the latest data of Q4, 2076/2077.

The industry average ROE has decreased to 10.78% from 14.40% posted in the previous year. The highest ROE has been posted by NIC Asia Bank Limited (NICA) at 18.11% while Civil Bank Limited (CBL) has the lowest ROE of 4.54%.

The other indicator is the Return on Asset (ROA) which clarifies how the company is utilizing the asset of the company. ROA is calculated by dividing the net profit by the total asset. The following table demonstrates the Return on Asset (ROA) of the company which is based on the latest data of Q4, 2076/2077.

The industry average ROA has decreased to 1.23% from 1.81% posted in the previous year. The highest ROA has been posted by Agricultural Development Bank Limited (ADBL) at 1.93% but the indicator has been decreased from 2.85%. Civil Bank Limited (CBL) has the lowest ROA of 0.59% from 1.25% as per the Q4 of FY 2075/2076.

Due to the economic distress created by the global pandemic, every indicator of the companies has been hit including ROE and ROA.