SC3-Chapter 12-RATIO Performance Analysis pt1

SC3-Chapter 12-RATIO Performance Analysis pt1 -...

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Performance Analysis SC3-Chapter 12
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Financial Analysis of a Bank The dollar amounts found on the Balance Sheet and Income Statement provide important insights into the performance and condition of a bank However bank managers, analysts and regulators generally use this information to construct ratios that are particularly useful for comparisons Identifying good or bad performance Determining the causes of the good or bad performance
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Financial Analysis of a Bank To complete any performance/ratio analysis, ratios must be put into context The four typical yardsticks are The bank’s past performance (trends) The bank’s performance plan (variances) The performance of peer (similar banks) The performance of high performance banks
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Financial Analysis of a Bank The focus should always be on income from continuing operations ….. Not from one time events (timing is discretionary in many cases) Thus care should be taken in the treatment of such discretionary items as securities gains and losses provision for loan and lease losses write-offs, charge-downs, recoveries Are they being used to manage earnings?
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Financial Analysis of a Bank Construction of Ratios Recall the Income Statement provides information over a period of time Recall the Balance Sheet provides information at a point in time. Ideally ratios constructed using Income Statement and Balance Sheet information should take account of this difference.
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Financial Analysis of a Bank For any given time period, such as a quarter or a year, the ratios should be computed as follows: let IS indicate the income statement item for period t to
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SC3-Chapter 12-RATIO Performance Analysis pt1 -...

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