SC3-Chapter 12-RATIO Performance Analysis pt2

SC3-Chapter 12-RATIO Performance Analysis pt2 - AUR Asset...

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3/17/11 AUR Asset Utilization Rate, AUR , measures the ability of the bank’s assets to generate income(revenue). Depends on the composition of assets, interest rates earned on assets and volume of assets AUR can be increased by a change in composition of assets - to a mix with a higher return AUR can be increased with the same volume and composition if interest rates increase
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3/17/11 ROE, PM, AUR and EM ROE can now be decomposed into the product of three  terms: Obj103 Since ROA=(PM x AUR)
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3/17/11 Decomposing Profit Margin, PM Profit Margin, PM, can next be decomposed into the product of two terms. Obj104 The  difference between  “ Net Income after Tax ” and “ Net Income before Tax  is the bank’s  tax liability . The  difference between  “ Net Income before Tax”  and “ Total  Operating Income ” is  Total Operating Expenses.
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3/17/11 Decomposing PM Decomposing Profit Margin, PM, into the tax efficiency ratio and the  cost or operating efficiency ratio focuses on  the bank’s ability to manage its taxes tax efficiency and  on the bank’s ability to manage its expenses (costs) operating efficiency
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3/17/11 Final Form for Decomposing ROE ROE =  Tax Efficiency Ratio  x  (Cost or)   Operating Efficiency Ratio  x  Asset  Efficiency Ratio  x  Funds Efficiency Ratio or Obj105 | ROE =        PM        x   AUR  x  EM
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SC3-Chapter 12-RATIO Performance Analysis pt2 - AUR Asset...

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