Investing Activities: Represents cash flow from the purchase and sale of assets other thaninventories (e.g. purchase of a factory plant)Financing Activities: Represents cash flow generated or spent on raising and repaying sharecapital and debt together with the payments of interest and dividends.4.Statement of Changes in Equity
Statement of Changes in Equity, also known as the Statement of Retained Earnings, details themovement in owners' equity over a period. The movement in owners' equity is derived from thefollowing components:Net Profit or loss during the period as reported in the income statementShare capital issued or repaid during the periodDividend paymentsGains or losses recognized directly in equity (e.g. revaluation surpluses)Effects of a change in accounting policy or correction of accounting error(accounting-simplified.com/financial/statements/types.html)2.1.4 Methods of financial statement analysisCAMEL ModelCAMELS rating is an international (primarily USA) supervisory rating system to classify abank / financial institution's overall condition according to 6 factors. The six factors arerepresented by the acronym 'CAMELS. It is basically ratio based model for evaluating theperformance of banks. It is a management tool that measures capital adequacy, assets quality, andefficiency of management, earnings’ quality and liquidity of financial institutions. CAMEL is asystem of rating for on-site examinations of banks. Officially known as the uniform financialinstitutions rating system (UFIRS), CAMEL is a supervisory rating system adopted by theFederal Financial Institutions Examination council (FFIEC) on 1979.BREAKING DOWN 'CAMELS Rating System'The acronym CAMELS stand for the following factors that examiners use to rate bankinstitutions:Capital AdequacyExaminers assess institutions' capital adequacy through capital trend analysis. Examiners alsocheck if institutions comply with regulations pertaining to risk-based net worth requirement. Toget a high capital adequacy rating, institutions must also comply with interest and dividend rulesand practices. Other factors involved in rating and assessing an institution's capital adequacy areits growth plans, economic environment, ability to control risk, and loan and investmentconcentrations.Capital Adequacy reflects the overall financial condition of the banks. It also indicates whetherthe bank has enough capital to absorb unexpected losses. Capital Adequacy ratio acts as anindicator of bank leverage. The main components of this ratio are,Equity capital to total assets=Total shareholders/Total Asset Leverage Ratio =Total DEBT/Total Shareholders’ EquityDebt equity ratio (DIR):this ratio indicates the degree of leverage of a bank .Itindicates how much though the equity.
Asset QualityAsset quality covers an institutional loan's quality which reflects the earnings of the institution.