Question

Calculate the Following Ratios

Net Interest Margin

Profit Margin

ROE

ROA

Spread Ratio

Asset Utilization Ratio

Equity Multiplier

Provision for loan loss ratio

Boca State Bank Income Statement Month Ending July 31, 2020 Boca State Bank Balance Sheet July 31, 2020 Income Amount($) $9,000 $4,000 Interest on fees and loans Interest on investment securities interest on reverse repos interest on deposits in other banks Total Income Assets Cash and due from banks Investment securities Reverse Repos Loans Fixed asset other asset Total asset Amount $9,000 $23,000 $42,000 $90,000 $15,000 $4,000 Liabilities and equity Demand deposit Now accounts Retai CDs Long Term Debt Total liabilities Amount $19,000 $89,000 $28,000 $19,000 $6,000 $1,000 $155,000 $20,000 $183,000 Expenses Less:Interest on deposits Less:Interest on long term debt Total Interest Expense Net Interest Income ($9,000) ($2,000) Shareholder's Equity Common stock Paid in capital Retained earnings Total equity $12,000 $4,000 $12,000 $28,000 ($11,000) $9,000 Total Equity and Liabilities $183,000 Non-Interest Expenses Less :Provision for loan losses Add :Other income Less:Other expense EBIT Less :Taxes Net income ($2,000) $2,000 ($1,000) $8,000 ($3,000) $5,000

Answer 1

1. Net Interest Margin
Formula	(Net Interest Income - Net interest cost)/ Interest earning assets
	Net Interest Income
	Interest on fees and loans	9,000
	Interest on Investment and Securities	4,000
	Interest on reverse repos	6,000
	Interest on deposit in other banks	1,000
	Net Interest Income	20,000
	Net Interest Cost
	Interest on deposits	9,000
	Interest on long term debt	2,000
		11,000
	Interest Earning Assets
	Cash and due from banks	9,000
	Investment securities	23,000
	Reverse Repos	42,000
	Loans	90,000
	Interest Earning Assets	1,64,000
So NIM is	(20000-11000)/164000
i.e.	5.49%
2. Profit margin
Formula	Net Profit/ Revenue
	Here
	Net Profit is $5000
	Revenue is $20000
	therefore Profit margin is
	5000/20000
	i.e. 25%
3. ROE
Formula	Net Profit/ Shareholder's equity
	Here Shareholder's equity
	Common Stock	12,000
	Paid in capital	4,000
	Retained earnings	12,000
	Shareholder's equity	28,000
	therefore ROE is
	5000/28000
	i.e. 17.86%
4. ROA
Formula	Net Profit/ Total Assets
	therefore ROA is
	5000/183000
	i.e. 2.73%
5. Spread Ratio
Formula	Interest Spread ratio=
	(Interest Income/Interest earning assets)-(interest expense/Avg. int bearing liabilities)
	Interest Income	20,000
	Interest Earning Assets	1,64,000
	(As per NIM Formula)
	Interest Expense	11,000
	Interest bearing liabilities
	Demand deposit	19,000
	Accounts	89,000
	Retail CDs	28,000
	Long term debt	19,000
		1,55,000
	i.e. = (20000/164000)-(11000/155000)
	i.e. 5.10%
6. Asset Utilization Ratio
Formula	Revenue/Total Assets
	i.e. 20000/183000
	10.93%
7. Equity Multiplier
Formula	Total Assets/ Shareholder's Equity
	i.e. 183000/28000
	i.e. 6.54
8. Provision for loan loss ratio
Formula	(Profit before tax + provision for loan losses)/ Loan book
	i.e. (8000+2000)/90000
	i.e. 11.11%