Contents

Introduction................................................................................................................................................1
Background of the organization.................................................................................................................2
Theoretical aspect general overview of Financial statement analysis......................................................3
Expected holding period.............................................................................................................................6
Dividend growth rate..................................................................................................................................7
Price earnings ratio.....................................................................................................................................8
Return on Equity(ROE)................................................................................................................................9
Return on Asset(ROA)...............................................................................................................................10
Liquidity and Coverage Ratios..................................................................................................................11
Financial statement analysis for Enat Bank..............................................................................................14
Summary...................................................................................................................................................15
Reference..................................................................................................................................................16
Appendix...................................................................................................................................................17

Introduction
Financial statement analysis for Enat Bank. financial ratios are created with the use of
numerical values taken from financial statements of the bank’s annual audit report to
shareholders to gain meaningful information about the bank. The numbers found on a bank’s
financial statements – balance sheet, income statement, and cash flow statement are used to
perform quantitative analysis and assess a company’s liquidity, leverage, profitability, rates of
return, valuation, and more.
The analysis tries to show the performance of Enat Bank in ratio, percentage and graphical form
by taking a five-year financial statement from 2014 to 2019 and comparing them by trend line
and bar graph and table form.
Specific analysis methods were used in considering that Eat Bank is a capital based instituter,
the paper tried to show the by starting off with the expected holding period, and following with
dividend growth rate, price earnings ratio Return on equity and return on Asset (ROE&ROA),
liquidity and coverage ratio, leverage ratio and cash ratio.
The primary source of data is Enat Bank’s annual report, including the financial statements and
notes, and management commentary (operating and financial review or management’s
discussion and analysis). This reading focuses on data presented in financial reports prepared
under International Financial Reporting Standards (IFRS) for the annual reporting period from
2014 to 2019.
The paper concludes with the full scale ratio analysis comments. All value amounts generated
form the annual report financial statement are in ETB currency.

Background of the organization

Enat bank is a unique bank established with inimitable business and social objectives.
Nationwide, it is the first commercial bank to be founded by Ethiopia Women visionaries.
The bank launched its formal operations on March 5, 2013 to render banking services to the
public.
Enat bank has thus far raised a total subscribed capital of birr 354.7 million, of which more than
birr 262.6 million is duly paid. The major shareholders are women who account for 63.4% of the
total shareholders.
The bank embraces a women financial sector department responsible for ensuring and
facilitating financial access to women and to mainstream gender in the bank’s internal
organizational arrangement and the provision of services.
The bank has developed a unique financial instrument exclusively for women. There are for
example women saving accounts meant to reward women account holders and a savings
collateral guarantee credit scheme intended to support women who have no physical asset to
pledge as collateral for loans.
Vision and Mission statements of Enat Bank
Vision
To become a world-class bank mainly by leveraging women’s capabilities.
Mission
To become a trendsetter in the delivery of quality bank service with a special focus on the
needs of women, and to play a catalytic role in stimulating social and economic development
and creating shareholders value.

Theoretical aspect general overview of Financial statement analysis

As per Elaine Henry, PhD, CFA, Thomas R. Robinson, PhD, CFA, and Jan Hendrik
van Greuning, DCom, CFA, 2011 CFA,
Financial analysis tools can be useful in assessing a company’s performance and trends in that
performance. In essence, an analyst converts data into financial metrics that assist in decision
making. Analysts seek to answer such questions as: How successfully has the company
performed, relative to its own past performance and relative to its competitors? How is the
company likely to perform in the future? Based on expectations about future performance,
what is the value of this company or the securities it issues?
In financial analysis, it is essential to clearly identify and understand the final objective and the
steps required to reach that objective. In addition, the analyst needs to know where to find
relevant data, how to process and analyze the data (in other words, know the typical questions
to address when interpreting data), and how to communicate the analysis and conclusions.
The Objectives of the Financial Analysis Process Because of the variety of reasons for
performing financial analysis, the numerous available techniques, and the often substantial
amount of data, it is important that the analytical approach be tailored to the specific situation.
Prior to beginning any financial analysis, the analyst should clarify the purpose and context, and
clearly understand the following:
■■ What is the purpose of the analysis? What questions will this analysis answer?
■■ What level of detail will be needed to accomplish this purpose?
■■ What data are available for the analysis?
■■ What are the factors or relationships that will influence the analysis?
■■ What are the analytical limitations, and will these limitations potentially impair the analysis?
Distinguishing between Computations and Analysis An effective analysis encompasses both
computations and interpretations. A well- reasoned analysis differs from a mere compilation of
various pieces of information, computations, tables, and graphs by integrating the data
collected into a cohesive whole. Analysis of past performance, for example, should address not
only what happened but also why it happened and whether it advanced the company’s
strategy. Some of the key questions to address include:
■■ What aspects of performance are critical for this company to successfully compete in this
industry?
■■ How well did the company’s performance meet these critical aspects? (Established through
computation and comparison with appropriate benchmarks, such as the company’s own
historical performance or competitors’ performance.)
■■ What were the key causes of this performance, and how does this performance reflect the
company’s strategy? (Established through analysis.) If the analysis is forward looking, additional
questions include:
■■ What is the likely impact of an event or trend? (Established through interpretation of
analysis.)
■■ What is the likely response of management to this trend? (Established through evaluation of
quality of management and corporate governance.)
■■ What is the likely impact of trends in the company, industry, and economy on future cash
flows? (Established through assessment of corporate strategy and through forecasts.)
■■ What are the recommendations of the analyst? (Established through interpretation and
forecasting of results of analysis.)
■■ What risks should be highlighted? (Established by an evaluation of major uncertainties in
the forecast and in the environment within which the company operates.)
What is Ratio Analysis
Ratio analysis is a mathematical method in which different financial ratios of a company, taken
from the financial sheets and other publicly available information, are analyzed to gain insights
into company’s financial and operational details.
Ratio analysis of financial statements is tool that helps identify changes in a company’s
financial situation. A single ratio is not sufficient to adequately judge the financial situation of
the company. Several ratios must be analyzed together and compared with prior-year ratios, or
even with other companies in the same industry. This comparative aspect of the analysis is
extremely important in financial analysis. It is important to note that ratios are parameters and
not precise or absolute measurements. Thus, ratios must be interpreted cautiously to avoid
erroneous conclusions. An analyst should attempt to get behind the numbers, place them in
their proper perspective and, if necessary, ask the right questions for further types of ratio
analysis.

Purpose of Ratio Analysis in Finance

The purpose of Ratio Analysis is to evaluate management performance in Profitability,
Efficiency, and Risk

Although financial statement information is historical, it is used to project future performance

Ratio analysis can be done using Three Methods;

Expected holding period
Expected holding period
2015 2016 2018 2019 E(r )= E(D1)+[E(P1)-P0]
Dividend paid 17,662,650 38,999,577 71,381,000 72,404,000 P0
Paid up capital 383,869,626 565,129,756 971,011,000 1,193,756,000
Par Value 1,000 1,000 1,000 1,000 2015 (46+(1000-1000))/1000
Number of Share 383,870 565,130 865,000 1,092,000 = 0.046
Expected price 1,000 1,000 1,000 1,000
2016 (69+(1000-1000))/1000
Year 2015 2016 2018 2019 = 0.07
Expected dividend per share 46 69 83 66 2018 (83+(1000-1000))/1000
Expected holding period return
5% 7% 8% 7% = 0.083
Number of Share 383,870 565,130 865,000 1,092,000 2019 (66+(1000-1000))/1000
= 0.07

Number of share and has increased throughout the years between 2015 up to 2019 indicating
there is an increase in paid up capital showing capital gain,
The increase in number of shares is the main reason for the decrease of dividend per share and
the decrease on the holding period return of the dividend yield indicating that there is no
proportional increase in profit after tax to the increase of the capital increase.
Dividend growth rate
Dividend growth rate
2015 2016 2018 2019
Dividend paid 17,662,650 38,999,577 71,381,000 72,404,000
Average Growth rate 68%

Expected dividend growth for the next three years

2020(D1)= D0(1+g) 121,944,233
2021(D2)= D1(1+g) 205,380,863
2022(D3)= D2(1+g) 345,906,467

Dividend is expected to grow at a constant rate due to that the dividend per share is expected
to be large and low market capitalization rate and the dividend growth rate is expected to be
high due to that the bank expects a growing profit after tax.
Price earnings ratio
Price earning ratio
2014 2015 2016 2018 2019
Number of Share 261,672 383,870 565,130 865,000 1,092,000
Price of shares 1,000 1,000 1,000 1,000 1,000
Profit after tax 29,711,420 53,113,902 78,977,767 158,875,000 201,619,000
Earning per share 114 138 140 184 185

Price earning ratio = price of share/earning per share

Year 2014 2015 2016 2018 2019
Price earning ratio 8.81 7.23 7.16 5.44 5.42

The price earnings ratio seems to be decreasing throughout the years, hence hindering the
banks growth opportunity. However, investment in low P/E stocks would result in an expected
rate of return greater than that of investing in high or medium P/E stocks having the same risk
but this may not work in the long run because many Banks may be following this because
among low P/E stocks they are more likely to find bargains than with high P/E stocks.
This may only work for Enat bank if and only if dividends are expected to grow at a faster rate.
Return on Equity(ROE)
Return on Equity = Profit after tax but not interest / Total shareholder equity
Year 2014 2015 2016 2018 2019
Profit after tax 29,711,420 53,113,902 78,977,767 158,875,000 201,619,000
Shareholders Equity 289,896,365 444,678,756 666,495,497 1,186,892,000 1,535,149,000
ROE = 10.25% 11.94% 11.85% 13.39% 13.13%

Return on equity has increased gradually throughout the years 2014 to 2019, this is mainly
because an increase in Enat banks financial leverage. The percentage increase may be a positive
sign to shareholders due to that ROE can be basically considered as a profitability ratio from a
shareholder’s point of view, higher Return on total Equity implies a higher return to the
Stakeholders.
In other had for Investors High ROE may imply lower rate of return and high ROE stock are
overpriced.
Return on Asset(ROA)
Return on Asset= EBIT / Total Assets
Year 2014 2015 2016 2018 2019
Profit before tax 33,416,744 64,487,868 102,491,825 216,524,000 231,453,000
Interest expense 15,874,234 63,295,897 103,600,034 312,143,000 483,384,000
EBIT 49,290,978 127,783,765 206,091,859 528,667,000 714,837,000
Total Assets 1,417,349,356 2,209,448,595 3,248,190,666 6,482,374,000 9,201,547,000
ROA= 3.48% 5.78% 6.34% 8.16% 7.77%
Receivables 506,737,276 1,133,607,386 1,615,515,398 3,313,951,000 5,093,548,000

The return on total asset signifies the business risk of Enat bank, therefore the ROA has
increased throughout the year 2014 to 2019 so the bank is efficiently using the assets to
generate profit at a proportional rate.
ROA has decreased by 1% in the year 2019 mainly due to an increase in receivables which are
increasing on average of 43% in 2019 compared with 2014.
Liquidity and Coverage Ratios
Coverage Ratios
Year 2014 2015 2016 2018 2019
Total current asset 930,875,446 2,149,850,039 3,148,493,764 6,329,853,000 9,041,216,000
total current liabilities 1,126,516,275 1,763,112,500 2,389,271,720 5,256,570,000 7,479,669,451
Cash + Receivables 536,602,105 1,204,979,105 1,762,634,275 4,621,668,000 6,788,217,000
Analysis
Current ratio 0.83 1.22 1.32 1.20 1.21
Quick Ratio 0.48 0.68 0.74 0.88 0.91

Quick(Acid test) and current ratio of Enat Bank seem to be rising this intern indicate that the
bank is able to pay off their liability, however the bank has an increase amount of receivable
that equations the liquidness of the bank currently.

Interest coverage ratio

 Interest coverage ratio
Year 2014 2015 2016 2018 2019
Interest expense 15,874,234 63,295,897 103,600,034 312,143,000 483,384,000
EBIT 49,290,978 127,783,765 206,091,859 528,667,000 714,837,000
Interest coverage ratio 3.11 2.02 1.99 1.69 1.48
Interest income 41,847,284 125,751,577 183,284,073 489,608,000 742,829,000
Interest Burden 0.68 0.50 0.50 0.41 0.32

The interest coverage ratio of Enat Bank is more than 1 (>1) therefor the EBIT is sufficient to pay
off the interests of the bank, in 2014 the Interest coverage ratio is much higher that is because
the company's depreciation expense was not high considering the bank has just started
operation during that year.
In another words a high coverage ratio tells the Enat Banks shareholders and lenders that the
likelihood of bankruptcy is low because annual earnings are significantly greater than annual
interest obligations.
Interest burden is decreasing from the year 2014 up to 2019 which indicates growing profit
before tax.

Leverage Ratios
 Leverage Ratios
Year 2014 2015 2016 2018 2019
Total Debt 1,127,452,991 1,764,769,839 2,581,695,167 5,295,482,000 7,666,400,000
Shareholders Equity 289,896,365 444,678,756 666,495,497 1,186,892,000 1,535,149,000
Leverage Ratios 3.89 3.97 3.87 4.46 4.99

The gradual increase of Leverage ratio is common for capital incentive sectors like Enat bank,
however the increase from 3.89 in 2014 to a 4.99 in 2019 is due to that the bank strongly relies
on customer deposits as a cash source which inter increasing it debt (liability) to stay operative.
Enat Bank is unable to generate sufficient cash flows from its core operations and is relying on
debt.
Liquidity Ratio
Cash ratio
Year 2014 2015 2016 2018 2019
Cash and Cash equivalents 29,864,829 71,371,719 147,118,887 1,307,717,000 1,694,669,000
Current liabilities 1,126,516,275 1,763,112,500 2,389,271,720 5,256,570,000 7,479,669,451
Cash ratio 0.03 0.04 0.06 0.25 0.23

The cash ratio indicates the ability of Ebat Banks paying its current liability, even though the
cash ratio is increasing from the years 2014 to 2019 the current liabilities is still 17 times the
cash and cash equivalent. This can be a huge concern for creditors of Enat Bank.
Operating cash flow ratio
Year 2014 2015 2016 2018 2019
Operating cash flow 36,099,364 134,762,082 358,177,497 541,466,000 814,833,000
Current liabilities 1,126,516,275 1,763,112,500 2,389,271,720 5,256,570,000 7,479,669,451
Operating cash flow ratio 0.03 0.08 0.15 0.10 0.11

The ability of Eant Bank to pay of its current liability frequently is low due to the reason that as
being a capital generated institute (Bank ) has its advantages it also has a disadvantage that the
operating cash flow for a bank is low because bank's don't have much cash flow out on
operating activities, hence this affects the analytical view of the of Enat bank number of time in
a year they pay their current liability.
Financial statement analysis for Enat Bank
Market Value full-scale ratio analysis
Book value Price-
Dividend
per share Earnings per earnings Earnings Pretax Asset/Eq Compound
yield ratio
Years ratio share ratio ratio Yield ROE ROA profit/EBIT uity Leverage
2014 1,108 0.00% 113.54 8.81 11.4% 10.25% 3.48% 0.68 4.89 3.31
2015 1,158 4.60% 138.36 7.23 13.8% 11.94% 5.78% 0.50 4.97 2.51
2016 1,179 6.90% 139.75 7.16 14.0% 11.85% 6.34% 0.50 4.87 2.42
2018 1,372 8.25% 183.67 5.44 18.4% 13.39% 8.16% 0.41 5.46 2.24
2019 1,406 6.63% 184.63 5.42 18.5% 13.13% 7.77% 0.32 5.99 1.94
Industry Average 1,245 5.28% 151.99 6.81 15.2% 12.11% 6.31% 0.48 5.24 2.48

In 2018/2019 annual report for shareholders the president presented the operational financial
performance of Enat bank to the shareholders. In his message the president indicated that
there was a 27% growth rate on profit after tax and 76% on revenue which is mostly generated
from interest income.
2018/2019 was another successful year for Enat Bank it seems to have been another good year
from the continues progressively increasing ROE from 2014 to 2019. ROE has been increasing
steadily from 10.25% in 2014 to 13.13% in 2019. A comparison of Enat Bank’s 2014 ROE to the
industry average of 12.11%will put shareholders at eases. Even though market–book-value ratio
has been increasing throughout the years, falling price–earnings ratio indicate investors may
not be as optimistic about the firm’s future profitability due to the fact that may similar banks
may be following a low price earning ration, it may give investors the “Been there don that
“impression.
Enat Bank’s ROA has not been declining, this implies that the source of the declining time trend
in Enat Bank’s ROE must be unsuitable use of financial leverage. It is seen that as Enat Bank’s
leverage ratio climbed from 3.89 in 2014 to 4.99 in 2019, The bank’s interest-burden ratio fell
from 0.68 to 0.32 with the net result that the compound leverage decreased from 3.31 in 2014
to 1.94 in 2019.
Enat Banks increase in current Liabilities from 2014 to 2015 and the synchronized increase in
interest expense make it clear that to finance its 27% growth rate in profit.
Enat bank cash flow is gradually increasing as to short term liability increases, but still the bank
may need to maintain the acquisition of capitals proportional to the current liability to sustain
the 27% growth rate and avoid take over because the P/E ratio is 6.81 and 15.2% is attractive
for takeover and replace management and policy change.
Summary
The Financial analysis was based on a banking sector Enat Bank, We have evaluated appropriate
financial analysis for a bank sector to show the current state of the bank basing the financial
statement reported on the audit report taking a five year financial statements 2014 up to 2015.
The bank has a progressive growth rate and growth opportunity if the bank manages to keep
the 68% dividend growth rate for the next 3 years because profit is expected to grow with the
increase in paid up capital.
Enat Banks cash flow from operating activities are substantial, however the banks receivables
and loans returnable rates is slow which is indicated by the rapid increase in receivable from
the current assets which intern questions creditors ability to trust the bunks liquidity.
There is no market value to difference at the banks share price which seems to be constant
from 2014 to 2019, there is no indication that the share price may be underprice. This can be
seen by the increase in the book value od share price from2014 1,108 to 1,406 in 2019.
Whereas the current share price per share is only 1,000ETB.
In general the growth rate of the profit after tax and earning per share can be pleasing and
attractive to shareholders, however the bank need to put in the consideration of the possibility
of the source of the revenue for Enat Bank to decrease as government may issue regulation
regarding interest rate and also the bank need to put in consideration that the current status of
the country’s economy by be unstable and government may take actions that might hinder the
revenue generation by the bank.
Reference
 2011 CFI, Elaine Henry, PhD, CFA, Thomas R. Robinson, PhD, CFA, and Jan Hendrik
van Greuning, DCom, CFA
 2003 by The McGraw−Hill Companies
 http://www.mhhe.com/primis/online/
Appendix

2014 Annual report

2015/2016 Annual report
2018/2019 Annual report