Essay about finance

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Introduction In this report, I will analyze the financial performance of SDB by comparing it with its industry peers. SDB’s asset quality, earnings capability and capital adequacy are the three aspects I will pay attention to when evaluate its financial performance. Then I will discuss whether it is appropriate for Newbridge to pay 1.6 times book value for 18% shares in SDB. And what is appropriate range for the price Newbridge can offer. The objective of this report it to assist Newbridge to make right decisions on whether to invest SDB or not and if invest what is appropriate price to pay for each share. Part 1 SDB’ financial performance In order to analyze the financial performance of SDB, there are three aspects we…show more content…
Large amount of NPL may also on the other hand provide higher interest revenue for SDB on the high-risk loan they made, so to determine its financial performance we have to also consider its earnings capability. Earnings capability The key earnings measurements of SDB are ROAA (net income/average total assets) and ROAE (net income/average equity). ROAA is called return on average asset. It is an indicator shows how much bank earns as a percentage of total assets. ROAE is an indicator for return on equity. And From 2000 to 2002, the SDB’ s ROAA and ROAE are decreasing over time. Based on Exhibit 10 (Jin, Xuan, & Bai, 2009), the average ROAA for industry peers is 0.6%, higher than SDB’S ROAA, which is 0.3%. The average ROAE for industry peers is 26.8%, which is much higher than 9.1% for SDB. These data shows SDB is not a profitable bank as the profitability of both bank’s total assets and average equity are lower than industry peers. Moreover, the overall financial performance of SDB is worse compare with its industry peers. This is because not only the ROAA and ROAE are lower than other banks but also other measure of firm earning capability are performing poor than industry peers. For example, the Operating expense/Operating income ratio for average industry peers is 55.3% and for SDB is 58.3% (Jin, Xuan, & Bai, 2009). Which means for every operating income SDB generated, it has to spend more than others. There

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