a) Consider the financial ratios of ABK Bank and the average ratios of peer banks based on2015 year-end data shown in the table below:RatiosABK BankPeer BanksReturn on equity (ROE)14.50%7.40%Return on assets (ROA)Asset utilisation (AU)Expense ratio (ER)1.68%0.85%6.65%5.50%4.95%4.62%TAX0.02%0.03%Note that TAX = applicable income tax/total assetsCompare and critically discuss the performance of ABK Bank and that of its peer banks.Conduct a return on equity decomposition analysis for ABK bank and the peer banks aspart of your discussion. What are the possible limitations in your analysis?

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Answered: Consider the financial ratios of ABK…

Consider the financial ratios of ABK Bank and the average ratios of peer banks based on 2015 year-end data shown in the table below:

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter9: Projecting Financial Statements

Section: Chapter Questions

Problem 1aM

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Concept explainers

Liquidity Risk Exposure

Answer: c

Question

a) Consider the financial ratios of ABK Bank and the average ratios of peer banks based on
2015 year-end data shown in the table below:
Ratios
ABK Bank
Peer Banks
Return on equity (ROE)
14.50%
7.40%
Return on assets (ROA)
Asset utilisation (AU)
Expense ratio (ER)
1.68%
0.85%
6.65%
5.50%
4.95%
4.62%
TAX
0.02%
0.03%
Note that TAX = applicable income tax/total assets
Compare and critically discuss the performance of ABK Bank and that of its peer banks.
Conduct a return on equity decomposition analysis for ABK bank and the peer banks as
part of your discussion. What are the possible limitations in your analysis?

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