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Ratio Bank A Bank B Return on Equity 22% 24% Return on Assets 2% 2.5% Equity Multiplier Profit Margin 11 X 18 X 15% 16% Asset Utilization 13% 14% Spread Interest Expense ratio Provision on Loan Losses 3% 3% 35% 40% 1% 4%

Ratio Bank A Bank B Return on Equity 22% 24% Return on Assets 2% 2.5% Equity Multiplier Profit Margin 11 X 18 X 15% 16% Asset Utilization 13% 14% Spread Interest Expense ratio Provision on Loan Losses 3% 3% 35% 40% 1% 4%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Q-1

A security analyst calculates the following ratios for the two banks:

 

i. How should the financial analyst evaluate the financial health of the two banks?

ii. Discuss each ratio and which bank would you prefer and why?

Ratio Bank A Bank B Return on Equity 22% 24% Return on Assets 2% 2.5% Equity Multiplier Profit Margin 11 X 18 X 15% 16% Asset Utilization 13% 14% Spread Interest Expense ratio Provision on Loan Losses 3% 3% 35% 40% 1% 4%
Transcribed Image Text:Ratio Bank A Bank B Return on Equity 22% 24% Return on Assets 2% 2.5% Equity Multiplier Profit Margin 11 X 18 X 15% 16% Asset Utilization 13% 14% Spread Interest Expense ratio Provision on Loan Losses 3% 3% 35% 40% 1% 4%
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