1.

1Introduction

Banking system plays a very important role in the economic life of the nation. The health of the

economy is closely related to the soundness of its banking system. In a developing country like

Bangladesh the banking system as a whole play a vital role in the progress of economic

development. A bank as a matter of fact is just like a heart in the economic structure and the

Capital provided by it is like blood in it. As long as blood is in circulation the organs will remain

sound and healthy. If the blood is not supplied to any organ then that part would become useless.

So if the finance is not provided to agriculture sector or industrial sector, it will be destroyed.

Loan facility provided by banks works as an incentive to the producer to increase the production.

The financial environment of any economy consists of typically five components namely:

money, financial instruments, financial institutions, rules and regulations and financial markets.

Among the various financial institutions, banks are a fundamental component and the most

active players in the financial system.

Performance evaluation of a company is usually related to how well a company can use it assets,

share holder equity and liability, revenue and expenses. Financial ratio analysis is one of the best

tools of performance evaluation of any company. In order to determine the financial position of

the private commercial banks and to make a judgment of how well the private commercial banks

efficiency, its operation and management and how well the company has been able to utilize its

assets and earn profit. We used ratio analysis for easily measurement of liquidity position, asset

management condition, profitability and market value of the private commercial banks for

performance evaluation. It analysis the company use of its assets and control of its expenses. It

determines the greater the coverage of liquid assets to short-term liabilities and it also compute

ability to pay private commercial banks monthly mortgage payments from the cash generate.
Since, private commercial banks form the larger portion of the banking sector, this study aims at

measuring the performance of three selected private sector banks in Bangladesh through

extensive use of financial ratios that mainly indicate the liquidity ratios, leverage ratios and

profitability ratios.

1.2 Objective of the Study

The main objective of this study is to find out the overall performance evaluation of the selected

private commercial banks of Bangladesh. The study will include the following objectives-

 To determine the liquidity, leverage, profitability, and market value ratios of selected

private commercial banks of Bangladesh.

 To identify the findings and give possible recommendations for improving the

performance of Private Commercial Banks.

1.3 Literature Review

Gopinathan Thachappilly (2009) in this articles he discuss about the Financial Ratio Analysis for

Performance evaluation. It analysis is typically done to make sense of the massive amount of

numbers presented in company financial statements. It helps evaluate the performance of a

company, so that investors can decide whether to invest in that company. Here we are looking at

the different ratio categories in separate articles on different aspects of performance such as

profitability ratios, liquidity ratios, debt ratios, performance ratios, investment evaluation ratios.

James Clausen (2009) He state that the Profitability Ratio Analysis of Income Statement and

Balance Sheet Ratio analysis of the income statement and balance sheet are used to measure

company profit performance. He said the learn ratio analyses of the income statement and
balance sheet. The income statement and balance sheet are two important reports that show the

profit and net worth of the company. It analyses shows how the well the company is doing in

terms of profits compared to sales. He also shows how well the assets are performing in terms of

generating revenue. Furthermore, the balance sheet lists the value of the assets, as well as

liabilities. In simple terms, the main function of the balance sheet is to show the company’s net

worth by subtracting liabilities from assets. He said that the balance sheet does not report profits,

there’s an important relationship between assets and profit. The business owner normally has a

lot of investment in the company’s assets.

Gopinathan Thachappilly (2009) He discuss about the Profitability Ratios Measure Margins and

Returns such as gross, Operating, Pretax and Net Profits, ROA ratio, ROE ratio, ROCE ratio.

However, he determines the Gross profit is the surplus generated by sales over cost of goods

sold. Moreover, Operating profits are arrived at by deducting marketing, administration and

depreciation and R&D costs from the gross margin.

Maria Zain (2008) in this articles he discuss about the return on assets is an important percentage

that shows the company’s ability to use its assets to generate income. He said that a high

percentage indicates that company’s is doing a good utilizing the company’s assets to generate

income. He notices that the following formula is one method of calculating the return on assets

percentage. Return on Assets = Net Profit/Total Assets. The net profit figure that should be used

is the amount of income after all expenses, including taxes. He enounce that the low percentage

could mean that the company may have difficulties meeting its debt obligations. He also short

explains about the profit margin ratio – Operating Performance .He pronounces that the profit

margin ratio is expressed as a percentage that shows the relationship between sales and profits. It
is sometimes called the operating performance ratio because it’s a good indication of operating

efficiencies.

James Clausen (2009) in this article he barfly express about the liquidity ratio. He Pronounce that

it is analysis of the financial statements is used to measure company performance. It also

analyses of the income statement and balance sheet. Investors and lending institutions will often

use ratio analyses of the financial statements to determine a company’s profitability and

liquidity. If the ratios indicate poor performance, investors may be reluctant to invest. Therefore,

the current ratio or working capital ratio, measures current assets against current liabilities. The

current ratio measures the company’s ability to pay back its short-term debt obligations with its

current assets. He thinks a higher ratio indicates the company is better equipped to pay off short-

term debt with current assets. Wherefore, the acid test ratio or quick ratio, measures quick assets

against current liabilities. Quick assets are considered assets that can be quickly converted into

cash. Generally they are current assets less inventory.

Gopinathan Thachappilly (2009) he also state that the Liquidity Ratios help Good Financial .He

know that a business has high profitability, it can face short-term financial problems and its

funds are locked up in inventories and receivables not realizable for months. Any failure to meet

these can damage its reputation and creditworthiness and in extreme cases even lead to

bankruptcy. In addition to, liquidity ratios are work with cash and near-cash assets of a business

on one side, and the immediate payment obligations (current liabilities) on the other side. The

near-cash assets mainly include receivables from customers and inventories of finished goods

and raw materials. Coupled with, current ratio works with all the items that go into a business'

working capital, and give a quick look at its short-term financial position. Current assets include

Cash, Cash equivalents, Marketable securities, Receivables and Inventories. Current liabilities
include Payables, Notes payable, accrued expenses and taxes, and Accrued installments of term

debt).

Gopinathan Thachappilly (2009) in this articles he express about debt management. He mention

that the Ratio of Debt to Equity has Implications for return on equity debt ratios check the

financial structure of the business by comparing debt against total capital, against total assets and

against owners' funds. The ratios help check how "leveraged" a company is, and also the

financial maneuverability of the company in difficult times. Simultaneously, debt ratios and the

related interest coverage ratio checks the soundness of a company's financing policies. One the

one hand, use of debt funds can enhance returns to owners. On the other hand, high debt can

mean that the company will find it difficult to raise funds during lean periods of business.

James Hutchinson (2010), He realizes that about the long term debt to equity ratio of a Business.

The ratio of these numbers tells a lot about the business. It is calculated by taking the debt owed

by the company and divided by the owner’s equity, also known as capital. The debt number may

include all liabilities, or just long term debt.

A study in Australian financial institutions (Elizabith & Greg, 2004) showed that all financial

performance measures as interest margins, return on assets, and capital adequacy are positively

correlated with customer service quality scores. Many researchers have been too much focus on

asset and liability management in the banking sector, (Arzu & Gokhan, 2005) discussed the asset

and liability management in financial crisis. They argued that an efficient asset-liability

management requires maximizing bank’s profit as well as controlling and lowering various risk,

and their study showed how shifts in market perceptions can create trouble during crisis. Medhat,

(2006) used multiple regression analysis and correlations to test the financial performance of

Omani Commercial banks. He used the ROA and the interest income as performance proxies
(dependent variables), and the bank size, the asset management and the operational efficiency as

independent variables. He found positive strong correlation between financial performance and

operational efficiency and a moderate correlation between ROA and bank size. Khan, (2013)

found that the bank with higher total capital, deposits, credits, or total assets does not always

mean that has better profitability performance. The operational efficiency and asset management,

in addition to the bank size, strongly and positively influenced financial performance of the

banks.

Ahmad, (2011) studied the financial performance of seven Jordanian commercial banks. He used

the ROA as a measure of banks’ performance and the bank size, asset management and

operational efficiency as three independent variables affecting ROA. The results of his analysis

revealed a strong negative correlation between ROA and banks’ size, a strong positive

correlation between ROA and asset management ratio, and a negative weak correlation between

ROA and operational efficiency. Ali et al. (2011) conducted a comprehensive study about banks’

profitability in Pakistan, where they found significant relation between asset management ratio,

capital and economic growth and with ROA. While they found that operating efficiency, asset

management and economic growth are significant with the ROE.