Question

Megalopolis Bank has the following balance sheet and income statement.

Balance Sheet (in millions) Assets Liabilities and Equity Cash and due Demand from banks $ 9,000 deposits $ 19,000 Investment securities 23,000 NOW accounts 89,000 Repurchase agreements 42,000 Retail CDs 28,000 Loans 90,000 Debentures 19,000 Fixed assets 15,000 Total liabilities $155,000 Other assets 4,000 Common stock 12,000 Total assets $183,000 Paid-in capital 4.000 Retained earnings 12,000 Total liabilities and equity $183,000
  

For Megalopolis, calculate:

Return on equity

Return on assets

Asset utilization

Equity multiplier

Profit margin

Interest expense ratio

Provision for loan loss ratio

Noninterest expense ratio

Tax ratio

Answer 1

solution : o Return on Equity - Net Income Total Equity Here Net Income (given) is $5,000 million Total Equity = common Stockt Paid in capital of Retained Earnings = ($ 12,000 + $4,000 + $12,000] million = $ 28,00.0 million so, ROE = $5,000 million $28,000 million = 0.17857 03 17.86 % (approx) W Return on Asset = Net Income Total Assets Total Asset (given) is $183,000 million So, ROA = $5,000 million $183,000 million = 0.027392 02 2,73). Cap prox)

LJ Asset utilization Ratio + Total Income Total Asset Here, Total Income = Total interest Income + non interest Income = ($ 20,000 + $2,000) million - $22,000 million So, Asset utilizati'on Ratio - $22,000 million $183,000 million = 0.120218 07 12.02%. Capboox (1) Equity Multiplier = Total Asset Total Equity = $ 183,000 million $ 28,000 million 6.5357 08 6.54 times = (V) Profit Margin Ratio - Net Income Total Income = $5,000 million $ 28,000 million 0.22727 or 22.73% =

. Interest Expense Ratio = Interest Expense Total income Interest Expense ense given) is (given) is $11,ooom $11,000 million So, Interest Expense Ratio - $11,000 million $22,000 million = 0.500 or 50% quii) Provision for loan loss Ratio = = 1 Provision for loan loss Total income = 0.090909 om 9.09.7. C approx) $ 2,00 million $82,000 million (viii) Non Interest Expense Ratio - Non Interest Expense Total Income $1000 million $22,000 million z 0.045454 or 4,5 5 4 capbord x) - lix) ... Tax Ratio = Taxes Total Income - $ 3000 million $ 22,000 million = 0.1363636 07 13,64 % cap prox)

Return on equity is a ratio that express net income as a proportion to the total equity and return on asset express net income as a proportion to total asset.

Asset utilization tells us how efficiently total assets are used by expressing total income as a proportion of total asset.

Equity multiplier measures the amount of firms asset that are financed by its equity

Profit margin ratio is a ratio that expresses net income as a percentage of total income.

Interest expense ratio, provision for loan loss ratio , non interest expense ratio and tax ratio express themselves as a percentage of total income.