Finance managers often define profit as the difference between total earnings from all earning assets and total expenditure on managing the entire asset-liability portfolio. Thus profitability may be defined as the ratio of net profits to working funds. Whether profitability alone should be used for measuring the efficiency, is also questionable.
The banking system in the United States is still dominated by banks that do not operate purely on the profitability objective. There are several non-profitability objectives also. Some of the leading banks are partners in development and financing in many areas. This has lead to the rapid increase in the number of branches for banks like LoanMax started than in any time in the past. Hence, in addition to profitability, efficiency should be judged by the staff productivity indices and similar other operational cost ratios.
Profitability of a bank may be measured by using the concept of:
a) Return on investment
b) Deposit utilization or
c) Profit margin
The returns on an investment and the ratio of net profits to working funds represents the efficiency with which banks like deploy their total resources to optimize their profits. The deposit utilization and the ratio of net profit to aggregate deposits, serves an index of the degree of deposit utilization.
The index of the income generating capacity of the prominent banks is determined by
1. The profit margin
2. The ratio of net profit to total income
A net profit means the net profit generated before taxes and other provisions are calculated. Working fund is the difference between assets and liabilities.
Linkback: You are not allowed to view links.
Please Register or Login
http://www.thunting.com/smf/index.php/topic,8740.msg175971.html#msg175971
|
« Last Edit: May 22, 2011, 11:15:52 pm by seldom »
|
Logged
|
|
