Understanding Bank Financial Statements

By Jerome Felix , eHow Contributor

Understanding bank financial statements is easy when you go through each statement slowly. The three main financial statements are the income statement, balance sheet and cash flow. A bank’s financial statement is similar to any other financial statement. These statements give you a snapshot of how the bank is doing financially.

 

Instructions

1  Understand financial statements by reviewing terms related to these statements. There are three       main types of bank financial statements: the income statement, the balance sheet and the cash flow statement. To get a thorough understanding of financial statements, do some research online to familiarize yourself.

1. • 2
     The bank income statement shows total revenues, total expenses and total tax. Notice that this statement starts with revenues, subtracts total expenses and then subtracts taxes. Go through the revenues, expenses and tax; you’ll notice many items within those groups.
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     The balance sheet lists the bank’s total assets, total liabilities and owner’s equity. The formula for the bank’s balance sheet is “assets” minus “liabilities” is equal to “owner’s equity.” The owner’s equity means the value of the bank owner's ownership of the bank.
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     The bank’s cash flow statement is a snapshot of its cash operations. This is a summary of operation activity cash, investing activity cash, finance activity cash and net cash change. This summary traces cash in-flow and cash out-flow.
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     Review the bank’s statement of owner’s equity. This statement records the prior equity, and then adjusts it with investments, withdrawals and income to get the final equity.

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How to Analyze a Banks Financial Statement

By an eHow Contributor

Related Searches:A bank's financial statements are composed of three sections: the balance sheet, income statement and cash flow statement. The financial statements of a bank are complex because banks sell diverse financial products and services, and, they undertake their own financing and investment activities. However, once you learn the basics of reading financial statements---whether for a bank or another type of business---you'll understand what all the numbers mean.

Difficulty:

 

Challenging

Instructions

1. • 1
     Start with the balance sheet which shows the value of what the bank owns or money that is owed to the bank (assets), the amount of money that the bank itself owes (liabilities), and the amount of money invested by shareholders into the bank (shareholder's equity) at a specific point in time. An easy way to remember the data on the balance sheet is: assets = liabilities + shareholder's equity.

     The assets for a large commercial bank, for example, can be extensive. The biggest line item is typically its loans and leases which are made to consumers, businesses and institutions. Be sure to read the summary notes that follow the financial statements to find more details about each of the bank's assets.

     Review the liabilities section which includes the bank's deposits made by its customers as well as the bank's short- and long-term debt which are loans, lines of credits and notes that the bank has less than one year (short-term) or more than one year (long-term) to pay back.

     The final section of the balance sheet to review is the shareholder's equity composed of capital stock plus retained earnings. Capital stock is the total amount of money shareholders have invested in the bank's stock. Retained earnings are the earnings that the bank has not paid out yet as dividends to its shareholders.
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     Refer to the income statement which provides information on the bank's profitability. It covers a specific period of time and details income from the bank's loans, lease financing, securities available for sale and other items. Like consumers and businesses, banks themselves borrow money to cover their own expenses and maximize profits. The last line of the income statement---the net income---shows the bank's total profits after all expenses and taxes have been paid.
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     Review the cash flows statement which tracks a bank's cash inflows and outflows over a specific period of time. Cash comes in and goes out of a bank from its operating, investing and financing activities. The cash flow statement will show the beginning cash balance and the ending cash balance after reporting all the bank's deposits (cash inflows) and payments (cash outflows).
   • 4
     Calculate key profitability, liquidity, activity and solvency ratios to assess a bank's overall performance. You can download a free template of these ratios from Microsoft Office Online (http://office.microsoft.com/en-us/templates/). Use data from the bank's current and past financial statements to calculate and compare these ratios.

     Try comparing the bank's ratios to composite ratios for other banks from Standard & Poor's Indices listings (http://www.standardandpoors.com/indices/main/en/us/). When you calculate and compare ratios, you'll get a summary of the bank's financial health and its performance relative to the competition.

Read more: How to Analyze a Banks Financial Statement | eHow.com http://www.ehow.com/how_5973660_analyze-banks-financial-statement.html#ixzz1fY7IWIBu