Question
Balance Sheet 2018 2019 2020 Cash 300 350 350 Marketable securities 500 400 600 Equipment and buildings 600 550 500 Net Loan 1200 1100 1150
Balance Sheet | 2018 | 2019 | 2020 |
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Cash | 300 | 350 | 350 |
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Marketable securities | 500 | 400 | 600 |
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Equipment and buildings | 600 | 550 | 500 |
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Net Loan | 1200 | 1100 | 1150 |
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Total Assets | 2600 | 2400 | 2600 |
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Deposit | 1000 | 900 | 1000 |
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Non-deposit | 400 | 300 | 400 |
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Equity | 1200 | 1200 | 1200 |
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Total Liabilities and equity | 2600 | 2400 | 2600 |
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Income Statement | 2018 | 2019 | 2020 | ||||
Interest revenue | 600 | 500 | 450 | ||||
Interest expense | 200 | 150 | 150 | ||||
Non interest revenue | 100 | 150 | 150 | ||||
Operating expense | 50 | 55 | 60 | ||||
Provision for loan loss | 30 | 30 | 50 | ||||
Pre tax net operating income | 420 | 415 | 340 | ||||
Securities gains/loss | 30 | 40 | 40 | ||||
Tax | 80 | 70 | 80 | ||||
Net Income | 370 | 385 | 300 | ||||
From above data, as an analyst of the company, calculate the ROE for all 3 years. Now break down the ROE in different components to understand the following factors.
- Tax competence
- How effectively company is using leverage
- Asset and fund management
Now write a brief strategy on how the company can increase its ROE by 2% without the use of equity capital.
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