Ratio Analysis- discuss comparative risk - Essay Example

Ratio Analysis For determining the risk involved in the operations and financial conditions of PNC limited, we make use of the following very important risk evaluating ratios:Liquidity risk To analyze the liquidity risk, we will have to look at the LTD ratio (Exhibit 1). The ratio is increasing with every year passing which means that it is moving towards maximum possible earnings. At the same time, however, it indicates that it would be difficult for the company to meet any sudden funds requirements.

Credit risk For PNC limited, the credit risk grows higher and higher for the past 5 years (Exhibit 2). This is an indicator that the company would be less able to repay the loan acquired or meet other contractual obligations it has.Interest rate risk Interest rate risk with 3-year gap is quite stable for PNC limited (Exhibit 3). It remains around 30 for all these years (except 2009) which is a good sign for the company. As far as interest risk ratio for 1-year gap is concerned, it is also stable (except 2009) around 32.

It means that the company will not fear from its interest rate risk as it is not increasing consistently.Capital Adequacy Risk The capital adequacy risk appears to be fair enough to cover unforeseen losses and obligations of the bank towards the investors. For the five years, the ratio is almost constant (except for 2010) which means that the risk for being unable to discharge its obligations is not increasing showing a positive sign for the company (Exhibit 4).Risk of PNC limited Compared to that of Peers Comparing the ratios of PNC limited with its peer group, it seems quite clear that the company’s performance is better than the peer group with respect to credit risk ratio, interest risk ratio (both 1-year and 3-year gap) and capital adequacy ratio.

However, PNC requires working with its liquidity ratio to have an advantage over its peer group.Measures Needed to be Taken PNC needs to improve its liquidity ratio to have complete advantage over its peer. For this purpose PNC will have to adopt some measures to recollect the amounts lent to those who appear to be bad debts. Further, the company needs to take steps to collect cash amounts in lieu of interest on loan expanded by it to customers. The company should also withdraw some of its less earning investments.

Further, PNC should revise its policy for its current regular interest paying customers to urge them pay as soon as possible. All these steps will enable the company to increase its liquidity and hence will be able to avoid any liquidity risk arising in the near future (Walsh).Exhibits1.Credit risk- LTD ratio      12/31/201312/31/201212/31/201112/31/201012/31/2009PNC0.867310830.840054680.785294120.808464460.80380259Peer group0.792915880.77937220.782394180.812375250.88377792.Credit risk-ALL/Total Equity      12/31/201312/31/201212/31/201112/31/201012/31/2009PNC0.261923380.232713750.195139910.125757580.

1529027Peer group0.740928270.420118340.248293520.164757710.174976483.Interest Rate Risk-     3-Year Gap      12/31/201312/31/201212/31/201112/31/201012/31/2009PNC30.9430.9128.8331.2133.44Peer group40.1335.1431.5829.8128.171-Year Gap      12/31/201312/31/201212/31/201112/31/201012/31/2009PNC32.1834.4832.9633.3436.67Peer group47.9744.8342.5239.0536.014.Capital Adequacy Risk      12/31/201312/31/201212/31/201112/31/201012/31/2009PNC14.3314.2214.4415.1314.43Peer group14.7915.4815.715.3913.9Works CitedWalsh, Ciaran.

Key Management Ratios. Upper Saddle River, New Jersey: Financial Times/ Prentice Hall, 2008. Book.