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MGT 411 assignment solution

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MGT 411 assignment solution

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Solution

MGT 411 ASSIGNMENT
RETURN ON ASSETS
ROA = Net profit after tax Total bank Assets
BANK A = 15
700
ROA of Bank A = 0.0214

BANK B = 10
650
ROA of Bank B = 0.015

RETURN ON EQUITY

ROE = Net profit after tax Bank Capital

BANK A = 15
100
ROE of Bank A = 0.15
BANK B = 10
50
ROE of Bank B = 0.2

LEVERAGE RATIO

LEVERAGE RATIO = BANK ASSETS
Bank Capital

LEVERAGE RATIO OF BANK A = 700
100

LEVERAGE RATIO OF BANK A = 7
LEVERAGE RATIO OF BANK B = 650
50

LEVERAGE RATIO OF BANK B = 13


DEBT EQUITY RATIO
DEBT EQUITY RATIO = DEBT
EQUITY

DEBT EQUITY RATIO OF BANK A = 150
100
DEBT EQUITY RATIO OF BANK A = 1.5
DEBT EQUITY RATIO OF BANK B = 150
50
DEBT EQUITY RATIO OF BANK B = 3

COMPANY A COMPANY B
ROA 0.02 0.01
ROE 0.15 0.2
LEVERAGE RATIO 7 13
DEBT EQUITY RATIO 1.5 3

QUESTION NO 2
BANK B has more liquidity risk than BANK A as it has less reserve to meet the request of immediate funds of the customers so It has a risk of failure.

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