Financial Ratio Analysis for HSBC

Financial Ratio Analysis for HSBCHSBC is the Hong Kong and Shanghai Banking Corporation, established by Thomas Sutherland, in 1865. HSBC is one of the leading banking group on the financial grocery in the world today. In 2000, it ranked fifth largest orbicular company in the world. HSBCs home base is located on the HSBC tower, Canary Wharf, London.HSBC bank is a wholly owned subsidiary of HSBC Holding plc. The shares of HSBC bank are not frequently-traded, but those of HSBC Holdings plc are traded on the London, New York, Hong Kong, Paris and Bermuda stock exchanges.The HSBC Corporation has been expanding rapidly with merger and acquiescing and it ranked second with assets for worlds wealthy company. HSBC has $1.861 trillion in assets as compared to Citigroup, which has $1.884 trillion, 31 Dec 2006. roughly 22% of HSBCs earnings are derived from Hong Kong, which is one of its major operational bases.HSBC has grown into one of the largest global financial institutions with 9,500 offices in 79 countries and identity of HSBC brand pee been well recognizing in the worldwide since it established. Known as the worlds local bank, HSBC has a history of helping millions of customers for their financial needs.FINANCIAL RATIO ANALYSISFinancial ratios for HSBC (2005-2009), for the application of Foreign Money Center Banks are provided below.Industry2009 2008 2007 2006 2005 2009Net improvement coast(%) 9.0 6.1 20.6 20.7 25.1 11.9Return on Equity(%) 4.5 6.1 14.9 14.6 16.1 12.6Return on Assets(%) 0.2 0.2 0.8 0.8 1.1 7.9Debt to equity 1.381 2.231 2.121 2.331 2.901 3.681Current Ratio(21) 1.05 1.03 1.06 1.06 1.07 1.40Interest Coverage(times) 1.3 1.2 1.4 1.5 1.7 1.2Profitability RatiosProfitability ratios are show rough-and-readyness of the barter with generating earnings. This ratio is popular that assessing a business to assess the amount of wealth generating for the amount of wealth invested.In 2009, HSBCs shed light on profit margin ratio (9.0) is dramatically l ower than year 2005. In 2005 net profit margin ratio is the highest (25.1) in other years. The lowest net profit margin ratio appeared as a 6.1 in 2008 and that had brought by global economic recession. There is slightly lower ratio (9.0) on net profit margin compare to its manufacture (1.9) in 2009.The higher net profit margin explains HSBC has good financial performance and cost of sales lower than other years in 2005.Liquidity RatioHSBCs liquidity ratios are almost remained the same, between 2005 and 2009. Although, HSBC is slightly less liquided than the average firm in the industry, with both a current ratio and a quick ratio that is lower than the industry average. If a both ratios are lower than its norm (current ratio21, quick ratio11), it could be face liquidity problem.Capital Gearing RatiosCapital gearing is concerned with the telling sizes of the funds provided by share-holders, on the other hand by loan creditors.HSBCs Debt/equity ratio has dropped from (2.90) in 2005 to (1.38) in 2009. The lowest figure (1.38) occurred in 2009 on debt to equity and its dramatically lower than its industry (3.68). Debt to equity ratio indicated that HSBC is less leveraged than other firms in industry. This lower leverage shows HSBC has good financial performance in its industry.Management efficiency 2010 (1st quarter)HSBC Barclays Industry SP(500)Income/employee 22,226 36,763 66,753 99,430Revenue/employee 238,067 303,095 396,097 896,721Net profit margin 14.0 11.6 11.9HSBC has net profit margin higher than other firms in industry and SP(500). plainly if we look at productivity of HSBC, and compare to Barclays, its industry and SP(500), its dramatically lower than any other those. Which means productivity is poor and $14,537 ($36,763-$22,226) lower than Barclays productivity of per employee. Therefore, in that location is a conflict between practice and theory of (productivity and net profit margin). According to theory productivity should be high if net profit margin high, in that case they are not. Perhaps HSBC need to consider about poor fixed and indirect cost.ConclusionWe need to consider about market efficiency (which form of efficient market hypothesis). Seems to me, the efficient market hypothesis is involved in semi-strong form, which means we able to use all available public information including firms data (annual reports, income statement, exchange commission etc.), competitors financial situation, macro economic factors etc. . .Before we invest 250,000 pound to buy some share of HSBC.HSBC has strong respite sheet, income statement is perfect except some losses between mid 2008 and early 2009 and price earning per share higher than its main competitors of Barclays, SP500, and its industry. The management efficiency picayune bit poor but the management performance getting strong and they making their share price uptrend dramatically since the economic recession (in 2008).HSBCs net profit margin was 9.1% in 2009, now it is incr eased at 14% in 1st quarter of 2010. Which means the management performance is strong and marketing is centerive in the market place.The history of share price chart is illustrated the share price increased slightly from at the price of 81.00 gross domestic product in family 2005 till at price of 90.00 GDP in December 2007 and it is peaked up at 100.00 GDP in January 2008. January effect is very strong in HSBCs share price. The share price huge difference between End of December and January of every new a year and since 2005, the investors were making profit (3.00 GDP to 5.00 GDP) on per share in 3 weeks.I would like to recommend that we need to make an investment on HSBCs share with 250,000 GDP before January effect (end of December most of the stock holders want to sell their stocks, because of tax issue). The strategy of stock investment is buy-and-hold. That would be good investment for buying HSBCs shares.