Evaluation of Performance of Banks Using Financial Ratios

ABSTRACT

The study assessed the performances of Ghanaian banks in terms of their liquidity, solvency, and profitability by applying financial ratios on the published audited financial statements. The population of the study consisted four of the domestically controlled banks. Data gathered was analyzed using liquidity, leverage, and profitability ratios. Current ratio, quick ratio, and cash ratios were used to assess the liquidity of the banks. Additionally, debt to asset ratio, long term debt to capital ratio, and debt to equity ratio were utilized to find out the solvency of the banks. Finally, gross profit margin ratio, return on assets, return on equity, and basic earning power ratio were employed to examine the profitability of the banks. Findings revealed that the liquid positions of the banks were below expectations. This is contrary to the banking sector report (2019). As far as the solvency positions of the banks were concerned, findings revealed the sector is highly leveraged. This was consistent with the findings of Owusu (2019). Analysis of the profitability position of the banks showed that the banks are fairly profitable as their profit averages were above that of the industry. This position was however contrary to the findings of Ebonyi-Amoah (2017). The study recommended that banks in Ghana should go easy with their mode of debts and since the sector cannot operate efficiently without debts, they should rely more on long term debts rather than concentrating on the short term debts.