Contents of the project paper

 Company Profile

 Subject Matters of the Annual Report

 Financial Statements and Reports Presented in the Annual Report

 Contents of Financial Statement

 Purpose served by the Financial Statement

 Prospective users of Financial Statement

 Strength and Weakness of the business based upon Annual Report

Mercantile Bank Limited emerged as a new commercial bank to provide efficient

banking services and to contribute socio-economic development of the country. The

Bank commenced its operation on June 2, 1999. The Authorized Capital of the Bank

is BDT. 1200 million and the Paid -up Capital is BDT. 799.41 million. The Bank

provides a broad range of financial services to its customers and corporate clients.

The Board of Directors consists of eminent personalities from the realm of commerce

and industries of the country. The Board of Directors, the apex body of the Bank,

formulates policy guidelines, provides strategic planning and supervises business

activities and performance of management while the Board remains accountable to

the company and its shareholders. The Board is assisted by the Executive

Committee And Audit Committee. The Bank is manned and managed by qualified

and efficient professionals. Mr. Shah Md. Nurul Alam is holding charge of Managing

Director upon expiry of term of Mr. M. Taheruddin as Managing Director on

14.04.2004. Mr. Lutfar Rahman Sarkar, the former Governor of the Central Bank of

Bangladesh was the Chief Advisor of the Bank. He brings with him a wealth of

experience of managing both public and private sector banks.

Subject Matters of the Annual Report

A report issued annually by a corporation to its stockholders, is known as annual

report. It contains the basic financial statements along with management’s opinion of

the past year’s operations and of the firm’s future prospects.

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The following information is presented in the Annual Reports:

 Financial Summary

 Value Added Statement

 Economic Value Added Statement

 Market Value Added Statement

 MBL Time Line

 Message from the Chairman

 Report of Managing Director and CEO

 Board of Directors

 The Corporate Structure

 Management Team

 Head Office and Branch Network

 CEO's Report on Risk Management

 Highlights of Mercantile Bank Limited

 Notice of the 6th Annual General Meeting

 Directors’ Report

 Auditors’ Report

 Balance Sheet

 Off-Balance Sheet Items

 Profit and Loss Account

 Cash Flow Statement

 Statement of Changes in Equity

 Liquidity Statement : Assets and Liability Maturity Analysis

 Notes to the Financial Statements

 Statement of Fixed Assets

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 Financial Statements and Reports Presented in the

Annual Report

All companies present four basic financial statements. These are -

Statements of Earnings.

Balance Sheets

Statements of Stockholders’ equity

Statements of cash flows

These Financial Statements are described briefly as follows :

 Statements of Earnings:

It is a summary of the revenues and expenses of a business over a period of time. It

shows the results of the firm’s operating and financing decisions during that time.

 Balance Sheets:

It is a statement of the firm’s financial position at a specific point in time. It consists

of three important elements namely- Equity, Liabilities, Assets.

For all balance sheets: Assets = Liabilities + Equity. These two sides must always

equal each other (balance).

The elements are discussed below :

Equity : Financing supplied by the firm’s owners.

Liabilities : All the legal claims held against the firm by non-owners.

Assets : All items which the firm owns.

 Statements of Stockholders’ equity:

This shows the increase or decrease of owners’ claim over the accounting period.

 Statements of cash flows :

It reports the cash receipts, cash payments, and net change in cash resulting from

operating, investing and financing activities during a period. It does so in a format

that reconciles the beginning and ending cash balances.

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 Contents of Financial Statement

 Balance Sheets:

Assets: The total assets of the company was BDT. 24,705,045, 093

Liabilities: The total liabilities of the company was BDT. 23,262,693, 336

Owner’s Equity: The total owners equity is BDT. 1,442,351,757.

 Statements of Earnings: Total net income is BDT. 316,226,385

 Statements of cash flows: The Closing Cash and Cash Equivalent is

6,439,206,476

 Statement of changes in equity

The balance as on January 01, 2004 was BDT. 1,129,770,331

The balance as on December 31, 2004 was BDT. 1,442,351,757

Purpose served by the Financial Statement

Financial statements report both on a firm’s position at a point in time and on its

operations over some past period. However their real usefulness lies in the fact

that they can be used to predict the firm’s future earing’s and dividends as well as

the riskiness of these cash flows. On the basis of users’ needs and the general

business environment there are three general Purposes of financial statements:

 To furnish information useful in making investment and credit decisions:

Financial reporting should offer information that can help present and potential

investors and creditors make rational investment and credit decisions.

 To provide information useful in assessing cash flow prospects :

Financial reporting should supply information to help present and potential investors

and creditors judge the amounts, timing and risk of expected cash receipts from

dividends or interest and the proceeds from the sale, maturity of stocks or loans.

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 To provide information about business resources, claims to those

resources and changes in them :

Financial reporting should give information about the company’s assets, liabilities and

stockholders’ equity and the effects of transactions on the company’s assets,

liabilities and stockholders’ equity.

Prospective users of Financial Statement

The Prospective users of this Financial Statement to make decisions fall into

three categories :

1. Those who manage the business.

2. Those outside the business enterprise, who have the direct financial

interest in the business.

3. Those people, organizations and agencies that have an indirect financial

interest in the business.

These categories are described below –

 Those who manage the business:

People engaged in business have overall responsibility for operating a business and

for meeting its profitability and liquidity goals. To make good decisions, managers

need answers to such questions as: What was the company’s net income during the

past year? Is the rate of return to the owners adequate? Does the company have

enough cash? Because so many key decisions are based on accounting data,

management is one of the most important users of accounting information.

 Those outside the business enterprise, who have the direct financial

interest in the business :

Two most important outside groups are investors and creditors.

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Investors: Investors are interested in its past success and potential earnings. This

financial statement help prospective investors to judge the prospects for a profitable

investments.

Creditors : Creditors are interested in whether a company will have the cash to pay

interest charges and repay debt at the appropriate time.

 Those people, organizations and agencies that have an indirect financial

interest in the business:

Users who need accounting information to make decisions on public issues include :

1) Tax authorities, 2) Regulatory agencies and 3) Other groups.

Tax authorities : Each tax requires special tax returns and often a complex set of

records. Tax authorities such as the internal revenue service want to know whether

the company complies with the tax laws.

Regulatory agencies : Regulatory agencies, such as, the Securities and Exchange

Commission want to know whether the company is operating within prescribed rules.

Other groups -

Customers :Customers are interested in whether a company will continue to honor

product warranties and support its product lines.

Labor Unions : Labor Unions want to know whether the company can pay increased

wages and benefits.

Strength and Weakness of the business based

upon Annual Report

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Gross impaired loans grew to BDT 726.17 million in 2004, an increase of BDT 282.15

million from the previous year. While the increase continues an adverse trend, the

level of impaired loans remains within acceptable parameters and provisions for

impaired loans have been adequately maintained. The provision for impaired loans

for 2004 was BDT 197.50 million up from BDT 133.00 million in 2003.

Significant material losses did not occur in the Bank since the inception of the Bank

in 1999; however, there is no assurance that the bank will not suffer from such losses

in the future due to the nature of risks.

Interest income increased from BDT 1,588.67 million in 2003 to BDT 2,120.82 million

in 2004. Interest on loans and advances accounted for 82.79%, interest on Treasury

Bills 8.65%, interest on deposits with other Banks 7.54% and other interest income

1.02% of total interest income in 2004 as against 76.85%, 14.21%, 8.85% and 0.09%

respectively in 2003.