Abstract
Purpose: Analysing financial performance is one of the popular methods for measuring operational efficiency of a firm. Ratio analysis is an important tool of financial analysis. The analysis of key performance parameters enables diverse group of stakeholders to obtain information about profitability and growth prospects. Mergers and acquisitions are popular means of inorganic growth. The Indian Banking Industry has used this effective tool to consolidate and grow in size. Through M&A, acquired banks get a new name, structure, products and services. However, the risk of NPAs continues to be a major problem for banks. In order to study the effectiveness of a merger, analysing financial performance prior to and after merger becomes important. The State Bank of India merger has been taken up for the study, since following the merger there is a substantial increase in both the market share as well as asset base of the bank. Design/Methodology/Approach: This paper studies the result of mergers on financial indicators, market performance, asset quality, liquidity position and employee productivity of SBI after it merged with its 5 associate banks and BMB through ratio analysis. The ratios indicating the performance parameters have been taken from secondary sources such as moneycontrol.com, stock-financials.valuestocks.in. etc. A comparison of various financial ratios is made to determine the change in the performance parameters of the bank. Findings/Result: The study highlights reduction in profitability, increase in cost to income ratio, slight improvement in liquidity, decline in asset quality and market performance and a slight decrease in employee productivity after the merger. Originality/Value: This paper studies the effectiveness of mergers in terms of change in key financial performance parameters. Paper Type: Research Case Study based on company financial analysis.
Highlights
Mergers and acquisitions are effective strategies for achieving growth and expansion for businesses, world over
The present study aims to analyze the pre- and post-merger performance of State Bank of India (SBI) to measure the impact of merger on its liquidity position, profitability, operational efficiency, market standing and asset quality
Net Non-productive Assets (NPAs) gives a better picture of the asset quality
Summary
Interpretation EPS has decreased in the years subsequent to the merger. Though there is a decline in the EPS, it is not statistically significant. The Price to Book Value ratio shows a decrease in the years subsequent to the merger. A decrease in Price to Book Value is good for investors. A slight decrease is observed in earnings yield ratio post-merger, it shows a slight decrease in the return that investors may earn. There is an increase in the P/E ratio subsequent to the merger, though not statistically significant It is not statistically significant. There is an increase in the P/E ratio subsequent to the merger, though not statistically significant
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