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Questions and Answers
What is the financial ratio that measures net operating income as a percentage of average assets?
Which financial ratio measures net operating income as a percentage of average total equity or net assets?
What does ROD measure?
What is operational sustainability?
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Which financial ratio shows how much of the revenue earned goes to the bottom line?
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What does Profit Expense Ratio indicate?
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Which financial ratios measure the capability of a bank to meet its short-term obligations?
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Which financial ratios indicate the financial strength and credit risk of a bank?
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What does Operating Expenses Ratio consist of?
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What does Cost per Client show?
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What do Staff Productivity Ratios calculate?
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What does Net Income to Average Assets indicate?
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Study Notes
Financial Ratios for Evaluating Islamic Banks' Performance
- Return on Asset (ROA) measures net operating income as a percentage of average assets and provides an indicator for evaluating managerial efficiency.
- Return on Equity (ROE) measures net operating income as a percentage of average total equity or net assets, indicating how a bank can generate profit with shareholders' investments.
- Return on Deposit (ROD) measures net operating income as a percentage of average total deposits, revealing how well the Islamic bank uses its deposits to generate profit.
- Operational Sustainability, also known as operational self-sufficiency, is operating revenue as a percentage of operating and financial expenses.
- Profit Margin measures net operating income as a percentage of total revenue, showing how much of the revenue earned goes to the bottom line.
- Profit Expense Ratio is profit divided by total expenses, indicating the efficiency in cost management.
- Liquidity Ratios measure the capability of a bank to meet its short-term obligations and include Cash Deposit Ratio (CDR), Loan Deposit Ratio (LDR), Current Ratio (CR), and Current Asset Ratio (CAR).
- Risk and Solvency Ratios include Debt Equity Ratio (DER), Debt to Total Assets Ratio (DTAR), Equity Multiplier Ratio (EM), and Loan to Deposit Ratio (LDR), indicating the financial strength and credit risk of a bank.
- Operating Expenses Ratio consists of operating expenses as a percentage of the average portfolio, revealing how much the Islamic bank spends to maintain its outstanding financing portfolio.
- Cost per Client shows how much it costs the Islamic bank to serve clients.
- Staff Productivity Ratios calculate the size of the caseload and how much financing is managed by a single bank officer.
- Net Income to Average Assets is the gross margin on an Islamic bank's financing and investment activities, indicating the difference between income and expense.
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Description
Test your knowledge on financial ratios used to evaluate the performance of Islamic banks with this quiz. Learn about important ratios such as Return on Asset (ROA), Return on Equity (ROE), and Liquidity Ratios, as well as Risk and Solvency Ratios. By understanding these ratios, you can gain insight into how well an Islamic bank is managing its resources, generating profits, and mitigating risks. Sharpen your skills and enhance your understanding of Islamic banking with this informative quiz.
