Essay: Return Variables

Sample Essay Return Variables

Return Variables indicate how much profit the bank has made on money invested by shareholders. ROE is computed by dividing net income by shareholders’ equity. ROE also find out how efficient the bank management uses shareholders’ investments (Hassoune, 2002).  (Samad, et al., 1999)  (Brown, 2003) (Hassan, et al., 2004) included ROE in their study.

Total equity over total assets calculates bank capital adequacy. It indicates the capability of a bank to absorb losses and handle risk exposure with shareholders. Latest studies found a positive relationship between TEq/TA and profitability (Hassan, et al., 2004).

Consequently, total equity to total assets is included in this study for the reason that it identifies bank capitalization and the ability of a bank to handle losses with shareholders. TEq/TA is probable to have a positive relation with performance because well-capitalized banks are less risky and more profitable (Bourke, 1989).

According to (Pasiouras, et al., 2006) the ratio of liquid assets to customers and  short-term funding. The liquid assets in this measure are generally short-term assets that can be simply converted into cash, such as cash itself, deposits with the central bank, treasury bills, other government securities, and interbank deposits among others. Therefore, this ratio measures the percentage of customer & short term deposits that can be gathered on demand: perceptibly, the higher this ratio, the more liquid and profit the bank is.

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