EARNINGS-- CAMALS

EARNINGS

All income from operations, non-traditional sources, extraordinary items

Rating factors:

Earnings are rated according to the following factors:

·         Sufficient earnings to cover potential losses, provide adequate capital and pay reasonable dividends

·         Composition of net income. Volume and stability of the components

·         Level of expenses in relation to operations

·         Reliance on extraordinary items, securities transactions, high risk activities

·         Nontraditional or operational sources

·         Adequacy of budgeting, forecasting, control MIS of income and expenses

·         Adequacy of provisions

·         Earnings exposure to market risks, such as interest rate variations, foreign exchange fluctuations and price risk

Earnings rating 1:

Rating “1” indicates:

·         Sufficient income to meet reserve requirements, provide capital growth and pay reasonable dividends to shareholders

·         Strong budgeting, planning and control of income and expenses

·         Positive trends in major income and expenses categories

·         Minimal reliance on extraordinary items and non traditional sources of income

Earnings rating 2:

Rating “2” indicates that the bank generates sufficient income to meet reserve requirements, provide capital growth and pay dividends. Nevertheless there may be some negative trends such as:

·         Relying somehow on nontraditional income

·         Need to improve budget, planning and control process

·         Management should be able to deal with the problems without regulatory supervision.

Earnings rating 3:

Earnings rating “3” shows that the bank has major weaknesses in several of the rating factors.

·         Regulatory supervision is needed to ensure management takes appropriate measures to improve earnings performance

·         Insufficient earnings retention may impair capital position

Earning rating 4:

Earning rating “4” indicates bank is experiencing severe earnings problems. Net profit may be positive, but insufficient to maintain adequate reserves and capital growth

·         Strong regulatory supervision is needed to prevent loss of capital

·         Management must take immediate action to improve income and reduce expenses

·         Certain activities may have to be suspended

·         Corrective action is needed to prevent losses developing into insolvency

Earning rating 5:

Earning rating “5” shows bank is experiencing major losses that may lead into insolvency.

Immediate action is needed and strong regulatory supervision is required from CBI

Retained earnings:

In accounting, retained earnings refer to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings.

Retained earnings are reported in the shareholders' equity section of the balance sheet. Companies with net accumulated losses may refer to negative shareholders' equity as a shareholders' deficit. A complete report of the retained earnings or retained losses is presented in the Statement of Retained Earnings or Statement of Retained Losses.

Stockholders' equity:

When total assets are greater than total liabilities, stockholders have a positive equity (positive book value). Conversely, when total liabilities are greater than total assets, stockholders have a negative stockholders' equity (negative book value) — also sometimes called stockholders' deficit. A stockholders' deficit does not mean that stockholders owe money to the corporation as they own only its net assets and are not accountable for its liabilities. It means that the value of the assets of the company must rise above its liabilities before the stockholders hold positive equity value in the company. Liabilities that exceed assets is the classic definition of bankruptcy.

Dividends:

The decision of whether a firm should retain net income or have it paid out as dividends depends on several factors including, but not limited to the:

• Tax treatment of dividends; and
• Funds required for reinvestment in the corporation (called retention).

Income/Earnings:

Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received... in a given period of time." For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted. In the field of public economics, it may refer to the accumulation of both monetary and non-monetary consumption ability, the former being used as a proxy for total income.

Contents: 1 Economic definitions 1.1 Full and Haig-Simons income 2 Income inequality 3 Income in philosophy and ethics 4 Accountancy

Economic definitions:

In economics, factor income is the flow (that is, measured per unit of time) of revenue accruing to a person or nation from labor services and from ownership of land and capital.

In consumer theory 'income' is another name for the "budget constraint," an amount Y to be spent on different goods x and y in quantities x and y at prices P_x and P_y. The basic equation for this is

This equation implies two things. First buying one more unit of good x implies buying less units of good y. So, is the relative price of a unit of x as to the number of units given up in y. Second, if the price of x falls for a fixed Y, then its relative price falls. The usual hypothesis is that the quantity demanded of x would increase at the lower price, the law of demand. The generalization to more than two goods consists of modeling y as a composite good.

The theoretical generalization to more than one period is a multi-period wealth and income constraint. For example the same person can gain more productive skills or acquire more productive income-earning assets to earn a higher income.

Income inequality:

Income inequality refers to the extent to which income is distributed in an uneven manner. Within a society can be measured by various methods, including the Lorenz curve and the Gini coefficient. Economists generally agree that certain amounts of inequality are necessary and desirable but that excessive inequality leads to efficiency problems and social injustice.

National income, measured by statistics such as the Net National Income (NNI), measures the total income of individuals, corporations, and government in the economy. For more information see measures of national income and output.

Income in philosophy and ethics:

Throughout history, many have written about the impact of income growth on morality and society. Saint Paul wrote 'The love of money causes all kinds of trouble' (1 Timothy 6:10 (CEV).

Some scholars have come to the conclusion that material progress and prosperity, as manifested in continuous income growth at both individual and national level, provide the indispensable foundation for sustaining any kind of morality. This argument was explicitly given by Adam Smith in his Theory of Moral Sentiments^], and has more recently been developed in depth by Harvard economist Benjamin Friedman in his well-acclaimed recent book The Moral Consequences of Economic Growth.