it incurred higher cost (42.811 paise for every rupee earned during the year, as against 39.75 paise incurred in FY12 to earn a rupee). Thus, for PNB, cost-to income ratio has deteriorated in FY13 i.e. Let us consider another example – Punjab National Bank (extract of its audited standalone FY13 financial results):
![operating expenses formula operating expenses formula](https://www.propertymetrics.com/wp-content/uploads/2014/04/breakeven_occupancy.png)
Thus, HDFC Bank’s cost-to-income ratio for FY13 is 49.58% which is 100 basis points lower than the level in FY12, indicating efficiency in performance. Let us calculate the cost-to-income ratio for HDFC Bank for FY13 from the below data (extracted from its FY13 audited standalone financial results): Thus there is an inverse relationship between the cost-to-income ratio and the bank's profitabilit y.
![operating expenses formula operating expenses formula](https://scientips.com/wp-content/uploads/2020/06/Profitability-Ratios-Formula-1.jpg)
Changes in the ratio also highlight potential problems - if the ratio rises from one period to the next, it means that costs are rising at a higher rate than income. The ratio gives a clear view of how efficiently the bank is being run - the lower the ratio, the more profitable the bank.
![operating expenses formula operating expenses formula](https://www.myaccountingcourse.com/financial-ratios/images/ebita.jpg)
Operating Income = Net Interest Income + Other IncomeĬost-to-income ratio is important for determining the profitability of a bank. Where, Operating Expenses = Employee Cost + Other Operating Expenses
OPERATING EXPENSES FORMULA PLUS
Cost-to-income ratio is calculated by dividing the operating expenses by the operating income generated i.e.net interest income plus the other income.Ĭost-to-income ratio = Operating Expenses