Banking 2 - A Bank's Income Statement

Question 1

what are common expenses on a bank’s P&L?

Answer 1

interest expense (interest paid out to depositors)

salary expense (salary paid out to employees)

other (electricity, general upkeep etc)

tax expense (corporation tax paid out to government)

Question 2

what is a bank’s main source of income?

Answer 2

income from interest received from borrowers

Question 3

balance sheet / SOFP?

Answer 3

a snapshot of what you own and what you owe at a single point in time

Question 4

income statement / P&L?

Answer 4

record of income and expenses over a period of time

Question 5

what does the profit on the income statement represent?

Answer 5

change in equity

if profit is £200,000, owner’s equity will increase by £200,000

Question 6

how is return on equity (ROE) calculated?

Answer 6

change in equity / equity at the start of the period

expressed as a percentage

e.g., £200,000 / £1,000,000 = 20% return on equity

Question 7

what does ROE represent?

Answer 7

how much income/return we attained as a percentage of the equity invested in the bank