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COMMENT AND SUGGESTION

PROFITABILITY RATIO
1. Return on Asset

Return on Assets (ROA) measures the income generated from total assets during a certain time
by comparing the net income to total assets. ROA is used to measure the efficiency of a

company’s management of its assets to make profits. The ratio can also prove how efficient a
company can turn money used to purchase assets into net profits
(MPIINC, n.d.). Assets are funded either by debt or equity, so investors try to set aside the

acquiring costs of the assets by adding back the interest expenses. Investors favour higher ratio
because it shows that the company is more effectively managing its assets and produce greater
net income amounts. From the table above, it is clearly calculated that in 2018, Public Bank has

the ROA of 1.37%, while RHB Bank records 0.95% as its ROA which shows that Public Bank
has greater return than RHB Bank. Without doubt, this proves that Public Bank manages its assets
more efficiently than RHB Bank. Public Bank has generated more income from its assets.

2. Return on Equity
Return on Equity (ROE) measures the return rate that the owners of common stocks of a company

gain from their shareholdings. Efficiency of the company in generating returns on the investment
received from the shareholders is marked by the ROE. The return can be used as a standard to
pick stocks within the same industry. Investors prefer company with higher return because

investors want to see their invested money is being used effectively. To track a company’s
progress and capacity to maintain productive earnings trend, investors choose to determine the
ROE at the beginning and end of a certain time to see changes in the return. Referring to the

table above, Public Bank has greater ROE of 12.90% than RHB Bank. Return on Equity for RHB
Bank is 2.22%. It shows that the stockholders of Public Bank gain more return than stockholders

of RHB Bank. Public Bank is better in utilizing the investments made by its stockholders and has
generated more income.

3. Interest Spread

Interest spread is like profit margin. If a bank has larger interest spread, the more it earns and
therefore the more the bank is worth. It is important for the bank to monitor changes in interest
spread along with the spread size. The interest that a bank gains on its assets and pays on

liabilities can fluctuate and it can affect the income when the interest rates changes. Changes in
the interest spread are an indicator of a bank’s profitability as the bank makes its money from the

interest spread. Based on the table, in 2018, interest spread of Public Bank is 1.84%, while RHB

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