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An Overview of the UK Banking Industry

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From the common size balance sheet of the Royal Bank of Scotland, the current assets to total assets ratio for the three years under analysis is averaged at 62.62%. In 2010, the bank’ s current assets to total assets ratio were 65.66% while in 2011 and 2012, the Royal Bank of Scotland had current assets to total assets ratio of 60.13% and 62.06% respectively. The common size balance sheet of the Royal Bank of Scotland shows no short term liabilities for the three years under analysis. Therefore, there are no short term liabilities to total liabilities and shareholders’ equity ratio for the three years.

However, the bank’ s current ratio, which is the total current assets divided by the total current liabilities, should be high. Since the Royal Bank of Scotland had no short term liabilities, the gap between current assets and current liabilities is 62.62%, for the three years under analysis. The bank’ s net worth for 2012 was £ 70,448 Million, while in 2011 and 2010, the bank had a net worth of £ 76,053 Million and £ 76,851 Million respectively (Hargreaves Lansdown, 2013).

The average net worth of the Royal Bank of Scotland for the three years was £ 74,451Million. This is a favorable indicator for the financial health of the Royal Bank of Scotland because it is not leveraged; hence investors will not fear of any hindrance to the expansion of their investments. Consequently, the bank will not have problems associated with decreasing the percentage amount that it will have to reinvest back because settling short term liabilities using assets. Current assets decreased significantly during the three years, from 2010 to 2012. Provisions, represented as non-current liabilities in the common size balance sheet of the Royal Bank of Scotland, decreased significantly, over the three years.

In 2010, the bank had provisions of £ 2,142 Million while in 2011 and 2012 the provisions recorded were £ 1,945 Million and £ 1,141 Million respectively (Hargreaves Lansdown, 2013). Since there are no long term borrowings, it means that the bank does not depend on long term debt in financing its operations such as acquisitions.

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