ISA 520 · ISA 570 · Banking & Finance

Financial Ratio Calculator
for Banking & Finance

Pre-configured for financial institutions. Altman Z-Score is not applicable — use NIM, NPL ratio, and regulatory capital metrics instead.

Financial Data

Enter the essential financial figures below. Expand the additional sections for a comprehensive analysis.

Financial Ratio Analysis Guide for European Auditors — free PDF

ISA 520 & ISA 570 practical workbook: all formulas with visual explanations, industry benchmark reference tables from BACH for 15 industries, ratio interpretation guide, and template narrative paragraphs for audit working papers.

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ISA 520.5 — Design and perform analytical procedures near the end of the audit that assist in forming an overall conclusion.

ISA 520.A1 — Analytical procedures may include ratios such as gross margin percentages and ratio of sales to accounts receivable.

ISA 570.A3 — Negative working capital, adverse key financial ratios, operating losses, and other indicators may cast doubt on going concern.

Financial Ratio Analysis for Banking & Finance

Financial ratio analysis for banking and financial institutions requires a fundamentally different approach from commercial enterprises. Standard profitability ratios like gross margin and operating margin have limited meaning because banks earn income from the spread between lending and borrowing rates, not from selling goods. Net Interest Margin (NIM), Non-Performing Loan (NPL) ratio, and Capital Adequacy Ratio (CAR) are the primary analytical metrics — though this calculator provides the standard ratios that remain relevant for ISA 520 analytical procedures.

The Altman Z-Score is explicitly not designed for financial institutions and should never be applied to banks, insurance companies, or investment firms. Banks operate with leverage ratios (D/E of 8–16x) that would automatically classify them as 'distressed' under the Z-Score model, despite this being normal and regulated. Instead, going concern assessment under ISA 570 for banks should focus on regulatory capital adequacy, ECB SREP (Supervisory Review and Evaluation Process) results, and liquidity coverage ratios.

European banking benchmarks from BACH show median ROE of 8.0% and median ROA of just 0.6% — reflecting the highly leveraged nature of banking. The debt-to-equity ratio is intentionally high (median 10.0x) and regulated through Basel III/IV requirements. When performing analytical procedures under ISA 520 for banks, auditors should focus on: interest margin trends, IFRS 9 expected credit loss provision adequacy, fair value hierarchy movements in the trading book, and any shifts in the loan portfolio composition that could signal risk migration.

Regulatory Context

Basel III/IV capital requirements. ECB SREP results. IFRS 9 expected credit loss provisioning. EBA stress test results. Resolution planning (MREL/TLAC). Never benchmark banks against non-financial sector D/E or leverage ratios.

Industry-Specific Going Concern Indicators (ISA 570)

CET1 ratio approaching or below regulatory minimum

NPL ratio increasing above 5% of total loan portfolio

LCR falling below 100% regulatory requirement

ECB SREP requirements not met

Significant deposit outflows or wholesale funding access restrictions

Regulatory enforcement actions or remediation plans

Worked Example: European Regional Bank

Rhein-Main Volksbank — regional cooperative bank with €2.1B total assets

Key results: Current Ratio: 1.11, ROE: 14.0%, ROA: 1.3%, D/E: 9.50, Interest Coverage: 0.65x (normal for banks — interest expense IS the cost of business), Altman Z-Score: NOT APPLICABLE

Frequently Asked Questions — Banking & Finance

Why is the Altman Z-Score not applicable to banks?
The Altman Z-Score was developed using manufacturing company data and assumes that high leverage indicates financial distress. Banks are fundamentally different: they operate with leverage ratios of 8–16x as their core business model, which is normal and regulated through Basel III/IV capital requirements. Applying the Z-Score to a bank would always produce a 'distress' reading, which is meaningless. Use regulatory capital ratios (CET1, Tier 1, Total Capital) instead.
What interest coverage ratio is normal for banks?
Interest coverage ratios for banks are misleading because interest expense is not a peripheral cost but the bank's primary cost of doing business (the cost of funding). Traditional interest coverage below 1.0x is normal and expected for banks. Instead, focus on net interest margin (NIM): European banks typically achieve NIM of 1.2–2.5%, and a declining NIM is a genuine concern.
How should I assess going concern for a bank under ISA 570?
For banks, going concern assessment should focus on: CET1 ratio vs. regulatory minimums (typically 4.5% + buffers), Total Capital ratio, Liquidity Coverage Ratio (LCR > 100%), Net Stable Funding Ratio (NSFR > 100%), ECB SREP requirements and any Pillar 2 add-ons, NPL ratio trends, and any deposit outflows or wholesale funding access restrictions.
What ROE is considered acceptable for European banks?
European BACH data shows median bank ROE of 8.0%. Post-2008 regulatory changes have structurally lowered bank ROE from pre-crisis levels of 15–20%. ROE below the cost of equity (typically estimated at 8–10% for European banks) indicates the bank is not generating adequate returns, which may affect capital raising ability. The ECB has increasingly focused on bank profitability as a supervisory concern.
Which financial ratios from this calculator ARE useful for bank audits?
While many standard ratios have limited applicability, several remain useful for ISA 520 procedures: ROE and ROA for profitability trends, debt-to-assets for leverage monitoring, and working capital for liquidity assessment. The key is to interpret them in the banking context — D/E of 10x is normal, not distressed. Compare year-on-year trends rather than absolute values against non-bank benchmarks.

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