A CASE STUDY OF FINANCIAL ANALYSIS

OF NEPAL S.B.I. BANK LIMITED

BY
Ram Binod Yadav
P.U. Reg No.
Exam Roll No.

A Project Work Report

Submitted to
Axis College
Faculty of Management
Pokhara University

In partial fulfillment of the requirement for the degree of

Bachelor of Business Administration and Banking Insurance
BBA-BI

Butwal
20 June 2018
 Faculty of Management

Pokhara University

RECOMMENDATION

This is to certify that the project work assignment report

Submitted by

Ram Binod Yadav

P.U. Reg No:

Exam Roll No:

Entitled

A CASE STUDY OF FINANCIAL ANALYSIS

OF NEPAL S.B.I. BANK LIMITED

has been prepared as approved by this BankThis fieldwork assignment report is forwarded
for examination.

Mr.Arjun Kafle Mr. Ram Prasad Aryal

(Supervisor) (Campus chief)

Date: ……………….. Date…………….

 ACKONWLEDGEMENT

It is the matter of great pleasure for me to acknowledge all the people who helped for the
successful completion of this report as per the requirement of the 4th semester syllabus
provided by the Bachelor of Business Administrative, Pokhara University. I would like to
express my sincere gratitude to Pokhara University along with our Respected Sir, Mr.
Arjun kafle for allowing me to submit this report.
As we know that practical knowledge is more fruitful than theoretical knowledge. Pokhara
University has been providing such a practical subject that enhances the personal skill of
the students by exposing them to real life situation. It was more helpful than the theoretical
study of the subject.
I am grateful to many others who took time to advice and counsel us. Finally, I would like
to make personal acknowledgement to our colleagues who have helped directly or
indirectly in the completion of this report.

Ram BinodYadav
BBA-BI, 5thsemester
Axis college Butwal
 TABLE OF CONTENTS
Recommendation
Acknowledgement
Table of contents
List of tables
CHAPTER- I Page No

1. INTRODUCTION 1
1.1 Introduction of Premier Insurance
Company........................................................………..1
1.2 Definition of premium Insurance
company………………….……………………………………………..1
1.3 Objectives of the study
………………………………………………………………………………………………3
1.4 Limitation of the study
……………………………………………………………………………………………….3
1.5 Organization of the
study…………………………………….…………………………………………………….
.3
1.6 Review of
Literature……………………………………………………………………………………
……………..4
1.7 Methodology of the
study…………………………………………………………………………………………..
5
CHAPTER- II
2. DATA PRESENTATION AND ANALYSIS OF DATA 6
2.1 Data Presentation and Analysis
…………………………………………………………………..6-13
CHAPTER- III
3. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 14
3.1
Summary……………………………………………………………………………………
………………….14
3.2
Conclusion……………………………………………………………………………………
……………….14
3.3
Recommendation……………………….……………………………………………………
…………….15
Bibliography
III
LIST OF TABLES
Tables Page No
1. Premium collection by premier insurance company ltd 7
2. Fire insurance premium collection by the company 9
3. Marine insurance by premium insurance company ltd 10
4. Motor insurance by premium insurance company ltd 11
5. Engineering insurance by premium insurance company ltd 12
6. Miscellaneous insurance by premium insurance company ltd 13
 CHAPTER I

INTRODUCTION

1.1 General Background

Nepal is one of the least developed countries in the world with a per capita income of
less than $220 per annum. Rapid economic development is important for all countries of
the world and it is more important for the country like Nepal

The Nepalese financial system is dominated by the banking system, where commercial
banks are the largest and important constitution of nation. Keeping in mind the objectives
of economic liberalization policy, which paved the way for the establishment of qualitative
banking services by allowing even the foreign banks to operate in Nepalese money market.
As a result fifteen commercial banks including nine joint venture banks came into operation
up to now. Such banks are providing different services and facilities i.e. collect deposits
from public, grant loan to the investor who want to invest in business, industry and other
sector, overdraft, letter of credit, discounting bills, promissory notes, selling of other shares,
agency function and storage of valuable commodity, etc. apart from this, joint venture
banks are providing modern banking facilities by introducing higher technologies and
efficient methods in banking business that has invited a new era of banking in Nepal.

1.2 Focus of the study

Financial management is essential to utilize and manage scarce financial resource

efficiently. Nowadays different tools and techniques are applied to evaluate the
performance of business organization and ratio analysis is one of them. Evaluation of
performance is an important activity, which helps to sustain the organization and its
improvement .The financial performance of Nepal SBI Bank Ltd. is evaluated in this study.
For such evaluation information are basically derived from the published financial
statement. The user of information from financial statement analysis is decision makers
who are concerned with evaluating the economic situation of the firm and predicting its
future course of action. So, performance analysis has a crucial in making the best uses of
financial resources and suggests remedial measures to improve the performance.

1.3 Need and Importance of the Study

Every business firm performs economic activities. These activities affect on the economic
condition of state and financial condition of the firm and this is to be kept under
consideration to form economic policy of the state. A sound financial performance is
important for the growth of business enterprises and financial institution. It is necessary that
financial management of an institution must be appropriate to yield a fair rate of return on
capital employed in them. Any mistake made in financial management adversely affects the
financial condition of an institution in this regard; it is required to measure the financial
performance of the commercial banks from time to time.

Apart from this, the institution and firms can allow the suggestion of this study to make
their policy and strategy more practical and scientific. This study also helps the
shareholders or investors management of the bank, financial agencies, etc. By providing
information about the financial condition of the bank.

1.4 Objective of the study

 The main objective of this study is to show the financial position of SBI bank ltd. This
study helps to know exactly the financial strength and weaknesses of the bank. Some of
objective of the study are the following:

· To examine the overall performance of the bank in terms of ratio analysis.

· To examine the success /failure of the bank in terms of investments and deposits.

· To analysis the liquidity position of the bank.

· To provide suggestions for the improvement of future performance of bank.

1.5 Limitation of the study

The fieldwork study has some limitations which are mentioned below.

· This study is mainly based on the financial report i.e. secondary data.

· This study covers only the period of three years.

· This study is not free from monetary inflation.

· This study does not consider the factors that affect the company's financial positions such
as technical condition, social condition, political condition personal, advisement etc.

· Only limited financial tools and technique are used for analysis, so this study may not be
sufficient for dept analysis.
 Chapter II

Review of the Literature

This chapter highlights about the relevant literature to make the base of knowledge for the
study. The scholars in respect of financial performance have expressed different visions.

2.1 Concept of Bank

Banks are among most important financial institution in the economy as essential in
thousand of local towns and cities. In this context, there is much confusion about exactly
what bank is. Certainly bank must be identified by the functions they perform in the
economy. Different views were shared against bank concepts. In general, bank means
financial institution that accepts deposits in different accounts and loan of different types.

The term bank was originated from Italian word "Banko" which means bench. The term
bank was first used in Italy. In reality, the history of modern banking had started from
"Bank of England" established in 1694. Different economists have given different
definition of the bank.

According to Sayers," A bank is an institution whose debts (bank deposits) are widely
accepted the in settlement of their peoples, debts to each other.
 According to Chandler," A bank is an establishment which makes individuals such
advances of money as may be required and safely made to which individual money when
not required by them for use."[2]

In the opinion of Horace," A bank is manufacture of credit and machine for

facilitating exchange."[3]

In the view of crowther," the bankers business is to take the debts of other people to offer
his own in exchange and thereby create money."[4]

Therefore summarizing the above, banks are those financial institutions that offer the
widest range of financial services, especially credit, savings and payments services and
perform widest range of financial functions of any business firm in the economy.

2.2 Types of Banks

Today is the age of specialization. The modern economy demands different types of
financial services. A single institution cannot fulfill all the services demanded by the
customers. Therefore, different types of banks also emerged in the banking industry
specializing in different functional areas. These different types of banks are:

1) Commercial bank

2) Central bank

3) Development bank

4) Agricultural bank

5) Saving banks
6) Rural development banks, etc.

2.3 Concept of Commercial Ban

Commercial Bank is an institution, which deals with money and credit .IT accepts deposits
from public, makes the funds available those who need them and helps in remittance of
money from one place to another. In fact, a modern commercial bank performs such a
variety of functions that it is difficult to give a precise and general definition of it.
According to American Institute of Banking," Commercial Bank is the corporation which
accepts demand deposits subject to check ad makes short-term loans to business enterprises
regardless of the scope of its other sources."[5]

Commercial Bank Act,2031 B.S. of Nepal has defined commercial bank as," An
organization which exchanges money, accepts deposits, grant loans and performs
commercial banking functions and which is not a bank meant for co-operative, agriculture,
industries or for such specific purpose."[6]

Banks are dealer in credit; they specialize in the exchange of money for credit and credit for
money. They receive deposits; current, fixed, savings, call and short, that can be withdrawn
by cheque. They borrow in order to lend. They trade in loan able capital; they borrow it
from the depositors and lend it to borrowers. They thus, coordinate the demand for and the
supply of floating funds; they form an integral of part of credit mechanism.
2.3.1 Functions of commercial bank

The American institute of banking has laid down four functions of commercial banks as
receiving and handling deposit (deposit function)' handling of payments of money
(payment function), making loans and investment (loan function) and creation of money by
extending credit (money function).

According to R.S. Sayers, "ordinary banking business consists of changing cash from bank
deposits and bank deposits for cash; transferring bank deposits from one person or
corporation to another, giving bank deposits in exchange for bills of exchange , government
bonds, the secured promises of business to repay and so forth."

Following are the basic functions performed by a modern commercial bank:

1. Acceptance of deposits:

The bank has deposits from the public in the form of demand deposits, saving deposits and
fixed or term deposits. Demand deposits are on current account and are withdraw-able on
the demand by cheque. Usually no interest is allowed on such accounts; some banks even
charge commission for rendering such service of safekeeping of the depositor's funds and
keeping his accounts. Saving deposits are designed to mobilize the scattered small saving of
the community. They are subject to certain restrictions regarding the number of
withdrawals or the total amount withdrawn per period. Fixed or term deposit are on deposit
account, i.e. for a definite period whereby the customer gives notice gives notice of
indented withdrawal and is allowed interest according to the length of notice given. They
are repayable only on the period for which the deposit has been made and are allowed the
highest rate of interest.

2. The granting of loans to business borrowers and to others:

Having accumulated deposits, the commercial bank put them to use through loans to
persons and business having immediate use for them. The result of the polling of funds by
the commercial banks is a more utilization of funds. It does so, in order to pay interest on
deposits and meet its own establishment charges and pay dividends to its shareholders.

All those come from the profit it earns by charging more on its loans and advances than it
has to pay on deposits, the banker's refusal to finance on ill conceived venture, preventing
is them from engaging in an activity that will results in loss to them. Furthermore, the
careful apportionment of loan funds to those businesses with the best apparent chances of
success makes possible the development of the nation's resources to the greatest possible
advantage.

3. Bills Discounting

Discounting a bill or other commercial paper means its purchase at its present worth,
calculated at the current market rate of interest. Bills are a handy asset for a bank to holds
as they can be easily resold or automatically turn into cash on maturity. They are so easily
re discounted or sold that they offer an ideal means of utilizing a banker' surplus of liquid
 funds. On discounting, the seller of the bill may have its price paid in cash or his deposit
may be increased by the amount of the against which he can draw cheque.

4. Purchase and sale of foreign exchange:

The bank also carries on the business of buying and selling foreign currencies.

5. Agency Functions of the Bank:

The various agency services rendered by the bank are as follows.

· Transfer of funds:

The bank helps its customers in transferring funds from one place to another through an
instrument known as the 'bank draft'.

Collecting customer's funds:

The bank collects the funds of its customers from other banks and credits them to their
accounts.

Purchase and sale of shares and securities for the customers:

The bank buys and sells stocks and shares of private company as well as government
securities on behalf of its customers.
 Collecting dividends on the shares of customers :

The bank collects dividends interest on the shares and debentures of the customers and
credits them to their account.

2.4 An introduction of Nepal SBI Bank Ltd.

Nepal SBI Bank Ltd.(NSBL) is a subsidiary of State Bank of India (SBI) having 55 percent
of ownership. The local partner viz. Employee Provident Fund holds 15% equity and
General Public 30%. In terms of the Technical Services Agreement between SBI and the
NSBL, the former provides management support to the bank through its expatriate officers
including Managing Director who is also the CEO of the Bank. Central Management
Committee (CENMAC), consisting of the Managing Director & CEO, Chief Operating
Officer & Dy. CEO, Chief Financial Officer, Chief Risk Officer and Chief Credit Officer,
exercises overall control functions with the help of 3 Regional Offices, and oversee the
overall operations of the Bank.

NSBL was established in July 1993 and has emerged as one of the leading banks of Nepal,
with 840 skilled and dedicated Nepalese employees working in 69 branches, 7 extension
counters, 3 Regional Offices and Corporate Office. With presence in 36 districts in Nepal,
the Bank is providing value added services to its customers through its wide network of 107
ATMs (including 2 Mobile ATMs and 4 CRMs), internet banking, mobile wallet, SMS
banking, IRCTC Ticket Online Booking facility, etc. NSBL is one of the fastest growing
Commercial Banks of Nepal with more than 6.22 lakhs satisfied deposit customers and
over 4.80 lakhs ATM/Debit cardholders. The Bank enjoys leading position in the country in
terms of penetration of technology products, viz. Mobile Banking, Internet Banking and
Card Services. The Bank is moving ahead in the Nepalese Banking Industry with
significant growth in Net Profit with very nominal NPA. As of 31st Ashad, 2074, the Bank
has deposits of Rs. 81.66 billion and advances (net) of Rs. 63.02 billion, besides investment
portfolio of Rs.21.01billion.

State Bank of India (SBI), with a 210 year history, is the largest commercial Bank in India
in terms of assets, deposits, profits, branches, customers and employees. The Government
of India is the majority stakeholder and has controlling stake in SBI, a “Fortune 500” entity.

Our parent State Bank of India has an extensive network, with over 24,000 branches in
India and another 198 foreign offices in 37 countries across the world.

2.5 Financial Statement

The basis for financial planning, analysis and decision making is the financial information.
Financial information is needed to predict, compare and evaluate the firm's earning ability.
It is also required to aid in economic decision making – investment and financing decision
making. The financial information of an enterprises is contained in the financial statement
or accounting reports.

Financial information contains summarized information of the firm's financial affairs,

organized systematically. They are the means to present the firms financial situation to the
users. Preparation of the financial statements the responsibility of the top management. As
investors and financial analyst to examine the firm's performance in order to make
investment decision use these statements, they should be prepared carefully and contained
as much information as possible.
The basis for financial planning, analysis and decision making is the financial information.
Financial information is needed to predict, compare and evaluate the firm's earning ability.
It is also required to aid in economic decision making – investment and financing decision
making. The financial information of an enterprises is contained in the financial statement
or accounting reports.

Financial information contains summarized information of the firm's financial affairs,

organized systematically. They are the means to present the firms financial situation to the
users. Preparation of the financial statements the responsibility of the top management. As
investors and financial analyst to examine the firm's performance in order to make
investment decision use these statements, they should be prepared carefully and contained
as much information as possible.

Two basic financial statements prepared for the purpose of external reporting to owners,
investors and creditors are; 1. Balance sheet or statement of financial position and 2.Profit
and loss account or income statement. These statements are contained in a company's
annual report. For internal management purpose, i.e. planning and controlling, much more
information than that contained in the published financial statements are needed. Therefore,
the financial accounting information is prepared in different statements and reports in such
a way as to serve the internal needs of the management

2.6 Financial Analyses

Profit is essential for an enterprise for its survival and growth and to maintain capital
adequacy through profit retention. Profit is one of indication of sound business
management i.e. cost control, credit risk management and general efficiency of operation.
Profit is important for any business concern including joint venture banks but the sole
objective of such institution is not profit.

Financial institution must maintain adequate liquidity to meet a wide range of

contingencies. If financial institution fails to maintain adequate liquidity, it faces many
difficulties. Excess liquidity is the loss income. A bank must maintain adequate cash and
balance to meet day to day operation as well as for remote contingencies. It measures the
extent to which it can oblige its short-term obligation. Investors are more concerned with a
firm's long term financial strength. Which evaluating the financial performance, it is more
concerned with resource mobilization. Failure to collect enough deposit exhibit
inefficiency

Of the bank.

A bank communicates financial information to the public through financial statements and
reports. The financial statement contains summarized information of the bank's financial
affairs. The two basic financial statements of the bank are balance sheet and profit and loss
accounts. Investors and financial analyst examine the banks performance to make
investment decision by analyzing the financial statement of the bank. Thus financial
analysis is the process of analyzing the financial statement of the bank. Thus, financial
analysis is the process of identifying the financial strength and weakness judging
profitability and overall efficiency of a business. Analysis of financial statement, therefore,
refers to such treatment of the information contained in the income statement and balance
sheet so as to provide full diagnosis of the profitability and financial soundness of the
business.
Analysis of financial statement is the purposeful and systematic presentation of information
in the financial statement by developing relationship between one fact with other in order to
measure the profitability, solvency, liquidity, operational efficiency the growth potential of
the business. Thus ratio is one of the widely used financial tools that have been used to
analyses the balance sheet and income statement. The income statement or profit and loss
account reflects the performance of the bank over a period of time. In other words it shows
the result of business activities or operating during a certain period usually a year. It
represents the summary of income obtained and the cost incurred by the bank during a year.
The analysis of financial statements is an important aid to financial analysis.

2.6.1 Users of financial analysis

Financial analysis can be undertaken by management of the firm, or by parties out side the
firm, viz. owners, creditors, investors and others the natures of analysis will differ
depending on the purpose of analyst. The main users of financial analysis are;

Ø Trade creditors are interested in firm's ability to meet their claims over

every short period of time. Their analysis will, therefore, confined to the
evaluation of the firm's liquidity position.

Ø Suppliers of long term, debt are concerned with the firm's long term solvency
and survival. They analyses the firm's profitability overtime, its ability to generate cash to
be able to pay interest and repay principal and the relationship between various sources of
funds. Long term creditors do analyses the historical financial statement, but they place
more emphasis on the firm's projected financial statements to make analysis about its future
solvency and profitability.
 Ø Investors, who have invested their money in the firm's shares, are most concerned
about the firm's earnings. As such, they concentrate on the analysis of the firm's present and
future profitability. They are also interested in the firm's financial structure to the extent it
influences the firm's earnings ability and risk.

Ø Management of the firm would be interested in every aspect of the financial

analysis. It is there overall responsibility to see that the resources of the firm are used most
effectively and efficiently, and that the firm's financial condition is sound.

2.7 Ratio Analysis;

Of the various method of financial statement analysis, ratio analysis is the most widely used
method. Ratio analysis is a major device of measuring the financial activities of enterprises.
A ratio analysis is a significant way by which financial stability of a business concern can
be judged. It also helps to draw future plans and forecasting. The processes of
determine and interpreting numerical relationship are based on financial statement. The
relationship between two accounting figures, expressed mathematically is known as
financial ratio. This relationship can be expressed as percentage or as quotient. In other
words, ratio may be expressed in percentage, time or as proportion. Thus, it is very
valuable tool of management control. Ratio analysis is widely used tool for financial
analysis.

"Ratio analysis is defined as the systematic use of ratio to interpreter the financial
statements so that the strengths and weaknesses of affirm as well as its historical
performance and current financial condition can be determined. The term ratio refers to the
numerical or quantities relationship between two variables".[7]
 A ratio is defined as, "The indicated quotient of two mathematical expressions" and as "the
relationship between two or more things".[8]

In financial, analysis, the relationship between two accounting figures, expressed

mathematically, is known as financial ratio. Ratio helps to summarize the large quantities
of financial data and to make qualitative judgment about the bank's financial performance.

From the view point of this study, ratios have been classified in to four groups;

· Liquidity ratio

· Leverage ratio

· Activity ratio

· Profitability ratio

Liquidity Ratio

I. Liq

It is extremely essential for a firm to be able to meet its obligations as they become due.
Liquidity ratios measure the ability to meet its current obligation.

A firm should ensure that it does not suffer from lack of liquidity, and also that it does not
have excess liquidity. The failure of a company to meet its obligations due to lack of
sufficient liquidity, liquidity, will result in poor creditworthiness, loss of creditor'
confidence, or even in legal tangles resulting in the closure of the company. A very high
degree of liquidity is also bad, idle assets earn nothing. The firm's fund will be necessarily
tied up in current assets. Therefore, it is necessary to strike a proper balance between high
liquidity and lack of liquidity.

II. Leverage ratio:

The short-term creditors are more concerned with the firm's current debt paying ability. On
the other hand, long-term creditors are more concerned with the firm's long-term financial
strength. In fact, a firm should have a strong short- as well as long-term financial position.
To judge the long-term financial position of the firm, financial leverage, or capital
structure, ratios are calculated. These ratios indicate mix of funds provided by owners and
lenders. As a general rule, there should be an appropriate mix of debt and owners' in
financing the firm's assets.

III. Profitability ratio:

A company should earn to profits and grow over a long period of time. Profit are essential,
but it would be wrong to assume that every action initiated by management of a company
should be aimed at maximizing profits, irrespective of social consequences. Profit is
difference between revenues and expense over a period of time. Profit is the ultimate
'output' of a company, and it will have no future if it fails to make sufficient profits.
Therefore, the financial manager should continuously evaluate the efficiency to measure the
operating efficiency of the company. Besides management of the company, creditors and
 owners are also interested in the profitability of the firm. Creditors want to get interest and
repayment of prepayment of principal regularly. Owners want to get a required rate of
return on their investment. This is possible only when the company earns enough profits.

2.7.1 Utility of Ratio Analysis

The ratio is analysis is most powerful tool of financial analysis. Many diverse groups of
people are interested in analyzing the financial information to indicate the operating and
financial efficiency, and the firm. These people use ratios to determine those financial
characteristics of the firm in which they are interested.

Performance analysis: A short-term creditor will be interested in the current financial

position of the firm, while a long-term creditor will pay more attention to the solvency of
the firm. The long-term creditor will also be interested in the profitability of the firm. The
equity shareholders are generally concerned with their return and may bother about the
firm's financial condition only when their earning is depressed. If a short- term creditor
analyses only the current position and finds it satisfactory, he/she cannot be certain about
the safety of his her claim if the firm's long term financials position or profitability is
unfavorable. The satisfactory current position would become adverse in future if the current
recourses are consumed by the unfavorable long term financial condition. Similarly, the
good long term is no guarantee for the long term creditor's claim if the current position or
the profitability of the firm is 'bad'.

Credit analysis; in credit analysis, the analyst will usually select a few important ratios.
He she may use the current ratio or quick – assets ratio to judge the firms liquidity or debt
paying ability; debt –equity ratio is to determine the stake of owners in the business and the
firm's capacity to determine the firm's earning prospects. If the profitability is high, the
current ratio is high, the current ratio is low and the debt equity ratio is high, the extinction
of credit may be approved to the firm, because a profitable company will grow and will
have improvement in its current ratio and other ratio.

Security analysis: the ratio analysis is also useful in security analysis. The major focus
in security analysis is on the long term profitability. Profitability is depend on a number of
factors and, therefore, the security analyst also analysis other ratios. He would certainly be
concerned with the efficiency with which the firm utilizes its assets and the financial risk to
which the firm is exposed. Therefore, besides analyzing profitability ratio meticulously, he
will also analysis activity ratio and leverage ratios. The detailed analysis of the earning
power is important for security analysis.

Competitive analysis: The of a firm by themselves do not revival anything. For a

meaningful interpretation, the ratio of a firm should be compared with the ratio of similar
firm and industry. This comparison will reveal whether the firm is significantly out of line
with its competitors. If it is significantly out of line, the firm should undertake a detailed
analysis spot out troubled areas.

2.7.1 Limitations of ratio Analysis

The ratio analysis is a widely used techniques to evaluate the financial position and
performance of business. But there are certain problems in using ratios. The analyst should
 be aware of these problems. The following are some of the limitations of the ratio
analysis:

· It is difficult to decide on the proper basis of comparison.

· The comparison is rendered difficult because of differences in situation of two companies or of
one company over years.
· The price level changes make the interpretation of ratio invalid.
· The difference in definition of item in balance sheet and the profit and loss statement make the
interpretation of ratios more difficult.
· The ratio calculated at a point if time are less informative and defectives they suffer from short
term changes.
· The ratio are generally calculated from past financial statements and thus are no indicator of
future.
 CHAPTER - III

Research Methodology

3.1. INTRODUCTION

Research Methodology may be defined as a systematic that i.e. adopted by the researcher in
studying a problem with certain objective in view. In other words, research methodology
describes the methods and process applied in the entire aspect of the study.

The basic objective of the study is to evaluate the overall performance of Nepal SBI bank
Ltd. and to suggest for its improvement of its performance. Data of the fiscal year 061/062
to 063/064 has been presented and analyzed through appropriate financial ratios.

3.2. Nature and sources of Data:

The study conducted on the basis of secondary data. It is collected from Nepal SBI Bank
Ltd. The published financial data are mostly used in the study to analyze the overall
performance of Nepal SBI Bank Ltd. from 061/062 to 063/064.

3.3.Methods of data collection:

Collection of data means the methods that are to be used for getting the necessary
information from the units under investigation. Collection of relevant data is essential for
correct and important decisions.
 Generally, data can be obtained from primary and secondary sources. The data, which are
obtained through a study under proper investigation, are known as primary data. The
primary data are original in character and obtained by personal interviews, indirect oral
interviews and information from correspondent and so on. The data, which are obtained
from some published or unpublished source, are known as secondary data.

In course of data collection, the narrator collected primary data from the manager,
employees of the bank, the process employed to collect such was questionnaires to the
employee. The secondary data were collected from different booklist, fusibilities of bank.

3.4. Procedure of the Fieldwork

Ø Selection of the topic in which the report is to be prepared.

Ø Selection of the firm in which analysis is to be done.

Ø Collection of data like annual reports income statements and various books of different
writers.

3.5. Tools and Techniques of Analysis

Some tools and techniques have been followed to analyze and evaluate the information of
financial statement, viz. Balance Sheet and P/L A/c.

A. Liquidity ratio
 i. Current ratio

ii. Quick ratio

B. Leverage ratio

i. Debt ratio

ii. Debt equity ratio

iii. Interest coverage ratio

C. Profitability ratio

 · Return on assets
 · Return on eqity
 · Earnings per share
 · Price earnings ratio
 · Earning yield
 · Dividend yield
 · Dividend per share
 · Dividend payout ratio
 CHAPTER – IV

Presentation and Analysis of Data

In this chapter, the annual report of respective bank has been collected for analyzing the
financial tools i.e. ratio analysis.

4.1.1. Liquidity ratio

The liquidity measures the ability of the firm to meet its current obligations. Liquidity by
establishing a relationship between cash and other current assets to current obligation
provide a quick measure of liquidity. This ratio has been analyzed with the help of current
ratio and super quick ratio.

a. Current ratio:

This is the ratio of current assets to current liabilities. "This is used to test the solvency as
well as to determine short term financial strength of the business organization. This ratio is
the indicator of the relationship between total of current assets and total of current
liabilities."
Table -1

Year Current Assets Current Liabilities Ratio

2062 9668416579 8804379328 1.098:1

2063 12716170029 11241036746 1.131:1

2064 13592593847 11722544489 1.1595:1

Source: Appendix -1

The standard for this ratio is 2:1. The above table shows that the current ratios of the bank
are below standard in each f/y. It shows that the weakness of the bank in paying the current
liabilities.

b. Quick ratio:

It is also known as liquid or acid test ratio. It established a relationship between quick asset
& current liabilities.
Table -2

Year Quick Assets Current Liabilities Ratio

2062 9668416579 8804379328 1.098:1

2063 12716170029 11241036746 1.131:1

2064 13592593847 11722544489 1.16:7

Source: Appendix -1

The standard deviation for this ratio is 1:1. The above table shows that all the banks quick
ratio higher than 1 during the fiscal year 061/62 to 063/64, so it is considered satisfactory.

4.1.2.Leverage ratio

a.Debt ratio:

It is the ratio of total debt to total asset. It measures the percentage of the firms asset
financed by creditors.
Table -3

Year Total Debt Total Assets Ratio

2062 9274008191 9963021251 0.93 times

2063 12053465396 13035839124 0.848 times

2064 12737909708 13901200559 0.916 times

Source: Appendix -1

Highest ratio is not preferable for a company. The table shows that ratio increased in f/y
2062.

b. Debt equity ratio:

It measures the relationship between debt capital and equity capital. Debt equity ratio can
be expressed in different ways; one of the most popular method is related to debt to the
shareholder capital.
Table -4

Year Total Debt Shareholder fund Ratio

2062 9274008191 689013060 13.46 times

2063 12053465396 982373728 11.25 times

2064 12737909708 1163290941 10.95 times

Source: Appendix -1

The book can decrease Rs.13.46 debt by decreasing Rs.1 equity and so on.

c. Interest coverage ratio:

It measures the ability of the firm to meet its annual interest payments. It is calculated by
dividing the EBIT by the interest.

Table -5

Year EBIT Interest Ratio

2062 84688216 258430003 0.32 times

2063 168488987 334770096 0.50 times

2064 300790495 412261744 0.73 times

Source: Appendix -1

The interest coverage ratio shows increasing ratio from f/y 062 to 064. Highest ratio shows
that the firm can pay the interest easily. So the increasing ratio in each f/y is satisfactory.

4.1.3.Profitability ratio

a. Return on Assets

It shows the overall efficiency of the bank in generating profit with its available assets.

Table -6

Year Net Profit Total Assets Ratio

2062 57386634 9963021251 0.576%

2063 117001973 13035839124 0.898%

2064 254908844 13901200559 0.184%

Source: Appendix -1
Higher ratio indicated the better utilization of its assets. The table focuses the increasing
ROA. It is considered good to have increasing ROA.

b. Return on Equity:

It is calculated by dividing NPAT by shareholder equity.

Table -7

Year Net Profit Shareholders equity Ratio

2062 57386634 689013060 8.33%

2063 117001973 982373728 11.91%

2064 254908844 1163290941 32.913%

Source: Appendix -1

Here the table show increasing ROSE in each f/y. Higher ROSE is desirable for the
company, which indicate that the company is able to paid dividend to its shareholders.
 c. Earning per share: It measures the profit available to the equity holder on per
share basis.

Table -8

Year Net Profit No. of equity Ratio

2062 57386634 4318656 13.29

2063 117001973 642361 18.27

2064 254908844 6477984 39.35

Source: Appendix -1& 2

The table shows that EPS has increased in each f/y which is positive signal for the
company.

d. Price Earnings Ratio:

The ratio of the market price per share to earnings per share. It shows Rs. amounts the
investors will pay for Rs.1 of current earning.
Table -9

Year MPS (Rs.) EPS (Rs.) Ratio

2062 335 13.29 25.20 times

2063 612 18.27 33.5 times

2064 1176 39.35 29.89 times

Source: Appendix -1& 2

This table indicates the increasing trend of P/E ratio over the year 2062 to 2063 and
decreasing trend from the year 2063 to 2064.

e. Earning Yield Ratio:

It shows the relation between the market value per share and earning per share. It is closely
related to the earning per share. EPS is expressed in terms of market value per share is
known as earning yield ratio.
Table -10

Year EPS (Rs.) MPS (Rs.) Ratio

2062 13.29 335 3.96%

2063 18.27 612 2.985%

2064 39.35 1176 3.35%

Source: Appendix -1& 2

The earning yield increases from 2063 to 2064, which is positive for the company that is
why it is satisfactory.

f. Dividend yield:

It defines the relationship between dividend per share and market value per share it is very
useful for the investors.
Table -11

Year DPS MPS Yield

2062 - 335 -

2063 5 612 0.817%

2064 12.59 1176 1.07%

Source: Appendix -1

The dividend yield in 2062 has no yield but in 2063 and 2064 has increasing trend of
dividend yield.

g. Dividend per Share:

The whole amount of earning may or may not be distributed to shareholders by a company.
How much per share the dividend is distributed to common shareholder can be known from
this ratio. The dividend distributed among the common shareholder on a per share basis can
be determined by this ratio.
Table -12

Year Dividend No. of share DPS

2062 - 4318656 -

2063 32011805 642361 5

2064 81554021 6477984 47.59

Source: Appendix -1

The dividend per share has an increasing trend from the year 2063 to 2064.

h. Dividend payout ratio:

The purpose for calculating this ratio is to know the portion of dividend distributed out of
total earning. This ratio shows the relation between the returns belonging to equity
shareholders and the dividend paid to them.
Table -13

Year DPS EPS Ratio

2062 - 13.29 -

2063 5 18.27 27.36%

2064 12.59 39.35 32%

Source: Appendix -1

The dividend payout ratio from the year 2063 to 2064 has an increasing trend.

CHAPTER - V

Summary, Conclusion & Recommendation

5.1. Summary

In this chapter, the evaluation of SBI Bank is done with the help of answers derived from
available data. In fact this chapter is based on some conclusion and suggestion attached
with the answer.

Table-14: Comparative Ratios

Ratio 061/62 062/63 063/64 Mean

1. Liquidity Ratio

a) Current Ratio 1.098:2 1.1316:1 1.16:1 1.13:1

b) Quick Ratio 1.096:1 1.131:1 1.16:1 1.31:1

2. Leverage Ratio

a) Debt equity ratio 13.46 times 11.25 times 10.95 times 11.87 times

b) Debt ratio (time) 0.93 times 0.848 times 0.916 times 0.898times

c) Interest coverage ratio

0.32 times 0.50 times 0.73 times 0.512 times

3. Profitability Ratio

a) ROSA (%) 0.576% 0.898% 0.184% 0.553%

b) ROSE (%) 8.33% 11.91% 21.913% 14.05%

c) EPS (Rs.) Rs.13.29 Rs.18.27 Rs.39.35 Rs.23.64

d) P/E Ratio (times) 25.20 33.5 29.09 29.263

e) Earning Yield (%) 3.96% 2.985% 3.35% 3.432%

f) Dividend Yield (%) - 0.817% 1.07% 0.629%

g) DPS (Rs.) - Rs.5 Rs.12.59 Rs.5.86

h) DPR (%) - 27.36% 32% 18.456%

Source: Appendix -1 & 2

The average current ratio is 1.13:1, which is less than standard, so their current ratio is not
satisfactory. Similarly the average quick ratio is also less than standard. So quick ratio is
also not satisfactory. The average debt equity ratio of SBI Bank is 11.89 times and debt
ratio is 0.898 times. Similarly the average interest coverage ratio is 0.512 times. The
average ROA and ROSE of the SBI Bank is 0.555% and 14.051% respectively. The
average EPS is Rs/23.64. Similarly P/E ratio is 29.264 times and earning yield is 3.432%.
The average dividend yield, DPS, DPR are Rs.5.86 and 18.456% and 3.432% respectively.

5.2. Conclusion

The SBI Bank was established on 24th Jestha, 2050 B.S. and is now the prominent
commercial bank in Nepal. It has been providing the services to businessman, factory and
general people, also by accepting deposits. The important role played by the bank in our
country is very significant. The bank is providing high quality of services.

Most of the ratio calculated above seems to be much volatile. Three years analysis of the
financial statement shows the current ratio increase in last two fiscal years and remains
constant. It shows the negative sign for the bank performance in the future. Similar is in
quick ratio.
Leverage ratio measures the ability of the bank to pay the long-term liabilities. So for this
debt ratio, debt equity ratio and interest coverage ratio is calculated. Debt ratio increases in
third f/y after being decreased in 2nd f/y debt equity ratio decreases in second f/y and third
f/y also. This shows that the bank has taken lower financial risk in second f/y as well as in
third year.

Profitability ratio measures the overall efficiency of the firm. ROA increases in each f/y.
ROSE also increases in each f/y similarly EPS also increases. This shows the satisfactory
result of bank. The P/E ratio decreases in second f/y as compared to first f/y but decreases
in third f/y as compared in second f/y. Earning yield increases in third year but decreases in
2nd year. This is positive result of the bank. The DPS in 2nd f/y is Rs.5 and Rs.12.59 in
3rd year. The DPR in third f/y is increased from first two years.

5.3. Recommendation

Since the bank has current ratio below standard it should pay attention on the utilization of
current liabilities. Since the bank has low ROA it should mobilize its funds in more
productive sectors to increase profit and should take care in utilization of its assets.

They should maintain its present management sound and extend more facility to its
customers to increase its transaction. They should try to keep proper liquidity level in all
year to increase current assets.