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CHAPTER

INTRODUCTION

1.1 Background of the Study


The term bank either derived from old Italian word ‘banca’ or from French word
‘banque’ both meaning a Bench or money exchange table. In older days, European
money lenders or money exchangers used to display coins of different countries in
big quantity on benches or tables for the purpose of lending or exchanging.

In general terms, bank is a financial institution that accepts deposits from the public
and creates credit. It accepts deposits from public with idle money paying certain
interest and provides credit to the needy ones for certain interest. Apart from its basic
function to accept deposits and grant loan, banks also issues cheque, act as an
intermediary for financial transactions, provides locker services and many other
services. In today’s economy, banks collect small savings from general people and
lend it for various productive purposes. Bank is a financial institution involved in
credit creation that deals in money and helps in the socio-economic growth of a
nation.

Although, the basic concept is to accept deposit and create credit, various writers
have defined bank in various ways.

According to oxford dictionary, “A financial establishment that uses money deposited


by customers to invest pays it out when required, makes loans at interest, and
exchanges currency.” (wikipedia, 2016)

According to C.R. Crowther, “A banks collects money from those who have it to
spare or who are saving it out of their income and lends this money to those who
required it.” (investopedia, 2017)

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Thus we can say that bank is a financial institution that receives the idle money in
form of deposit, invests and creates credit to the public for certain interest.

Types of Bank

Central Bank
The main or central body of the banking system of a country which controls regulates
and supervises the activities of banks and whole money market is known as central
bank. It focuses on monetary stability. Central bank provides banking services for its
Government, and Commercial Banks, implements monetary policy, controls
monetary supply and issues currency.

The history of Central Bank goes back to 1694 when Bank of England was
established. In Nepal, Nepal Rastra Bank is the central bank established in 14th
Baishakh, 2013 B.S.(26th April 1956).

Its core activities include issuing notes and coins, perform agency function for
government, acts as clearing house and the lender of the last resort.

Commercial Banks
As per Commercial Bank Act, 2031 B.S., “a commercial bank means the bank which
deals in exchanging currency, accepting deposits, giving loans and doing commercial
transactions.” It performs functions like accepting deposits, advancing loans,
remitting money, letter of credit, e-banking, agency functions for customers, bills etc.

Bank of Venice is the first commercial bank established in 1157. Nepal Bank Limited
established in 30th Kartik 1994 B.S. and Rastriya Banijya Bank established in 23
January 1966 are the first and second commercial banks in Nepal respectively. Such
institutions are rated “ka” by NRB.

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Development Banks
Such banks are established in developing and underdeveloped countries to suit the
development need of the countries. They focus on priority sector development. They
collect funds from share capital, debentures, long term deposits and finance from
central banks and provide long and medium term loans.

In Nepal, Nepal Industrial Development Corporation set up in 2018 B.S. and


Agriculture Development Bank set up in 2024 B.S. are the development banks
established for industrial and agricultural development respectively.

Merchant Banks
Merchant banking functions include underwriting of shares, issuance and
management of shares and unit trust management. In Nepal, Ace capital, National
Merchant Banker, etc. are the merchants banks under SEBON.

Saving Banks
These banks have a main purpose to promote saving habits among general public and
mobilize their savings. They were established to tackle the problem of poverty. In
Nepal, Postal saving bank is doing this job.

Co-operative Banks
The banks which collect deposits among the members and give loans to members
only are known as co-operative banks. Navajeevan Co-operative Society Limited is
the first co-operative bank in Nepal.

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Banking in Nepal
In Nepalese context, like as in other countries landlords, goldsmiths and merchants
were ancient bankers. But people were exploited by charging high interest rates. But
with rise in economic activities there was need of some permanent institutions for
dealing in monetary transactions. So in Kartik 30, 1994 B.S. Nepal bank limited was
established as the first semi government commercial bank. The bank had 10 million
authorized capitals with 8,42,000 as paid up capital. The bank played a vital role in
spreading banking habits among the people. But the need to control the banking
practice, to help the government in monetary policies and direct commercial banks,
gave rise to establishment of Nepal Rastra Bank i.e. central bank of Nepal. So in
Baisakh 14, 2013 B.S. Nepal Rastra Bank was established under Nepal Rastra Bank
Act.

The growing economy demanded more credit requirements. So another commercial


bank; Rastriya Banijya Bank was established in 10th Bhadra, 2022 B.S. Since Nepal is
an agricultural country, the need for credit flow in agriculture also grew with time. To
develop the agriculture sector, Agriculture Development Bank was established in
2024 B.S.

Initiation of financial sector, increment in financial activities and the liberalization


policy by Nepal Rastra Bank gave prospects for further development of banking
sector in Nepal. As a result, joint venture banks came into existence. The then His
Majesty’s Government formulated the policy of allowing foreign banks to form a
joint venture in Nepalese market. It was to encourage the local banks and institution
to improve their competency and efficiency to provide a prompt customer service.
Nepal Arab Bank limited established in 2041 was the first joint venture bank.
Currently there are numerous joint venture banks in operation and they have been
performing well.

At present there are 28 Commercial Banks, 54 Development Banks, 33 Finance


Companies, 50 Micro Finance and 15 savings and credit co-operatives.
(www.nrb.org.np)

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Commercial Banks in Nepal
Nepal Bank limited, the first commercial bank of Nepal was established in 1994 B.S
with 51% government equity. Then after, Rastriya Banijya Bank came into existence
in 2022 B.S being 100% owned by government. Prioritizing the agricultural
development in the country Agricultural Development Bank was established in 2024
B.S. In order to create a healthy competition, government decided to give permission
to form joint ventures. Nepal Arab Bank limited was established as a first joint
venture bank of Nepal in 2041 B.S.

Overview of Sunrise Bank Limited


Sunrise Bank Limited is one of the leading commercial banks in Nepal established in
2007 AD. ‘Rising to serve’ has been the main motto of the bank since beginning
days. Bank is providing and evolving its services with time with services like
branchless banking, locker facilities, internet banking, mobile banking, remittance,
ATMs etc.

The bank has the following capital structure:

Particulars Amount and %

Authorized capital Rs.5000 million

Paid up capital Rs.3.97 billion

Promoter share 51% of paid up capital

Public shares 49% of paid up capital

Table 1.1: Capital Structure of Sunrise Bank

(Sunrise Bank Limited, 2073/74)

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1.2 Statement of Problem
The study attempts to evaluate the profitability in respect of Sunrise Bank Limited. It
attempts to know the behavior from Profitability ratios, if the company is able to
generate profit or not. And this study seeks to know if the company’s ratios has been
in increasing or decreasing trend. To point of the basics the study deals with the
following issues:

Do profitability ratios show any behavior?

Whether or not Sunrise Bank Limited is able to generate profit?

Do profitability ratios vary widely from year to year in books of Sunrise Bank
Limited?

Do the ratios have increasing or decreasing trend?

Objectives of the Study


The main objectives of this study are as follows:

To identify the net profit margin of Sunrise Bank Ltd.

To analysis the profitability ratio of Sunrise bank Ltd. during the fiscal year 067/068 to
73/74

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1.3 Propose of the Study
In order to prepare the report or selected topic the main object is to Profitability analysis
of sunrise bank LTD. However, specific objectives are as follows:

 To describe the profit & loss account and balance sheet of Sunrise bank Ltd.
 To define the funds management
 To know about current financial position of Sunrise bank Ltd..
 To compare the profitability, Liquidity & credit management of sunrise bank last
5 years.
 To discussed the financial ratio measurement & analysis.
 To know overall bank financial performance condition.

 To know the condition of ratios like return on assets, profit margin, return on
equity etc of the bank. To know overall bank financial performance condition.

1.4 Significance of the Study


The focus of profitability ratio analysis is the key figures contained in the income
statement and the significant relationship between them. It is a necessity to let
Shareholders, investors, government etc to know the profitability of the firm so it is
significant to know the profitability of the firm. The ability is reflected in ratios like
return on assets, profit margin, return on equity etc of the bank. Profitability ratios
measure the overall performance and effectiveness of the firm. The various
profitability ratios show the profitability prospect of the company, its trend in market
and provide the investor the idea of the company for investment purposes.

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1.5 Research Methodology
The methodology which is used in the research is called research methodology. How the
data is collected and which source the researcher used for getting the data is under the
research methodology. Research methodology covers the data analysis tools as well.
Research is a systematic and organized effort to investigate a specific problem that needs
a solution. This process of investigation involves a series of well-thought out activities of
gathering, recording, analyzing, and interpreting the data with the purpose of finding
answer to the problem. Thus, the entire process by which we attempt to solve problems or
search the answer to question is research. It is undertaken not only to solve a problem
existing in work setting, but also to add or contribute to the general body of knowledge in
a particular area of interest to the researcher.

According to Michael V.P., (2000), “Research is the process of systematic and in-depth
study or search for any particular topic, subject or area of investigation backed by
collection, presentation and interpretation or relevant details or data.”

Inclusions of research methodology are as follows:

1.5.1 Type of Research


This study is concerned with the detail analysis of profitability ratios of Sunrise
Bank Ltd. The research method adopted is descriptive method. It describes about the
profitability of Sunrise Bank Ltd. Historical data of previous five fiscal years are
collected and analyzed according to the objectives set.

1.5.2 Population and Sample


At present there are 28 Commercial Banks in Nepal out of which Sunrise Bank Limited
has been used as a sample of the study.

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1.5.3 Types of Data Used

Data is the building block of any research. Data can be defined as the values collections
through record-keeping or polling, observing, or measuring. More simply, data is facts,
text, or numbers that can be collected. Here, data should not be thought of only as
statistical or quantitative. It may take many other forms, such as transcripts of interviews,
maps, photographs, and videotapes of social interaction

 Secondary data

. Secondary data has been collected from various sources including the annual
report of Sunrise Bank Ltd. Internet and reports from NRB has been also used for the
purpose of this study.

1.5.4 Data collection procedure


The data has been only from secondary sources. Publication includes the information
from annual report and brochures of the bank. Secondary sources include website of the
bank, internet, books and related newspapers.

1.5.5 Data Presentation Techniques


Data can be presented in a table when the data is either parametric or nonparametric.
Frequency distributions take the form of tables and graphs. Presentation is through the
use of bar charts or data can be shown in bars either vertically or horizontally. But in this
report, the collected data of this bank is presented in figure form, table using bar diagram.

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1.6 Instruments

The instruments that have been used for the purpose of this study are financial
tools. Various financial ratios have been calculated and analyzed to derive the
findings of the study. Mainly profitability related ratios have been used for the
purpose of this study.

i. Return on Equity
This ratio is computed by dividing net profit after tax by net worth of the company.

𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝐴𝑋


𝑅𝑂𝐸 =
𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ

It measures the profitability of equity funds invested in the firm. This ratio reveals
how owner’s find have been utilized by the firm to generate profit. Firms with high return
on equity with little or no debt are able to grow without large capital expenses. It allows
owners to invest the fund elsewhere.

ii. Return on Assets


Return on assets is calculated by dividing net profit by total assets.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐴 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

iii. Return on Capital Employed/ Return on Investments


This ratio is shows the percentage of return on funds invested by the owners in
their business. It gives the owner the idea if the effort they put in the business has been
worthwhile. It is calculated by dividing net profit by capital employed.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐼 =
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

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Profitability Ratios in Terms of Shareholders

i. Earnings per Share


Earnings per share (EPS) are the income of per common stock. It is the ratio
which measures the earnings available to the equity shareholders on a per share basis. It
is the ratio of earnings available to equity shareholders to total number of common stock
outstanding.

𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝒂𝒇𝒕𝒆𝒓 𝑻𝒂𝒙𝒆𝒔


𝑬𝒂𝒓𝒏𝒊𝒏𝒈 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆 =
𝑻𝒐𝒕𝒂𝒍 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒄𝒐𝒎𝒎𝒐𝒏 𝒔𝒕𝒐𝒄𝒌 𝒐𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈

ii. Market Price per Share


Market price per share (MPS) is the closing price of stock in the stock exchange. It gives
management an indication of what investors think of the company’s past performance
and future prospects.

iii. Dividend Payout Ratio


This ratio provides an indication of how much money a company is returning to its
shareholders versus how much it retains from the earning. (investopedia, 2017).
𝑑𝑖𝑣𝑒𝑛𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
𝐷𝑖𝑣𝑒𝑛𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝑒𝑎𝑟𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

iv. P/E Ratio


The price earnings ratio indicates the expectation of equity investors about the earning of
the firm. It relates earnings to market per share.

𝑚𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒


𝑃𝐸 𝑅𝑎𝑡𝑖𝑜 =
𝑒𝑎𝑟𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

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Profitability Ratios in Relation to Income

i. Net Profit Margin


It measures the overall profitability of the business. It is calculated by dividing net
income by total assets.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = ∗ 100%
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

1.7 Techniques of analysis


The techniques or tools used for analysis are financial tools. It includes various ratios
related to the profitability of the bank such as ROA, ROE, Net Profit Margin etc.

1.8 Review of Literature


The Literature Review is made up of two words i.e. Literature and Review. Literature
means the work the researcher consulted in order to understand and investigate their
research problem and Review is a process of a systematic, meticulous and critical
summary of the published literature in the field of research. Literature review also
indicates that the researcher should summarize the broad contents of the research articles
or studies and indicate clearly any linkages other studies in the field.
It is a way to discover what other research in the area of the research topic
has uncovered. It helps the researcher to develop a thorough understanding and insight
into previous research works that relates to the study. It is also a way to avoid
investigating problems that have already been definitely answered.

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The purposes of Literature Review are listed below:-
• To avoid needless duplication of work.
• To explain historical background of a topic.
• To describe and compare the schools of thought on an issue.
• To highlight and critique research methods.
• To note areas of disagreement.
• To highlight gaps in the existing research.
• To justify the topic the researcher plans to investigate the system, which may be goods
or services.
This report uses two types of review. They are:-

1.8.1 Conceptual Review


Profitability analysis can be done using various financial ratios. And such various
financial ratios can be calculated through accounting data contained from financial
statements. The ratios can be categorized into four groups, which are as follows:

a) Liquidity ratio
b) Leverage ratio
c) Activity ratio
d) Profitability ratio

Profitability
Profit is the financial benefit realized from a business when the amount of income
exceeds expenses, costs and taxes of the bank needed to sustain the operation of bank.
Regardless the size of business, every business has a goal to earn profit. Profitability is a
measure of firm’s efficiency (Jain, 1998). Brigham and Houston (2004) views that
financial profitability lies in a firm’s ability to generate revenues in excess of its costs: for
either long or short term. Different ratios are used to measure the profitability of the firm
and they show whether firms are being efficiently operated. These ratios help to find out

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how effectively the organization is being managed. A company must earn profit for its
stakeholders and for its existence. A high degree of profitability ensures the investors of
their return, customers of the safety of their deposits and interests, government of its tax
and employees of their salary and bonuses. Loss may result in its extinction and the bank
may lose trust of customers and other stakeholders, its credit worthiness and creditor’s
confidence as well. There should be a consistent and adequate profit margin to maintain
and grow the business. It is beneficial to a company that its profit goes on increasing
trend. The following ratios are generally used to measure the profitability of the firm.

1.8.2 Review of Previous Works


It is an integrated research review, which examines the previous research works in the
area and identifies the existing relationships among the variables. The purpose of this
form of review is that the researcher should examine what has been written previously
and learn from the earlier work in the area.

Here the researcher had collected three different reports prepared by three different
people in same topic financial statement to compare with his/her research. The researcher
has collected the objectives and findings of their report. The collected data of their report
are as follows:

Several different studies have been carried out in the area of profitability analysis of
commercial banks in Nepal as well as other countries. Some of the most prominent of
similar nature is reviewed as follows:

A study made by (Shrestha, 2011), on Nabil bank, Nepal Investment bank, Himalayan
bank, Bank of Kathmandu and Everest bank with a aim to know the Long Term
Profitability of Commercial Banks in Nepal. Time series data covering 2003-2010 was
analyzed.

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Another study made by (Silwal, 2016), on Arun Valley Hydropower Company, with the
objectives to evaluate the profitability ratios and to find out relationship between liquidity
and profitability of the company.

A study made by (Tamang, 2015), on Agriculture Development Bank Ltd., with the aim
to identify trend of profitability of the bank and calculate its earnings per share.

1.9 Limitations
The study is primarily conducted for partial fulfillment of the requirements for the degree
of Bachelor of Business Studies (BBS). Following are the limitations of the study:
 Most of the data used are secondary data. Therefore, reliability of all the analyzed
results and conclusion depend on the information provided by the bank.
 Only various profitability ratios have been considered for computation and analysis of
the data.
 The study is based on five-year data only. It may be misleading to use for long-term
planning.
 The study is focused only on Sunrise Bank Ltd; therefore, it may be not useful for
judging the entire banking industry.

1.10 Report Structure


The report has been prepared using the following structure:
Chapter one - Introduction: background; statement of the problem; rationale of the
study; theoretical bases; limitations of the study; definition of terms; and organization
of the remainder of the study,Review of the Literature: chronological or categorical
presentation of theoretical viewpoints related to topic,Research Methods: research
design or approach population and/or sample; collection and tabulation of data; and
data analysis procedures.

Chapter Two - Results and Findings: Presentation of results and findings of project
work.

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Chapter Three-Discussion and Conclusion Evaluating and interpreting the
implications results obtained. Include similarities and differences between results
obtained and the work of others. Present implications of conclusion for practical
application or future studies.

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CHAPTER TWO
RESULT AND Analysis

2.1 Presentation and Analysis of Data


There may or may not be consistency in bank’s activities throughout different fiscal
years. These types of inconsistency depend upon the national inflection and deflection
and fluctuation in the world economy. In this chapter, we have tried to make a
comparative of different earning phase of different years. To examine the profitability of
Sunrise bank various data are collected in the raw form. Thus, it is important to be
presented in tabular form and must be analyzed.

2.1.1 Profitability Position of Sunrise Bank Ltd


Profitability is the net result of a large number of policies and decisions. A bank should
earn profit in order to survive and grow over a long period of time. The ability of bank to
ensure adequate return to stockholders and the operating efficiency of the bank depends
eventually on its earning profits. Thus, profitability analysis is a method used to measure
the efficiency of the bank.
In order to find out the profitability position of Sunrise Bank Ltd., the changing
percentage of total income and expenses and the resulting net profits have been
summarized in the table below:

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Table 2.1: Profitability position of Sunrise bank limited

(Figures in millions of Rupees) (Annual report of Sunrise bank, 2069-2074)


Fiscal year Net profit Increase/Decrease (%)
2069/70 44.2391 140.6703
2070/71 111.1935 151.3466
2071/72 311.609 180.2403
2072/73 246.7726 -20.8069
2073/74 470.857 90.806

In the table 2.1, we can see that the net profit of Sunrise Bank Limited is in
increasing trend since FY 2067/68 to 2069/70. In the FY 2070/71, net profit of the bank
decreased by 20.8069%. The highest increase in net profit is recorded in FY 2069/70 i.e.
by 180% and the highest decline in profit was in FY 2070/71 i.e. by 20%. Despite the ups
and downs, the net profit of Sunrise Bank Limited is in increasing trend. The table above
can be presented by following figure:

40000

35000

30000

25000
Net Profit

20000
Net Income
15000
Total Assets
10000

5000

Figure2.1: Profitability of Sunrise Bank Limited

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2.1.2 Profitability Ratios of Sunrise Bank Limited
The following are the ratios of profitability of Sunrise bank Limited:

In relation to investment
i. Return on Equity

It is the ratio of net income to shareholders’ equity. It measures the rate of return
on common stockholders’ investment. It shows how effectively the bank has utilized the
owners’ fund. Return on shareholders’ equity is calculated dividing net profit after taxes
by shareholders’ equity.

Net Profit after Taxes


Return on Shareholders’ equity =
Shareholder ′ s equity

Table 2.2: Return on equity of Sunrise Bank Limited

(Figures in millions)(Annual report of sunrise bank, 2067-2074)

Fiscal year Net income Shareholder's equity Return on


Equity(ROE)%
2069/70 44.2391 2146.061427 2.061
2070/71 111.1935 2151.2023 5.169
2071/72 311.609 2451.1455 12.713
2072/73 246.7726 2697.918 9.147
2073/74 470.857 3347.9728 14.064

From the above table 2.2, we can say that the return on shareholder’s equity of Sunrise
Bank Limited is in increasing trend. ROE in F/Y 069/70 is 2.06% and the year later is
5.16%. The ratio reached all time high in F/Y 073/774 by 14%. Despite the decrease in

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F/Y 072/73, the bank succeeded to increase its ROE in the later year and maintained the
increasing trend. The table above can be presented by following figure:

16

14

12

10

8
Series1
6

0
2069/70 2070/71 2071/72 2072/73 2073/74

Figure2.2: Return on equity of Sunrise Bank Limited

ii. Return on Assets

The ratio of net income to total assets measures the return on total assets (ROA) after
interest and taxes. The total profit earned on the assets of the bank is known as return on
assets. It measures the productivity of the bank’s assets. It conveys information on how
well the bank’s resources are being used in order to generate income. More efficiently-
run banks tend to have higher ROA.

Net Profit after Taxes


Return on total assets =
Total Asset

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Table2.3 : Return on total assets
Fiscal year Net income Total Assets Return on Assets( %)
2069/70 44.2391 15850.4579 0.279
2070/71 111.1935 21279.0084 0.523
2071/72 311.609 26128.839 1.193
2072/73 246.7726 29661.322 0.832
2073/74 470.857 37388.8149 1.259

(Figures in millions of Rupees) (Annual report of sunrise bank, 2069-2074)

Return on total assets of Sunrise Bank Ltd. is on increasing trend. It was 0.279% in the
FY 2069/70 while in the FY 2070/71, it was 0.523%. In the FY 2071/72, ROA increased
to 1.193%, thereby falling to 0.832% in the FY 2072/73and increased to 1.259% in the
FY 2073/74
40000

35000

30000

25000
Net Income
20000
Total Assets
15000 Roe

10000

5000

0
2069/70 2070/71 2071/72 2072/73 2073/74

Figure2.3: Return on Total Assets

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2.1.3 In relation to shareholders
i. Earnings per Share

Earnings per share (EPS) are the income of per common stock. It is the ratio which
measures the earnings available to the equity shareholders on a per share basis. It is the
ratio of earnings available to equity shareholders to total number of common stock
outstanding.

ii. Market Price per Share

Market price per share (MPS) is the closing price of stock in the stock exchange.
It gives management an indication of what investors think of the company’s past
performance and future prospects.

Table2.5: EPS and MPS

(Figures in millions of Rupees) (Annual report of sunrise bank, 2067-2072)


Fiscal year EPS MPS
2069/70 2.2 163
2070/71 5.62 145
2071/72 15.46 232
2072/73 11.03 510
2073/74 19.27 395
MPS of Sunrise Bank Limited is in increasing trend and EPS of the bank is
fluctuating. This may be due to increase in number of shares. Above table 4.5 can be
presented by the following figure:

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600

500

400

300 EPS
MPS
200

100

0
2069/70 2070/71 2071/72 2072/73 2073/74

Figure 2.3: EPS and MPS

iii. Dividend Payout Ratio

This ratio provides an indication of how much money a company is returning to


its shareholders versus how much it retains from the earning.
𝑑𝑖𝑣𝑒𝑛𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
𝐷𝑖𝑣𝑒𝑛𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝑒𝑎𝑟𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
iv. P/E Ratio

The price earnings ratio indicates the expectation of equity investors about the
earning of the firm. It relates earnings to market per share.

𝑚𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒


𝑃𝐸 𝑟𝑎𝑡𝑖𝑜 =
𝑒𝑎𝑟𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

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Table2.6 : DPR and P/E ratio

Fiscal year DPR (%) P/E ratio


2069/70 4 74.24
2070/71 5.26 26.28
2071/72 11.58 15
2072/73 0 46.22
2073/74 22.63 20.5
From the above table 4.6, we can see that dividend payout ratio and price earning ratio
both are in fluctuating trend. DPR is increasing up to fiscal year 073/74 and then went to
nil at later year whereas P/E ratio has exactly opposite behavior.
80

70

60

50

40 DPR (%)
P/E ratio
30

20

10

0
2069/70 2070/71 2071/72 2072/73 2073/74

Figure 2.4 : DPR and P/E ratio

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25
2.1.3 In Relation to Income
i. Net Profit Margin

It measures the overall profitability of the business. It is calculated by dividing net


income by sales. However, a bank’s net profit margin cannot be derived using certain
formula.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 ∗ 100%

Table 2.2 : Net Profit Margin

(Figures in millions of Rupees) (Annual report of sunrise bank, 2069-2074)

Fiscal year Net profit Total assets Net profit margin


2069/70 44.239 15850.458 0.279
2070/71 111.194 21279.008 0.523
2071/72 311.609 26128.839 1.193
2072/73 246.773 29661.322 0.832
2073/74 470.857 37388.815 1.259

From the above table 4.7, we can say that net profit margin of the bank has a
fluctuating trend in the given five fiscal years. Above table can be represented by
following figure:

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1.4

1.2

0.8

0.6
Net profit margin
0.4

0.2

0
2069/70 2070/71 2071/72 2072/73 2073/74

Figure2.5: Net profit margin

2.1.4 Major Findings


The foregoing analysis of profitability ratios of Sunrise Bank Limited reveals the
following findings:

 The overall profitability position of the bank is sound during period 2069/70 to
2073/74.
 Net income of the bank has an increasing trend despite the fall in income in the
FY 2072/73. We can say that the bank has invested in quite profitable sectors.
 ROE is on rising trend it increases from 2.061% to 14.064% during period
2069/70 to 2073/74 which means bank is trying to make effective utilization of
owners’ capital. The ROE of the bank has fallen in the year 2072/73. But the bank
has done a very good comeback in the later year with a ROE of 14.064%.
 ROA is in increasing trend from the last five years which indicates total assets are
properly utilized.

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 ROCE of the bank also has an increasing trend. We can say that the bank has
gained a good percentage of returns on owner’s fund over the years. The effort of
the owners put into the business has been worthwhile.
 MPS of the bank has been increasing because of its good performance and EPS of
the bank is fluctuating due to change in number of shares.
 DPR and P/E ratio both are in fluctuating trend. DPR is increasing up to fiscal
year 071/72 and then went to nil at later year whereas P/E ratio has exactly
opposite behavior. This is due to heavy negative change in income of the bank in
the year 071/72.
 Net profit margin of the bank has a fluctuating trend in the given five fiscal years.

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CHAPTER THREE
DISCUSSION AND CONCLUSION

3.1 Discussions
A bank is a financial institution which collects money from the surplus unit and lends to
the deficit unit. In this process, the bank earns income. The rate of interest paid to
depositors is generally lower than the rate of interest charged to the borrowers. The
difference between these two rates of interest is the profit of the bank. Bank directly or
indirectly affects the economy of the country. Since the banks mobilize the funds to their
optimum use by giving life to the idle cash put under the mattress, they play a significant
role in the economic development of a country. Moreover, banks make available the
necessary funds to perform the development activities of the country.

The comparison of total profit of the bank over the five fiscal years from the year
2067/68 to 2071/72 is done. Different profitability ratios are calculated to find out the
overall profitability position of the bank. Profit margin, return on equity, return on total
assets, earning per share etc of the bank are calculated. The output of the data analysis is
presented in suitable diagrams.

This report also shows the in line finding with the previous report (Shrestha, 2011), i.e
the increasing trend of Profitability of commercial bank in Nepal, so the previous
research can be justifiable.

3.2 Conclusion
The report reveals some important information about the financial aspect of the bank
from the year 2067/68 till the date 2071/72.The main feature of the study is to get actual
knowledge about the position of Sunrise bank. It examines the ROE and ROA of Sunrise
bank. Under this study following consideration could be made.

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The Previous research by (Shrestha, 2011) concluded that the profitability in future is
sound for the commercial banks in Nepal. Similar findings has been seen in this report as
well since the overall profitability position of the sample bank is in increasing trend.

 The overall profitability position of the bank is sound during period 2067/68 to
2071/72. Profit of the bank has been in increasing trend except in the year 2070/71.
 ROE is on rising trend it increases from 2.061% to 14.064% during period 2067/68 to
2073/74 which means bank is trying to make effective utilization of owners’ capital.
The ROE of the bank has fallen in the year 2070/71. But the bank has done a very
good comeback in the later year with a ROE of 14.064%.
 ROA is in increasing trend from the last five years which indicates total assets are
properly utilized.
 MPS of the bank has been increasing because of its good performance and EPS of the
bank is fluctuating due to change in number of shares.
 Net profit margin of the bank has a fluctuating trend in the given five fiscal years.
This revelation indicates efficiency in the part of bank management. In all, the bank’s
profitability in relation to income; investment; and shareholders is in satisfactory position
and trend. So it is suggested for Sunrise Bank to maintain is ratios.

30
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Pandey, I. (2015). Financial management (1st ed.). New Delhi: Vikas Publishing House
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