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CHAPTER-ONE
INTRODUCTION

1.1 Background of the Study

The solvency ratio of an organization gives an insight into the ability of an

organization to meet its financial obligations. Solvency also indicates how much the
organization depends on its creditors and banks can use this when the organization
applies for a credit facility. The solvency ratio is a calculation formula and solvency
indicator that demonstrates the relationship between the various equity components.

Where, Equity is the capital that the entrepreneur has invested in the organization.
And Total assets is the capital that is incorporated in the organization, these are the
Equity, the Short-Term Liabilities (the capital that has to be repaid in the short- term,
for instance a supplier’s credit, creditors or overdraft facility) and the Long-Term
Liabilities (long-term liabilities that can be repaid after more than one year).

In order to determine whether an organization is viable, the outcome should be

between 25% and 40%. This is of course dependent on the industry and type of
undertaking. This also says something about the financial health of an organization but
this does not necessarily mean that they are going bankrupt.

Where, Total Assets is equal to Total Assets is the sum of assets of an organization.
This is divided into current assets (these are the assets of a person, company or
organization in which the capital is contributed for a period of less than one year). The
current assets must be converted into money within one year. Examples of current
assets are stock, receivables and liquid assets) and fixed assets (these are for example
buildings, inventory, machines and plants and vehicles). And Total Liabilities is equal
to Total Liabilities are the total liabilities that are incorporated in the organization,
these are the Short-Term Liabilities and the Long-Term Liabilities.

The higher the outcome in percentages is the more solvent the organization. Solvency
ratio is one of the various ratios used to measure the ability of a company to meet its
long-term debts. Moreover, the solvency ratio quantifies the size of a company’s after-
tax income, not counting non-cash depreciation expenses, as contrasted to the total
debt obligations of the firm. Also, it provides an assessment of the likelihood of a
company to continue congregating its debt obligations.

As stated by investopedia, acceptable solvency ratios vary from industry to industry.

However, as a general rule of thumb, a solvency ratio higher than 20% is considered to
be financially sound. Generally, a lower solvency ratio of a company reflects a higher
probability of the company being on default with its debt obligations.

1.2 Profile of Janata Bank Nepal Limited

Janata Bank Nepal Limited is the 27th commercial bank established under the Bank &
Financial Institution Act. 2063. The bank's corporate office is located at Central
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Business Park. Thapathali, Kathmandu.

Currently, the bank is operating with 113 branches, 2 extension counter, 3 Limited
Branch Outlet (LBO).67 ATM's and 18 Branchless Banking and will gradually expand
its branch network to provide its service all over the country. With large numbers of
promoters, the bank is the first licensed commercial bank and currently bank has paid
up capital of NPR 6993 Million.

Vision
To extend support towards strengthening the financial system and then the economy of
the country and also grow as an International Financial Institution.

Mission
Greater financial outreach for the people, fair play in the financial market, help in
financial stability within the country, technology transfer and higher customer
satisfaction.

Objectives
The main objective of the bank is to provide reliable and quality banking services to
the public through healthy competition in the banking industry, as mentioned in the
preamble of the Bank & Financial Act, 2063 and as permitted under the Act and
guidelines of Nepal Rastra Bank.
Bank’s motto is to deliver full range of quality banking services to the doorstep of
customers through various delivery channels with effective and efficient use of human
and technical resources and maintain social responsibility and generate reasonable
profit for the shareholders.

1.3 Objectives of the Study

Banking business in Nepal is facing lots of challenges: as they are growing in number
as compared to previous years. Banks are those financial institutions that play a vital
role of intermediary by providing loan to the people who have deficit money and have
good ideas to run the business while taking deposits from the people who have surplus
money and have no idea to run business but wants to earn interest.
The study aims at providing true glimpse of Financial Solvency of Janata Bank Nepal
Ltd to the general public which helps in finding the bank of their right choice. This
study addresses research questions such as:
 What is the financial Solvency of Janata Bank Nepal Ltd?
 What is the ability of a firm to meet its short term obligations?
 Is the Janata Bank Nepal Ltd using its assets efficiently?
 What is the Profitability position of Janata Bank Nepal Ltd?

The specific objectives of the study are as follow:

 To examine the financial solvency of the Janata Bank Nepal Ltd.
 To examine the liquidity position of the Janata Bank Nepal Ltd.
 To examine the efficiency of bank relating to managing its assets.
 To assess the profitability position of the bank.
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1.4 Rationale of the Study

This study has designed to answer the new research questions. Therefore, the study
deserves some significance of its own kind in this field. Moreover, it helps to evaluate
the performance of the banks in terms of profit and growth.
At present, commercial banks are going a wide popularity through the efficient
management and professional service and playing eminent role in the economy.
Regarding the economic structure of the country, the banks do not have sufficient
investment opportunities. Rapidly increasing financial institutions are creating threats
to the commercial banks.
The main objectives of commercial bank are to earn more profit by proper
mobilization of the funds. Due to various human recourses earnings, and their
increasing belief towards saving and investment, banks are receiving large volume of
funds. And managing these funds properly is another task to banks. And hence,
analysis is done to know the situation.

1.5 Method of Study

Methodology is the steps, guideline which are to be followed in analysis and it is the
way of presenting collected data with meaningful analysis. In other words, methods
are a systematic way to serve the researches problem. According to C. R. Kothari
“Methods refers to the various sequential steps (along with a rational, of each steps) to
be adopted by a researches in studying a problem with certain object. Under research
methodology we have:

1.5.1 Research Design

Research design is the main part of thesis or a research work. By Research design
mean overall frame work or plan for the collection and analysis of data (Wolfe H. K,
& Pant P.R. (2005). In this study, we try to find Financial Solvency Analysis of Bank
of Kathmandu Ltd. So, the research has termed as descriptive. So as to facilitate the
assessment, we have collected five years’ data of Bank of Kathmandu Ltd. This study
is concerned with the detail analysis of ratios of Bank of Kathmandu Ltd and their
complete study. The adopted method of research design is case study method. It has
intensive study of the bank.

1.5.2 Population and Sample

Population or universe refers to the entire group of people, events, or thing of interest
that we wish to investigate and sample is the collection of items or elements from
population or universe. Hence sample is only the portion or the subset of the universe
or the population. Currently there are 28 licensed “A” Class Commercial banks are
operating in Nepal according to Wikipedia Report 7th October 2018 which is the
population of this study. So, all “A” Class Commercial banks are operating in Nepal
are population for this study and Bank of Kathmandu Ltd has taken as sample for the
study.

1.5.3 Nature and Types of Data

The study is basically based on the secondary data. All the data required for the
research has collected from the secondary source, mainly from the financial statements
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of the sampled bank and trading report published by NEPSE. The other supplementary
data and information are obtained from the annual reports published by the concerned
Banks to their shareholders. The data of different financial variables related with are
collected from: Annual Reports, Publications of the concerned bank, Newspapers and
Magazines, Publication of Nepal Stock Exchange, Central Library T.U. and Rajarshi
Janak Campus Library, Websites of sample bank.

1.5.4 Data Collection Procedure

Data collection procedure is the method, technique and process of gathering the
necessary information for the study. The necessary information is already recorded or
collected or both. The study mostly based on the secondary data and it has collected
from websites, books, published articles etc. the data has five years old i.e. from fiscal
year 2015/16 to 2018/19 and mostly in from websites and annual reports.

1.5.5 Data Analysis Tools

Financial and statistical tools are used for data analysis according to the requirement.

1.5.5.1 Financial Tools

There are wide varieties of financial tools, which can be applied in order to review the
Financial Solvency of the bank. But, this study follows ratio analysis method. Ratios,
as tools of measuring Financial Solvency of BOK, the following categories have been
taken into consideration.

A. Short-term Solvency:
Short-term solvency is used to judge the ability of banks to meet its short term
liabilities that are likely to mature in the short period. From them, much insight can be
obtained into present each solvency of the bank and its ability to remain solvent in the
event of adversities. It is measurement of speed with which a bank’s assets can be
converted into cash to meet deposit withdrawal and other current obligations.

I. Current Ratios:
The current ratio is the ratio of total current assets and current liabilities. It shows the
relationship between current assets and current liabilities. Mathematically, presented
as,
Current Ratio =
The widely accepted standard of current ratio is 2:1 but accurate standard depends on
circumstances in case of seasonal business ratio.

II. Cash and Bank Balance to Total Deposit:

Cash and bank balance are the most liquid current assets of a firm. Cash and bank
balance to total deposit ratio measures the percentage of most liquid assets to pay
depositors immediately. This ratio is computed by dividing the amount of cash and
bank balance by the total deposits. It can be presented as,
Cash and Bank Balance to Total Deposit Ratio =
Where, Total Deposits consists of deposits on current account, saving account, fixed
account, money at call and other deposits.

III. Cash and Bank Balance to Current Assets (Quick) Ratio:

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This ratio measures the percentage of liquid assets i.e. cash and bank balance among
the current assets of a firm. Higher ratio shows the higher capacity of firms to meet the
cash demand.
Cash∧Bank Balance
Cash and Bank Balance to Current Assets Ratio =
Current Assets

B. Long-term Solvency (Activity Ratios):

Long- term solvency is used to indicate how efficiently the selected banks have
arranged and invested their limited resources. The following financial ratios related to
investment policy are calculated under Long-Term Solvency ratio and interpretations
are made by these calculations.
Loan and Advances to Total Deposit Ratio:
This ratio is calculated to find out how successfully the selected banks and finance
companies are utilizing their total collections/deposits on loan and advances for the
objective of earning profit.
Total Loan∧ Advance
Loan and advance to Total Deposit Ratio =
Total Deposit

ii. Total Investment to Total Deposit Ratio:

Investment is one of the major sources of earning money. This ratio includes how
properly firms’ deposits have been invested on government securities and shares and
debentures of other companies. This ratio can be computed dividing total amount of
investment by total amount of deposit collection, which can be shown as,
Total Investment
Total Investment to Total Deposit Ratio =
Total Deposit

C. Profitability Analysis:
Profitability Analysis is calculated to measure the efficiency of operation of a firm in
terms of profit. It is the indicator of the Financial Solvency of any institution. This
implies that higher the Profitability Analysis, better the Financial Solvency of the bank
and vice-versa. Financial Solvency can be evaluated through following different ways,

Return to Total Working Fund:

This ratio establishes the relationship between net profit and total assets. This ratio is
also called as ‘profit to Total Working Fund ratio. It is calculated dividing net
profit/loss by total working fund and can be expressed as,
Net Profit After Tax
Return to Total Working Fund =
Total Working Fund

ii. Total Interest Earned to Total Working Fund Ratio:

Total Interest Earned to Total Working Fund is calculated to find out the percentage of
interest earned to total assets. Higher the ratio indicates the better performance of
financial institutions in the form of interest earning on better working fund. This ratio
is calculated dividing total interest earned from investment by total working fund and
is mentioned as below:
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Total Interest Earned

Total Interest Earned to Total Working Fund Ratio =
Total Working Fund

iii. Total Interest Paid to Total Working Fund Ratio:

This ratio measures the percentage of total interest expenses against total working
fund. A high ratio indicates higher interest paid by total working fund.
Total Interest Paid
Total Interest Paid to Total Working Fund Ratio =
Total Working Fund

1.5.5.2 Statistical Tools
i. Average: A simple arithmetic average has used to summarize the data as a
representation of mass data. During the analysis of data, mean has calculated by using
the statistical formula average on excel data sheet in computer. It is calculated as:
sum of total values
Mean (X̅) =
No. of values

ii. Standard Deviation (S.D.): The measurement of the scatterings of the mass of
figures in a series about an average is as dispersion. The standard deviation is an
absolute measurement of dispersion in which the drawbacks present in other measures
of dispersion are removed. The high amount of dispersion reflects high standard
deviation. The small standard deviation means the high degree of homogeneity of the
observations. It is calculated for selected dependent and independent variables
specified. It is the positive square root of mean squared deviation from the arithmetic
mean. Generally, it is denoted by small Greek letter σ (read as sigma) and is obtained
as follows:
∑ (X − X́ )2
Standard Deviation (σ) =

Where,
√ N

X = Variable
X̅= Mean
N = Number of items in the series

iii. Coefficient of variations (C.V): The coefficient of variations reflects the relation
between standard deviation and mean. The relative measure of dispersion based on the
standard is known as coefficient of standard deviation. The coefficient of dispersion
based on standard deviation multiplied by 100 is known as the C.V. It is used for
comparing variability of two distributions. Lower value of coefficient of variation is
preferable since it denotes the lower degree of dispersion.
S . D .× 100
Coefficient of variations (C.V.) =
X́
Where,
σ = Standard Deviation
X̅= Mean

1.6 Review of Literature

Literature refers to the detail of any things. It is analytical expression on concerned
topics. In this section relevant content related with the topic of the study are mentioned
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and arranged like concepts of Bank, commercial bank, concept of Financial Solvency,
brief profile of BOK. The materials required for the study have been taken from
books, journals, annual reports, publications, unpublished dissertations and objectives
given to commercial bank by Nepal Rastra Bank.
Conceptual Framework
Review of Related Studies
1.6.1 Conceptual Framework
Financial Solvency can be defined as the heart of financial decision. The growth and
development of an organization is fully affected by the Financial Solvency and the
Financial Solvency of an organization is correct only when the true facts, data and
figures are input.
Business organizations are inspired to generate profit. The volume of profit earned is
also one of the major indications of good Financial Solvency of a firm. “Profit earned
by the firm is the Financial Solvency indicator of a business enterprise.”

“Profit is essential for every enterprise to survive in the long run as well as to maintain
capital adequacy through retained earnings. It is also necessary to accept market for
both depts. Equity to provide funds for increased assistance to the productive sectors.”

Financial Solvency, as a part of financial management is the main indicator of success

and failure of a firm. Financial condition of a firm should be found from viewpoints of
shareholders and debenture holders.

A quantitative judgement of the Financial Solvency and financial position of a firm

should be made from the viewpoints of the firm’s investments. Thus, financial analysis
is the main qualitative judgement process of identifying the financial strength and
weakness of the firm by properly establishing the relationship between the items of
balance sheet and profit and loss account. “A ratio is defined as the indicated quotient
of two mathematical expressions and relationship between two or more figures.”

“Financial Management in broad sense provides a conceptual and analytical

framework for decision making. They also cover both acquisitions of funds as well as
the allocation of fund to various uses. Their major decisions are investment decision,
financial decisions and dividend policy decisions.”

“In financial analysis, ratio analysis is used for evaluating the financial position and
performance of the firm.”

In this study, mainly Financial Solvency of commercial bank is examined for various
reasons. “Ratio Analysis is such a powerful tool of financial analysis that through this
economic and financial position of a business unit can be fully X-rayed.”

A powerful and the most tested tool of financial analysis is the ratio analysis. “It is
defined as the systematic use of ratio to interpret the financial statement so that the
strength weakness of a firm as well as its historical performance and current financial
condition can be determined.”

Traditional financial ratio analysis has focused on the numbers. But the world is
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becoming more dynamic and subject to rapid changes. It is not enough to analyze
operating performance. Financial analysis must include consideration of the strategic
and economic developments to which the firm must relate for its long run success.
Different sources and different analysis use different lists or combination of financial
ratios for analysis. Financial statement reports both on the firm’s position at a point in
time and its operation over some past period.

However, the real value of financial statements lies in the face that they can be used to
help predict the firm’s future earnings and dividends. From an investor’s stand point,
predicting the future is what financial analysis us useful both as a way to anticipate
future condition and more important, as a starting point of planning actions that will
influence the future course event.

Ratio analysis is designed to determine the relative strength and weakness of business
operations. It also provides a framework for financial planning and control. Financial
managers need the information provided by analysis both to evaluate the firm’s past
performance and to map future plans. Financial analysis concentrates on financial
statement analysis, which highlights the key aspects of firm’s operation.

There are many parties involved with the bank (i.e. short term creditors, long term
creditors, shareholders, potential investors, management, government, central bank,
general public.
Short term creditors are interested in the liquidity of the bank. They examine the
ability of the bank to pay the amount of interest. Long term creditors and bondholders
are interested in the cash flow ability and profitability of the bank. Over a time period,
they analyze the ability of the bank to pay the interest on time and also the capital
structure of the bank.

1.6.1.1 Principle of a Good Financial Solvency

a. Principle of safety
The safety sought in investment is not absolute or completes the word means, rather
protection against loss under reasonable likely. It calls for careful review of economic
and industrial trends before choosing any type of investment or the time to invest.
Thus, this principle recognizes that errors are unavoidable and requires extensive
diversification (American Institute of Banking. 1972: 149).

b. Adequate Liquidity and Collateral Value

An investment is a liquid asset if it can be converted into cash without delay at full
market value in any quantity. For an investment to be liquid, it must be I) reversible or
II) marketable. The difference between reversible and marketability is the process
whereby the transaction is reversed or terminated while marketability involves the sale
of the investment in the market for cash. To meet emergencies, every investor must
have a sound portfolio to be sure for the additional funds, which may be needed for the
business opportunities. Whether money is rising is to be done by sale or by borrowing
it has easier if the portfolio pursues a planned proportion of higher grade and readily
saleable investment.
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c. Stability of Income
Stability of income must be looked at different ways just as was security of principle.
An investor must consider stability' of monetary income and stability of the purchasing
power of income. However, emphasis on income stability may not always be
consistent with other investment principles. If the income stability is stressed, capital
growth and diversification has limited.

d. Capital Growth
Capital appreciation has today become an important principle. Recognizing the
connection between corporation and industry growth and very large capital
appreciation, investors and their advisors constantly are seeking “growth stock". It is
exceedingly difficult to make successful choice. The ideal “growth stock” is the right
issue in the right industry, bought at the right time.

e. Tax Status
To plan an investment program without regarding to one's tax status may be costly to
the investor. There are really two problems involved here that, one concerned with the
burden of income taxes upon that income. When investors' incomes are small, they are
anxious to have maximum cash returns on their hand, investors who are not possess
for cash income often find that income taxes deplete certain types of investment
incomes less than others.

f. Purchasing Power Stability'

Since an investment nearly always involves the commitment of current funds w with
the objective of the investor should consider receiving greater amounts of future funds,
the purchasing power of the future funds. For maintaining purchasing power stability,
investors should carefully study I) the degree of price level inflation they accept, II)
the possibility of gain and loss in the investment available to them and III) the
limitations imposed by personal and family considerations.

g. Conceivability
To be safe from social disorders, government confiscation or unacceptable levels of
taxation, property must be conceivable and level no record of income received from its
use of sale. Gold and precious stones have long been estimated for purposes because
they combine high value with bulk and are readily transferable (American Institute of
Banking, 1972:149).

1.6.2 Research Gap

There is gap between the present research and the previous research in terms of some
objectives tools for analysis period of data and the organization. The main issue of this
study is to analyze the Financial Solvency of BOK. This study has used financial and
statistical tool for Financial Solvency. It is mainly concern with BOK bank and data is
taken in between 2014/15 to 2018/19. This study has been done to analyze the term of
Financial Solvency of selected organization to examine analyze and compare the
annual report, to identify the strengths and weaknesses of Financial Solvency Of BOK
and to provide recommendations to the concerned organization for improvement on
the basis of this study .
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1.7 Limitations of the Study

This study has made only for the partial fulfillment of the Bachelor of Business
Studies. This study has based on well-known or already estimated analytical methods.
So, this conclusion oriented. The study has various limitations. It has not concern
much with fundamental basis decision oriented research. The other limitations of the
study are as follow.
 The study has based on secondary data collected from the sample bank.
 The study has been carried out based on the ‘published financial statement.
 Out of numerous factors, only operating fund Analysis has considered.
 The study has focusing an investment aspect of banking performance only.
 The study has carried out in only one bank.

CHAPTER - TWO
RESULTS AND ANALYSIS

In this chapter the researcher analyses & interprets the relevant and available data of
JBNL to presentation and the analysis of the main items that are to be included in the
financial statement. The ratios are designed and calculated to highlight the relationship
between financial items and figures. It is a kind of mathematical relationship and
procedure dividing one item by another. All these calculations are based on financial
statements of concerned bank.

2.1 Short-term Solvency Position

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Short-term Solvency Position presents liquidity position of a firm. Liquidity position is

calculated taking relation to the different portfolio of the firm. It may vary based on
nature of business. In this study, following ratios are mentioned of the concerned
financial institutions.

2.1.1 Current Ratio

Current Ratio measures short term liabilities maturing before one year. This is a broad
measurement tool to analyze liquidity position of a financial institution. It indicates
Bank's ability to discharge current obligations. The ratio is obtained by dividing
current assets by current liabilities.
Table No.2.1: Current Ratio (Rs. in
Million)
JBNL
Fiscal Year
Current Assets Current Liabilities Ratios (Times)
2013/14 4182.99 359.56 11.63
2014/15 4951.45 376.56 13.15
2015/16 3595.67 328.65 10.94
2016/17 8798.19 765.19 11.50
2017/18 10505.08 918.45 11.44
Mean 11.73
S.D. 0.75
C.V. 6.36
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I and I

From the table No. 2.1 JBNL has a high current ratio of 13.15 in F/Y 2014/15 and a
lowest of 10.94 in F/Y 2015/16 and 11.44 in F/Y 2017/18. The averages ratio of
JBNL is 11.73. This shows that JBNL liquidity position is better.
The lower degree of standard deviation and coefficient of variation suggest that the
bank have maintained consistency in their ratios. Though as per the conventional rule
current ratio should be 2:1 but for bank any current ratio above one also considered
healthy and sound. It is clear from the above that JBNL has maintained current ratio. It
can be also present in Figure.
Fig No. 2.1: Trend Line of Current Ratio

2.1.2 Quick Ratio

This ratio examines the bank's liquidity capacity on the basis of its most liquid assets
i.e. cash and balance. This ratio reveals the availability to make the quick payment to
customer's deposit. A high ratio indicates the sound ability their daily cash
requirements of their customer's deposit and vice versa. In this ratio, both higher and
lower ratio are not desirable because if a bank maintains higher ratio of cash, it has to
pay interest on deposit and some earnings may be lost and if a bank maintains lower
ratio of cash, it may fail to make the payment for presented cherubs by its customers.
So, sufficient and appropriate cash reserves should be maintained properly.
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Table No. 2.2: Quick Ratio (Rs. in Million)

JBNL
Fiscal Year
Cash and bank balance Current Assets Ratios (Percent)
2013/14 3915.03 4182.99 93.59
2014/15 4564.43 4951.45 92.18
2015/16 3044.02 3595.67 84.66
2016/17 7831.62 8798.19 89.01
2017/18 9343.36 10505.08 88.94
Mean 89.68
S.D. 3.09
C.V. 3.45
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I & III

The above table 2.2 shows that the Quick Ratio of JBNL has fluctuating during the
study period. JBNL has maintained the high ratio of 93.59 Percent in F/Y 2013/14 and
lowest ratio 84.66 Percent in FY 2015/16. The bank has maintained 88.94 Percent
ratio in FY 2017/18.

The Average Ratio Quick Ratio of JBNL is 89.68 Percent. And lower CV 3.45 Percent
which shows more consistent. Above table also show significant differences between
CVs with regards to meeting customer's daily cash requirement. Both have fared well
in meeting their depositor's daily cash requirement and investing the surplus fund in
other productive areas. Il can be express in graph also.

Fig No. 2.2: Trend line of Quick Ratio

2.1.3 Cash and Bank Balance to Total Deposit Ratio

Cash and Bank Balance consists of cash on hand, foreign currencies, Cheque as well
as other cash items and balance with the domestic banks. This ratio measures the
availability of banks highly liquid or immediate funds to meet it unanticipated calls on
all types of deposits. As higher ratio indicates the higher ability to meet their deposits
and vice versa. The following table shows the cash and bank balance to total deposit
ratio of two banks during the study period.

Table No.2.3: Cash and Bank Balance to Total Deposit Ratio (Rs. in Million)
JBNL
Fiscal Year
Cash and bank balance Total deposit Ratios (Percent)
2013/14 3915.03 18442.15 21.23
2014/15 4564.43 22920.43 19.91
2015/16 3044.02 24067.56 12.65
2016/17 7831.62 48574.93 16.12
2017/18 9343.36 60302.24 15.49
Mean 17.08
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S.D. 3.11
C.V 18.20
Source: Annual Report of Janata Bank Nepal Ltd and Annex-I & IV.

The table 2.3 shows that cash and balance to total deposit of JBNL has fluctuating
trend during the study period. JBNL has a highest ratio is 21.23 Percent in F/Y 2013/14 and a
lowest is 12.65 Percent in F/Y 2015/16. And 15.49 Percent in FY 2017/18. The averages mean
ratio of JBNL is 17.08 Percent. The C.V. of JBNL is 18.20 Percent.

Fig. 2.3: Trend line of Cash and Bank Balance Total Deposit

2.1.4 Loan and Advances to Current Assets Ratio

Bank's major earning source is loan. Loans are also taken as current assets as most of
them are maturing within a period of one year and represent short term disbursement.
A bank should not allocate all funds on loan and advances so it must maintain in an
appropriate level. In order to calculate the proportion of loan and advances to current
assets, the ratio is obtained by dividing loan and advances by current assets.
Table No.2.4: Loan and Advances to Current Assets Ratio (Rs. in Million)
JBNL
Fiscal Year
Loan and Advance Current Assets Ratios (Times)
2013/14 15730.42 4182.99 3.76
*2014/15 18169.02 4951.45 3.67
2015/16 19788.74 3595.67 5.50
2016/17 44695.29 8798.19 5.08
2017/18 54607.83 10505.08 5.20
Mean 4.64
S.D. 0.77
C.V. i 16.59
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I & V.
The table 2.4 shows that Loan and Advances to Current Assets of JBNL has
fluctuating trend during the study period. JBNL has a highest ratio is 5.50 Percent in
F/Y 2015/16 and a lowest is 3.67 Percent in F/Y 2014/15. And 5.20 Percent in FY
2017/18. The averages mean ratio of JBNL is 4.64 Percent. The C.V. of JBNL is 16.59
Percent.

Fig. 2.4: Trend line of Loan and Advances to Current Assets

Bank's major earning source is loan. Loans are also taken as current assets as most of
them are maturing within a period of one year and represent short term disbursement.
A bank should not allocate all funds on loan and advances so it must maintain in an
appropriate level. In order to calculate the proportion of loan and advances to current
assets, the ratio is obtained by dividing loan and advances by current assets.
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Table No.2.4: Loan and Advances to Current Assets Ratio (Rs. in Million)
JBNL
Fiscal Year
Loan and Advance Current Assets Ratios (Times)
2013/14 15730.42 4182.99 3.76
*2014/15 18169.02 4951.45 3.67
2015/16 19788.74 3595.67 5.50
2016/17 44695.29 8798.19 5.08
2017/18 54607.83 10505.08 5.20
Mean 4.64
S.D. 0.77
C.V. 16.59
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I & V.

The table 2.4 shows that Loan and Advances to Current Assets of JBNL has
fluctuating trend during the study period. JBNL has a highest ratio is 5.50 Percent in
F/Y 2015/16 and a lowest is 3.67 Percent in F/Y 2014/15. And 5.20 Percent in FY
2017/18. The averages mean ratio of JBNL is 4.64 Percent. The C.V. of JBNL is 16.59
Percent.

Fig. 2.4: Trend line of Loan and Advances to Current Assets

2.2 Long-term Solvency Position

Long-term Solvency Position measures how effectively a firm is managing its assets.
These ratios are designed to answer this question. "Does the total amount of each type
of asset as regard on the balance sheet seem reasonable, too high or too low, in the
view of current assets and operating levels?" Either a company or a Bank must borrow
or obtain fund from other sources to acquire assets. If it has too many assets, its
interest expenses have too high and hence its profit s has depressed and on the other
hand, if assets are too low, profitable sales may be lost. Following ratio need to be
calculated under this study.

2.2.1 Loan high ratio and Advances to Total deposited ratio

This ratio helps us showing the relationship between loans and advances which are
granted and the total deposited collected by the bank. A indicates better mobilization
of collected deposit and vice-versa. It should be noted to that too high ratio may not be
better from liquidity point of view.

Table No.2.5: Loan and advance to Total Deposit Ratios. in Million)

JBNL
Fiscal Year
Loan and Advance Total Deposit Ratios (Percent)
2013/14 15730.42 18442.15 85.30
2014/15 18169.02 22920.43 79.27
2015/16 19788.74 24067.56 82.22
2016/17 44695.29 48574.93 92.01
2017/18 54607.83 60302.24 90.56
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Mean 85.87
S.D. 4.84
C.V. 5.63
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I and VI.

The above table 2.5 shows that the loan and advances to total deposit of JBNL. JBNL
has a highest ratio of 92.01 Percent in F/Y 2016/17 and a lowest ratio of 79.27 Percent
F/Y 2014/15. And 90.56 percent in the FY 2017/1 8.

The mean ratio of JBNL is 85.87, SD is 4.84 and CV is 5.63 Percent. In terms of C.V.
it seems to be nearly consistent. It can be concluded that JBNL has been more
successful in mobilizing its total deposits as loan and advances.

2.2.2 Total Investment to Total Deposit

A commercial bank may be mobilized its deposit by investing its fund in different
securities issued by the government and other financial or non-financial companies.
Now efforts have been made to measure the extend of which the bank are successful
in mobilizing the total deposit in investment. In the process of portfolio management
of banks, various factors such as availability of fund, liquidity requirements, central
bank norms, etc. are to be considered in general. A high ratio is the indicator of high
success to mobilize the banking fund as investment and vice-versa. Total investment
includes investment on governments securities, priority deprive sector, loan to
industries and business houses, personal loans, etc.

Table No. 2.6: Total Investment to Total Deposit Ratio (Rs. in Million)
JBNL
Fiscal Year
Total Investment Total Deposit Ratios (Percent)
2013/14 910.51 18442.15 4.94
2014/15 2300.58 22920.43 10.04
2015/16 3275.95 24067.56 13.61
2016/17 3850.53 48574.93 7.93
2017/18 6310.58 60302.24 10.46
Mean 9.40
S.D. 2.88
C.V. 30.61
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I and VII.
i table 2.6 shows that the JBNL has fluctuating trend in total Investment to Total
The
Deposit. JBNL had a high ratio of 13.61 Percent in F/Y 2015/16 and a low ratio is 4.94
Percent in F/Y 2013/14 and 10.46 in FY 2017/18. The mean ratio of JBNL is 9.40
from mean ratio prospective. And SD is 2.88 and CV 30.61 Percent. It can also explain
by the figure.
Fig. 2.6: Trend Line of Total Investment to Total Deposit

2.2.3 Loan and Advances to Total Working Fund Ratio

The main element of total working fund is loan and advances. This ratio indicates the
ability of selected banks and finance companies in terms of earning high profit from
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loan and advances. This ratio can be computed by dividing loan and advances by total
working fund. Where, Total working fund include total amount of assets given in
balance sheet which refers to current assets, net fixed assets, total loans for
development banks and other sundry assets except off balance sheet items i.e. letter of
credit, letter of guarantee etc.

Table No. 2.7: Loan and Advances to Total Working Fund Ratio (Rs. in Million)

JBNL
Fiscal Year
Loan and Advance Total Working Capital Ratios (Times)
2013/14 15730.42 629.99 24.97
2014/15 18169.02 762.22 23.84
2015/16 19788.74 991.28 19.96
2016/17 44695.29 1413.41 31.62
2017/18 54607.83 2924.70 18.67
Mean 23.81
S.D. 4.55
C.V. 19.11
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I and VIII.

The table 2.7 shows that the JBNL has fluctuating trend in Loan and Advances to
Total Working Fund. JBNL had a high ratio of 31.62 in F/Y 2016/17 and a low ratio is
18.67 in F/Y 2017/18. The mean ratio of JBNL is 23.81 from mean ratio prospective.
And SD is 4.55 and CV 19.11 Percent. It can also explain by the figure.
Fig. 2.7: Trend Line of Loan and Advances to Total Working Fund

2.2.4 Loan and Advances to Total Assets Ratio

A commercial bank's Total assets play a significant role in profit generation through
fund mobilization. This ratio reflects the extent to which the banks are successful in
mobilizing their Total assets on loan and advances for the purpose of income
generation. A high ratio indicates a better mobilization of fund as loan and advances
and vice-versa.
Table No. 2.8: Loan and Advances to Total Assets Ratio (Rs. in Million)
JBNL
Fiscal Year
Loan and Advance Total Assets Ratios (Percent)
2013/14 15730.42 21008.94 74.87
2014/15 18169.02 25654.58 70.82
2015/16 19788.74 26874.41 73.63
2016/17 44695.29 58137.93 76.88
2017/18 54607.83 72361.37 75.47
Mean 74.33
S.D. 2.04
C.V. 2.75
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Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-1 and IX.

The table 2.8 shows that the JBNL has fluctuating trend in Loan and Advances to
Total Assets. JBNL had a high ratio of 76.88 percent in F/Y 2016/17 and a low ratio is
70.82 percent in F/Y 2017/18. The mean ratio of JBNL is 23.81 from mean ratio
prospective. And SD is 4.55 and CV 19.11 Percent. It can also explain by the figure.
Fig. No. 2.8: Trend Line of Loan and Advances to Total Assets

2.3 Profitability Analysis

The main objective of commercial bank is to earn by providing different types of
banking services to its customer to make various objectives like maintaining good
position, meet fixed internal obligations, overcome the future contingencies, grab
hidden investments in need of development funds, etc. In conclusion, commercial
banks have to earn sufficient profit. Of course, the profitability is the best indicators of
overall efficiencies. Here, mainly those ratios are presented and analyzed through
which the effort has been made to measure the profit earning capacity.

2.3.1 Return on Total Assets

This ratio establishes the relationship between net profit and total assets. This ratio is
also called as 'profit to asset ratio. It is calculated dividing net profit/loss by total
working fund.
Table No. 2.9: Return on Total Assets Ratio
Fiscal Year JBNL (Rs. in Million)
Net Profit Total Assets Ratios (Percent)
2013/14 85.00 21008.94 0.40
2014/15 150.35 25654.58 0.59
2015/16 133.64 26874.41 0.50
2016/17 633.13 58137.93 1.09
2017/18 1007.95 72361.37 1.39
Mean 0.79
S.D. 0.38
C.V. 48.08
Source: Annual Report of Nepal Janata Bank Nepal Ltd and Annex-I and X.

The table 2.9 shows that the JBNL has fluctuating trend in Return on Total Assets.
JBNLI had a high ratio of 1.39 percent in F/Y 2017/18 and a low ratio is 0.40 percent
in F/Y 2013/14. The mean ratio of JBNL is 0.79 from mean ratio prospective. And SD
is 0.38 and CV 48.08 Percent. It can also explain by the figure.

Fig. No. 2.9: Trend line of Return on Total Assets

2.3.2 Trend line of Return on Total Assets

Return on loan and advances ratios shows how efficiently the banks and finance
companies have utilized their resources to earn good return from provided loan and
advances. This ratio is computed by dividing net profit/ loss by the total amount of
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loan and advances.

Table No. 2.10: Return on Loan and Advances Ratio (Rs. in Million)
JBNL
Fiscal Year
Net Profit Loan and Advance Ratios (Percent)
2013/14 85.00 15730.42 0.54
2014/15 150.35 18169.02 0.83
2015/16 133.64 19788.74 0.68
2016/17 633.13 44695.29 1.42
2017/18 1007.95 54607.83 1.85
Mean 1.06
S.D. 0.49
C.V. 46.49
Source: Annual / ’eport of Nepal Janata Bank Nepal Ltd and Annex-I and XL
I

The table 2.10 shows that the JBNL has fluctuating trend in Return on Loan and
Advances. JBNL had a high ratio of 1.85 percent in F/Y 2017/18 and a low ratio is
0.54 percent in F/Y 2013/14. The mean ratio of JBNL is 1.06 from mean ratio
prospective. And SD is 0.49 and CV 46.49 Percent. It can also explain by the figure.

Fig. No. 2.10 : Trend Line of Return on Loan and Advances

2.3.3 Earning Per Share (EPS)

Earnings per share measures profitability of the common shareholders* investment.
The firms’ EPS is generally the interest of present and prospective stockholders and
management. EPS represents the amount earned on the behalf of each outstanding
share of common stock. They are generally the interest of investing public and are
considered as important indicator of the firm’s success. EPS refers to net profit divided
by the total number of shares outstanding. The amount of EPS measures the efficiency
of a firm inrelative terms. This figure is the indicative of the overall good or bad
performance of an organization. How far an organization if able to use its resources to
generate profit is determined by the profit it has earned. Thus, EPS determines the
market value of a share, determines the attitude of outsiders.
JBNL
Fiscal Year
Net Profit Total Number of Share EPS (Rs.)
2013/14 85.00 351.06 4.13
2014/15 150.35 1097.55 7.30
2015/16 133.64 773.77 5.79
2016/17 633.13 5008.03 7.91
2017/18 1007.95 12700.11 12.60
Mean 7.55
S.D. 2.85
C.V. 37.71

Per Share. JBNL

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Source: Annual I 1' eport of Nepal Janata Bank Nepal Ltd and Annex-l and XII.
Table No. 2.11: Earning Per Share
(Rs. in Million)
The table 2.11 shows that the JBNL has fluctua

had a high ratio of Rs. 12.60 in F/Y 2017/18 and a low ratio is Rs.4.13 in F/Y 2013/14.
The mean ratio of JBNL is 7.55 from mean ratio prospective. And SD is 2.85 and C’V
37.71 Percent. It can also explain by the figure.
Fig. No. 2.11: Trend Line of Earning Per Share

2.4 Major Findings

>9 JBNL has a high current ratio of 13.15 in F/Y 2014/15 and a lowest of 10.94 in F/Y
2015/16. And 11.44 in FY 2017/18. The averages ratio of JBNL is 11.73. This shows
that JBNL liquidity position is better.
Quick Ratio of JBNL has fluctuating during the study period. JBNL has maintained
the high ratio of 93.59 Percent in F/Y 2013/14 and lowest ratio 84.66 Percent in FY
2015/16. The bank has maintained 88.94 Percent ratio in FY 2017/18. The Average
Ratio Quick Ratio of JBNL is 89.68 Percent. And lower CV 3.45 Percent which shows
more consistent.
ts. Cash and balance to total deposit of JBNL has fluctuating trend during the study period.
JBNL has a highest ratio is 21.23 Percent in F/Y 2013/14 and a lowest is 12.65 Percent
in F/Y 2015/16. And 15.49 Percent in FY 2017/18. The averages mean ratio of JBNL
is 17.08 Percent. The C.V. of JBNL is 18.20 Percent. Although the above ratio implies
slightly better liquidity position of JBNL. a high ratio of non-earning cash and bank
balance indicates the bank unavailability to invest its fund in income generation areas
that might have helped it to improve its profitability.
Loan and Advances to Current Assets of JBNL has fluctuating trend during the study
period. JBNL has a highest ratio is 5.50 Percent in F/Y 2015/16 and a lowest is 3.67
Percent in F/Y 2014/15. And 5.20 Percent in FY 2017/18. The averages mean ratio of
JBNL is 4.64 Percent. The C.V. of JBNL is 16.59 Percent.
frs. Loan and advances to total deposit of JBNL. JBNL has a highest ratio of 92.01 Percent
in F/Y 2016/17 and a lowest ratio of 79.27 Percent F/Y 2014/15. And
90.56 percent in the FY 2017/18. The mean ratio of JBNL is 85.87. SD is 4.84 and CV
is 5.63 Percent. In terms of C.V. it seems to be nearly consistent. It can be concluded
that JBNL has been more successful in mobilizing its total deposits as loan and
advances.
■JS. JBNL has fluctuating trend in total Investment to Total Deposit. JBNL had a high
ratio of 13.61 Percent in F/Y 2015/16 and a low ratio is 4.94 Percent in
F/Y 2013/14 and 10.46 in FY 2017/18. The mean ratio of JBNL is 9.40 from mean ratio
 prospective. And SD is 2.88 and CV 30.61 Percent.
■Js. JBNL has fluctuating trend in Loan and Advances to Total Working Fund. JBNL had a
high ratio of 31.62 in F/Y 2016/17 and a low ratio is 18.67 in F/Y 2017/18. The mean
ratio of JBNL is 23.81 from mean ratio prospective. And SD is 4.55 and CV 19.11
Percent.
JBNL has fluctuating trend in Loan and Advances to Total Assets. JBNL had a high ratio
of 76.88 percent in F/Y 2016/17 and a low ratio is 70.82 percent in F/Y 2017/18. The
mean ratio of JBNL is 23.81 from mean ratio prospective. And SD is 4.55 and CV 19.11
Percent.
JBNL has fluctuating trend in Return on Total Assets. JBNL had a high ratio of
1.39 percent in F/Y 2017/18 and a low ratio is 0.40 percent in F/Y 2013/14. The mean
ratio of JBNL is 0.79 from mean ratio prospective. And SD is 0.38 and CV 48.08 Percent.
JBNL has fluctuating trend in Return on Loan
ratio of 1.85 percent in F/Y 2017/18 and a low ratio is 0.54 percent in F/Y 2013/14. The
mean ratio of JBNL is 1.06 from mean ratio prospective. And SD is 0.49 and CV 46.49
Percent.
JBNL has fluctuating trend in Earning Per Share. JBNL had a high ratio of Rs.12.60 in
F/Y 2017/18 and a low ratio is Rs.4.13 in F/Y 2013/14. The mean ratio of JBNL is 7.55
from mean ratio prospective. And SD is 2.85 and CV
37.71 Percent.