CHAPTER I

INTRODUCTION
Background of Study

Profitability analysis is a component of enterprise resource planning that allows administrators to

forecast the profitability of a proposal or optimize the profitability of an existing project.
Profitability analysis can anticipate sales and profit potential specific to aspects of the market
such as customer age groups, geographic regions, or product types.

Every commercial enterprise operates with an objective to earning profit, and the profit is much
for the survival and growth of the business enterprises. Profitability analysis seeks to understand
a company’s ability to generate profit. When companies report on sales and profitability data,
analysts can then drill into that data by analyzing drivers like customer, country, product, number
of units, price etc., in order to identify which drivers are yielding profits and which drivers are
leaking them.

In order to perform a profitability analysis, all costs of an organization have to be allocated to

output units by using intermediate allocation steps and drivers. This process is called costing.
When the costs have been allocated, they can be deducted from the revenues per output unit. The
remainder shows the unit margin of a product, client, location, channel or transaction. After
calculating the profit per unit, managers or decision makers can use the outcome to substantiate
management decisions. Managers can decide to stop selling loss making products, to reduce
costs for loss making customers or to increase sales in profitable locations.
Profile of Nepal investment Bank Ltd
Nepal Investment bank Ltd (NIBL) was established in 1986. The head office of NIBL is located
at Durbar Marg, Kathmandu. It has extended its services in different parts of kingdom of Nepal.
It has all total 13 branches in the country. Previously, it was known as Nepal Indosuez Bank Ltd.
It was established as a joint venture between Nepalese and French Partners. The French partner
(holding 50% of the capital of NIBL) was credit Agricole Indosuez, a subsidiary one of the
largest banking group in the world.With the decision of Agricole Indosuez to divest, a group of
companies comprising of bankers, professionals, industrialists and businessman has acquired on
April 2002 the 50% share holding of credit Agricole Indosuez in Nepal Indosuez Bank Ltd. The
name of the bank has been changed to Nepal Investment Bank Ltd, upon approval of bank’s
Annual General Meeting, Nepal Rastra Bank and company Register’s Office

NIBL is being managed by the team of experienced bankers and professionals with a proven
track record, can match your particular needs. We are sure that your choice of bank will be
guided, among other things, by its reliability and professionalism.Over the past decade NIBL has
redefined Banking through deep understanding of customer needs. NIBL have undertaken many
initiatives to strengthen customer experience through multiple touch points such as internal
banking, mobile banking and branchless banking.

Its overall growth record in deposits, lending, net profit and capital base is second to none. NIBL
have highest growth rate among banks in Nepal. Customer had experienced management and
sound corporate governance. Top lender in Nepal with total loans and advances of NPR 67.69
billion, highest deposits with NPR 90.63 billion,Net profit of NPR 1.96 billion. And highest paid
up capital among the financial institutions of Nepal at Rs. 6.35 billion. They have the largest
taxpayers in Nepal.

The vision of this bank is to become one of the most respectable banks in Nepal based on
honorable conduct and long-term financial performance and the mission of this bank is to
become a leading bank in Nepal by providing complete financial solutions to our customers,
superior value to our shareholders and promising growth opportunities to our employees.
Objectives of the study
The main objectives of the study are to analyze financial performance of this bank through the
use of different ratios. The objectives of this study are as follows:
 To evaluate the profitability of NIBL.
 To suggest and recommend the measures on the basis of the study of Profitability of NIBL.
 To recommend the suitable measures of the improvement of the bank.

Rationale
The main purpose of this study is to know the financial position of this bank. It is important that
the Bank behaves with integrity and respect at all times, and that we balance our risks to produce
sustainable profitability. The Bank values trust and confidence of its customers, and is equally
committed and responsible to be a safe and secure institution, where customers’ deposits are
protected, and payments can be made with absolute confidence. It may benefits the shareholder’s
to know whether their funds are being used properly or not. It may help outsiders like debtors,
competitors and investors etc. to take decision on various matters such as whether to deposit or
not, finance or not. It helps management to identify their loose areas and other weakness,
suggests the ways through which management can solve it and avoid it in future.
Review
Gopinathan (2009), in the study entitled “Profitability in Banks, a matter of survival” has
presented that the financial ratio analysis can spot better investment options for investors as the
ratio analysis measures various aspects of the performance and analyzes fundamentals of a
company or an institution.

Sthapit & Maharjan(2012), in the study entitled “Impact of liquidity management on profitability
“found that trend of average liquidity ratios and profitability of both banks are not seems to be
fluctuating but average variation in liquidity ratios as well as profitability of SCBN is lower than
of NIBL.

Jha &Hui (2012), in the study entitled “A comparison of financial performance of commercial
bank in Nepal” shows that public sector banks are significantly less efficient than their
counterpart are; however domestic private banks are equally efficient to foreign-owned banks.

Islam (2014), in the study entitled “An Analysis of the Financial Performance of National Bank
Limited Using Financial Ratio” shows that this study attempts primarily to identify whether any
difference exists between a bank’s years of operation and its performance classifying two period
(2008-10 & 2011-13). So, this analysis helps to see the current performance condition of this
bank comparing past performance.
Methods

There are two types of research which are used for study such as Descriptive research and
Quantitative research. The report “Profitability Analysis of Nepal Investment Bank Linited” is
used under the performance of the bank to calculate financial ratio. So, Descriptive Research is
used because it uses scientific method of collecting, classifying and analyzing related data, facts
and figure. Descriptive research does not fit neatly into the definition of either quantitative or
qualitative research methodologies, but instead it can utilize elements of both, often within the
same study. The term descriptive research refers to the type of research question, design, and
data analysis that will be applied to a given topic.

The study has taken audited data from 2071/73 to 2075/76.

Data is defined as recorded factual material commonly retained by and accepted in the scientific
community as necessary to validate research findings; although the majority of such data is
created in digital format. There are two types of data such as:

 Primary data and Secondary data: - Data collected by the investigator himself/ herself for a
specific purpose is called primary data. Examples: Data collected by a student for his/her
thesis or research project. Data collected by someone else for some other purpose is called
secondary data. Examples: Census data being used to analyze the impact of education on
career choice and earning.
 Qualitative and quantitative data: - The information about quantities; that is, information that
can be measured and written down with numbers is called quantitative data. Some examples
of quantitative data are your height, your shoe size, and the length of your fingernails.
Qualitative data is the information about qualities; information that can't actually be measured.
Some examples of qualitative data are the softness of your skin, the grace with which you run,
and the color of your eyes.
Therefore, for my research secondary as well as quantitative data has been used.

The technique of analysis of this study data has been presented and calculated in terms of tables,
formats, diagrams, graphs, and charts. Simple analysis i.e. trend analysis is also used.
Limitations of the study

The limitations of Nepal Investment Bank limited are as follows: -

 This study used only the periods of five years.
 This study report used mostly secondary data.
 It takes nearly one month for the completion of this report.
 The study is based on the Annual report of NIBL.
 Simple technique i.e. trend analysis has been used in this study.
 CHAPTER II

RESULTS AND ANALYSIS

Data Presentation
Profitability ratio is the net result of a large number of policies and decisions. The data can be
presented with the help of tables and figures as well as Trend analysis . The ratios provide some
information about the way the form of operating, but the profitability ratios show the combined
effects of liquidity, assets management and debt management on operating results. Data analysis
helps in the interpretation of data and takes a decision or answer the research question. Data
analysis starts with the collection of data followed by data processing by various data processing
methods and sorting it. Processed data helps in obtaining information from it as the raw data is
non-comprehensive in nature.
Data can be presented in various forms depending on the type of data collected. The data can be
presented with the help of tables and figures as well as Trend analysis. The presentation of data
helps to study, evaluate and analyze the major financial performances which are related to
financial analysis of Nepal Investment Bank Limited. The study cannot be fulfilled without the
analytical scheme that follows to result oriented under chapter. The important profitability
financial ratios which are to be calculated to present the data for the purpose of the study are
mentioned below: -

i. Return on Equity

ii. Return on Assets

iii. Net profit to loan and advance

iv. Earnings per share

v. Net Interest Margin

Analysis of data:
i. Return on Equity:
In this ratio of net income after tax to common equity measure the Return on Equity (ROE) or
Rate of return on the stockholder investment. It is calculated as:
Net Income
ROE = ×100 %
Total Equity
Table 2.1
Return on Equity of Nepal Investment bank limited in millions
Year Net Income Shareholder’s Equity Ratio
2071/72 1.96 9.80 20%
2072/73 2.55 16.28 15.66%
2073/74 3.11 18.707 16.62%
2074/75 3.65 24.87 14.67%
2075/76 3.32 25.57 12.99%
Sources: Annual report of Nepal Investment Bank Limited

25%

20%

15%

ROE
10%

5%

0%
2071/72 2072/73 2073/74 2074/75 2075/76

Figure 1: analysis of Return on Equity

ii. Return on Assets:

In this ratio of net income total assets measure the return on total assets (ROA) after interest and
taxes. It is calculated as:
Net Income
ROA = ×100 %
Total Assets

Table 2.2
Return on Assets of Nepal Investment Bank Limited in millions
Fiscal year Net income Total Assets ROA

2071/72 1.96 104.34 1.8784%

2072/73 2.55 129.78 1.9653%
2073/74 3.11 150.81 2.0621%
2074/75 3.65 171.89 2.1234%

2075/76 3.32 185.84 1.7864%

Sources: Annual report of Nepal Investment Bank Limited

2.20%

2.10%

2.00%

1.90% ROA

1.80%

1.70%

1.60%
2071/72 2072/73 2073/74 2074/75 2075/76

Figure 2: Trend analysis of Return on Assets

iii. Net profit loan and advance:
This ratio shows how much amount of profit came from loan and advance out of total net profit.
In other words contribution of loan and advance in net profit it is calculated as:
Net Profit
Net Profit to loan and advance = × 100 %
Total Loan∧ Advance

Table 2.3
Net profit loan and advance of Nepal Investment Bank Limited in millions
Year Net Profit Total Loan and Advance Ratio
2071/72 1.96 66.21 2.9602%
2072/73 2.55 85.45 2.9842%
2073/74 3.11 104.61 2.9728%
2074/75 3.65 120.82 3.0210%
2075/76 3.32 127.14 2.6112%
Source: Annual report of Nepal Investment Bank Limited

3.10%

3.00%

2.90%

2.80%

NP to LA
2.70%

2.60%

2.50%

2.40%
2071/72 2072/73 2073/74 2074/75 2075/76

Figure 3: Trend Analysis of NP to loan and advance

iv. Earnings per share:

EPS also called net income per share is a market prospect ratio that measures the amount of net
income earned per share of stock outstanding. It is the ratio of NP after tax to number of
common share which can be calculated as:
Net Income
Earnings per share =
Number of share

Table 2.4
Earnings per share of Nepal Investment Bank Limited in millions
Fiscal year Net income Number of share EPS

2071/72 1.96 0.063 31.1

2072/73 2.55 0.087 29.3
2073/74 3.11 0.106 29.33
2074/75 3.65 0.106 34.4

2075/76 3.32 0.128 25.9

Sources: Annual report of Nepal Investment Bank Limited

40

35

30

25

20 EPS

15

10

0
2071/72 2072/73 2073/74 2074/75 2075/76

Figure 2.4: Trend analysis of Earnings per share

v. Net Interest Margin:
NIM indicates the relationship between Net Interest Income and Total earning assets.
Net Interest Income
Net Interest Margin = ×100 %
Earning Assets

Table 2.5
Net Interest Margin of Nepal Investment Bank Limited in millions
Fiscal year Net Interest income Earning Assets Ratios

2071/72 2.97 104.34 2.84%

2072/73 3.92 129.78 3.02%
2073/74 4.78 150.81 3.16%
2074/75 5.85 171.89 3.40%

2075/76 6.17 185.84 3.32%

Sources: Annual report of Nepal Investment Bank Limited

3.50%

3.40%

3.30%

3.20%

3.10%

3.00% NIM

2.90%

2.80%

2.70%

2.60%

2.50%
2071/72 2072/73 2073/74 2074/75 2075/76

Figure 2.5: Trend analysis of Net Interest Margin