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Beta and WACC calculation: Nepal SBI Bank Limited

Shraddha Nepal

Presidential Business School

BUS 505: Financial Management

Padam Singh Mahata

12th October 2020

Westcliff University
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Abstract
This paper comprises two different part i.e. part 1 and part 2. In the first part I have selected

Nepal SBI Bank Limited, its financial statement which includes income statement and balance

sheet of this bank for calculating average rate and return, beta and weighted average cost of

capital. The data of Nepal Stock Exchange (NEPSE) is used for computing beta. Whereas, in part

two I have selected four diversified companies’ data (Prime Life Insurance, Unilever Nepal

Limited, Chilime Hydropower and Soaltee Hotel) which is used in CLA2 assignment.
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Introduction
Cost is the backbone for any organization whether to start the business, operate and

manage the business, development or rebound from the crisis period. The organization should

not disregard the cost of organization or avoid it. It will not be good enough to operate the

company just to have a fantastic idea of market at least initial investment is needed. The owner’s

capital is not adequate sometime for an investment for an investment when investing in a firm.

There are various funding outlets for raising fund which is equity and debt. It is important

for company individual to realize that the company needs to pay cost of capital throughout

interest borrowing, dividend of cash and other interests that organization pay when gathering

fund from debt and equity. The financial department is assessed to determine and collect fund as

necessary. Beta is used to measure the company’s value risk with the market value risk. WACC

is commonly used for determining and collecting fund if necessary. It is further used to analyze

whether to invest in several portfolio or not and helps to access the cost of capital of each

portfolio. The greater the WACC, t he more expensive the business or portfolio.
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Nepal SBI Bank Limited

Date Price Annual return Change in Value

2020 7 15 435 16,84% -6.25%

2019 7 15 464 15.79% -7.01%
2018 7 15 499 16.23% -46.00%
2017 7 15 924 29.53% -50.72%
2016 7 15 1875 28.42% 110.67%
2015 7 15 890 22.00% -29.64%
2014 7 15 1265 20.00% 48.82%
2013 7 15 850 17.50% 36.44%
2012 7 15 623 17.50% 6.13%
2011 7 15 587
2010 7 15
2009 7 15
Average Return 20.87%
Here, the price is extracted from the price history and the annual rate is extracted from the
dividend history of SBI bank.

NEPS
E Calculation of Beta
Date NEPSE Change in value

Date NEPSE SBI

2020 7 15 1362.35 8.59%
2020 7 15 8.59% 16.84%
2019 7 15 1254.56 12.73%
2019 7 15 12.73% 15.79%
2018 7 15 1112.87 -29.66%
2018 7 15 -29.66% 16.23%
2017 7 15 1582.11 -16.20%
2017 7 15 -16.20% 29.53%
2016 7 15 1888 57.21%
2016 7 15 57.21% 28.42%
2015 7 15 1200.92 12.65%
2015 7 15 12.65% 22.00%
2014 7 15 1066.09 110.50%
2014 7 15 110.50% 20.00%
2013 7 15 506.42 33.84%
2013 7 15 33.84% 17.50%
2012 7 15 378.4 27.14%
2012 7 15 27.14% 17.50%
2011 7 15 297.62 -36.48%
2011 7 15 -36.48%
2010 7 15 468.53
2009 7 15
Std.Dev. 0.4121 0.0493
Average
Variance 18.03%0.1698 0.0024
Covariance 0.00155
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Correlation 0.08067

Beta of SBI 0.00913

The standard deviation, variance, covariance, correlation between market rate of return

and average rate of return was computed in the excel sheet. We know that beta measures the

systematic risk. In the case of SBI bank we can see that the beta is less than 1 so the systematic

risk of SBI bank is less than market risk.

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 Calculation of Levered beta

Debt to equity ratio= Total debt/ total equity

= 3028341567/14745352139

=0.20

Beta=0.00913

Tax rate= 30% (Tax rate of Government of Nepal for financial institutions and banks)

Levered beta= unlevered beta*(1+ (1-t) D/E ratio

=0.0104

 Comparison of expected rate of return using rate of Nepal Treasuries

The rate of Treasury bill as per the central bank of Nepal NRB is 1.1285

Average rate of return of SBI bank is 20.87%

Now, calculating the rate of return using CAPM model= 1.1285+0.00913*(20.87-1.1285)

=21.98%

Here, the rate of return using CAPM is more than the average rate of return.

 Calculation of Capitalization ratio

= long term debt/(long term debt+ shareholders equity)

=3028341567/(3028341567+8956295554)

= 0.2526

Calculation of WACC by using formula in excel

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DEBT
cost of debt 10% Debt 3028341567

Weight of
debt 0.1704 Equity 14745352139
Total 17773693706
Equity

Weight of
equity 0.8296
risk free rate
% 1.13%

Expected
return 18.03%
Beta 0.0091

Cost of equity
% 0.0128

WACC 2.77%

Part 2
For the reference for CLA2 assignment I have selected four diversified companies
insurance, manufacturing, hotel and hydropower. The data required for the assignment is
presented below:
Prime Life Insurance
Date Price Annual return Change in value
2020 7 15 531 15% 21.23%
2019 7 15 448 18% -17.82%
2018 7 15 533 12.5% -80.25%
2017 7 15 2699 12.5% 22.68%
2016 7 15 2200 12.5% 91.64%
2015 7 15 1148 13.1562% 4.46%
2014 7 15 1099 25% 307.04%
2013 7 15 270 13% 42.11%
2012 7 15 190 21.05% 11.11%
2011 7 15 171
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Unilever Nepal Limited

Date Price Annual return Change in return
2020 7 15 18800 100% -7.16%
2019 7 15 20250 770% -91.90%
2018 7 15 250000 700% 756.16%
2017 7 15 29200 1270% -16.62%
2016 7 15 35021 1020% 59.19%
2015 7 15 22000 990% 51.20%
2014 7 15 14550 860% 48.47%
2013 7 15 9800 760% 52.51%
2012 7 11 6426 680% 34.41%
2011 7 11 4781

Soaltee Hotel Limited

Date Price Annual Return Change in Return
2020 7 15 202 26.23% -12.17%
2019 7 15 230 26.31% -16.67%
2018 7 15 276 21.05% -53.14%
2017 7 15 589 21.05% 36.03%
2016 7 15 433 31.57% 16.40%
2015 7 15 372 57.89% 3.91%
2014 7 15 358 52.632% 49.79%
2013 7 15 239 52.63% 2.58%
2012 7 15 233 52.63% 51.30%
2011 7 15 154

Chilime Hydropower
Date Annual Return Price Change in return
2020 7 15 25% 398 10.71%
2019 7 15 25% 519 30.88%
2018 7 15 25% 754 126.70%%
2017 7 15 20% 795 -41.56%
2016 7 15 27% 1440 -8.75%
2015 7 15 35% 1578 -44.79%
2014 7 15 40% 2700 -5.16%
2013 7 15 50% 1191 -31.17%
2012 7 15 70% 910 23.31%
2011 7 15 822
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References

Nepal SBI Bank (2020), Annual report. Retrieved from

https://www.sharesansar.com/announcementdetail/nepal-sbi-bank-limited-has-posted-a-
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net-profit-of-rs-153-billion-and-published-its-4th-quarter-company-analysis-of-the-fiscal-

year-207677

Chilime hydrowpower company Limited. Annual report. Retrieved from

https://www.sharesansar.com/announcementdetail/chilime-hydropower-company-

limited-has-posted-a-net-profit-of-rs-74805-million-and-published-its-4th-quarter-

company-analysis-of-the-fiscal-year-207677

Soaltee Hotel Limited. Annual report. Retrieved from

https://www.sharesansar.com/announcementdetail/chilime-hydropower-company-

limited-has-posted-a-net-profit-of-rs-74805-million-and-published-its-4th-quarter-

company-analysis-of-the-fiscal-year-207677

Prime Life insurance. Annual report. Retrieved from

https://www.sharesansar.com/announcementdetail/prime-life-insurance-company-

limited-has-posted-a-net-profit-of-rs-29856-million-and-published-its-4th-quarter-

company-analysis-of-the-fiscal-year-207677

Unilever Nepal Limited . Annual report. Retrieved from

https://www.sharesansar.com/announcementdetail/prime-life-insurance-company-

limited-has-posted-a-net-profit-of-rs-29856-million-and-published-its-4th-quarter-

company-analysis-of-the-fiscal-year-207677
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