Financial Analysis of Everest Bank

A Comparative Study on Liquidity and Profitability Position of Nabil Bank Limited and Kumari Bank Limited
Chapter – 1
1. INTRODUCTION
1.1Background
This introduction chapter aims to provide a simple & apt introduction of

the subject matter related to the project work-study.
A society consists of two units-surplus unit & deficit unit. Surplus units
are those entitle, whose earnings exceed their expenditure & deficit units are
those, who are in need of money. Hence, the mechanism, which facilitates the
transactions between savers of fund and users of fund, is called banking in the
words of kent, “A bank is an organization whose principal operations are
concerned with the accumulation of the temporarily idle money of the general
public for the purpose of advancing to others for expenditure.”1
Banks are the most important financial institution that helps in the
commercial & economic development of a country. They are like reservoirs and
mobilize the savings of the people and direct it towards productive purposes.
They play an important role in the economy by channeling funds from
surplus spending units. They promote the habit of thrift & saving among people
by accepting deposits from the public.
“Banks today have gained paramount trust among the general public. They
are not the preservers of money but also the manufacturer of money. Bank is a
manufacturer of credit and machine so facilitations exchange”2
Moreover large-scale production & distribution can only be achieved by a
proper banking system in the country. Hence, banks have profound impact on
the economic and commercial development of a country.
1.1.1 History of Bank In Nepal

The origin of the word “Bank” is linked to the Latin word “Bancus”
meaning a bench. Italian word “banca” meaning a bench and French word
“Banque” meaning a bench.
In the old days, merchants of Italy settled their accounts by sitting on a
bench in the market place plan of ancient Rome. In the century, goldsmiths of
England began to provide safekeeping of valuable money & they issued receipt
to their clients. This receipt has higher reputation & they were used for the
settlement of accounts. This was the beginning of modern banking Bank of
Venice set up in 1157 in Venice, Italy is regarded as the first modern bank
Subsequently , Bank of Barcelonea (1401)& Bank of Geneva (1407) were
established. Although some from of banking was known top be in practice in
the ancient period. However, the history of institution banking began in Nepal
with the introduction of Nepal Bank Limited under Nepal Bank Act 1937.There
were no dynamic changes visible in the commercial banking system until the
establishment of Nepal Rastra Bank in 1956.Leter, Rastriya Banijya Bank come
1
Kent Cited from Banking and Insurance Practices in Nepal by Divi Raj Bhandari. P-15
2
Horace White, cited from “Banking & Insurance” by Shakespeare Vaidya. P-112
1
into existence as the second commercial bank in 1966. This government owned
banks were set up for the genuine purpose of expediting the financial
development and pursuing the financial intermediation of competences, quality,
service delivery, productivity &efficiency led these institutions to become
unsound and inefficient in delivering the services.These factors led the
government to open up door for the establishment of joint venture banks in the
Mid-1980s.Asa result of this, NABIL become the first foreign Joint Venture
commercial bank to begin its operations in 1984.
The trend of establishment of different banks in Nepal is presented below:
Nepal Bank Limited in 1994 B.S

Nepal Restra Bank in 2013 B.S
Restriya Banijya Bank in 2022 B.S
Agricultural Development Bank in 2024 B.S
Nabil Bank in 2041 B.S
Nepal investment Bank in 2042 B.S
Standard Chartered Bank in 2043 B.S
Himalayan Bank in 2049 B.S
Nepal SBI Bank in 2050 B.S
Bank of Kathmandu in 2051 B.S
Everest Bank in 2051 B.S
Machhapuchre Bank in 2056 B.S
Kumari Bank in 2057 B.S
Laxmi Bank in 2058 B.S
Siddhartha Bank in 2058 B.S
Nepal Credit & commercial Bank in 2059 B.S
Lumbini Bank in 2060 B.S.
1.1.2 Kinds of Banks with Emphasis on Commercial Bank:

With the industrial, commercial & scientific revolution the banking
system has been developed & extended a lot. The sustainable commercial &
economic development of a country demands a proper banking system. In the
absence of development & extension of banks, there is no possibility of
economic revolution. Banks differ according to their nature & functions. An
individual types of bank cannot performe all sorts of functions. So, today banks
are opened differently according to their nature. The general types of banks are:
1. Central Bank
2. commercial Bank
3. Agriculture Development Bank
4. Industrial Banks
5. Exchange Bank
6. Saving Bank
7. Rural Development Bank
8. Development Bank
9. Merchant Bank
10. Student Bank (Not in existence in Nepal)
11. Labor Bank (Not in existence in Nepal)
2
Commercial Banks:
Commercial bank is an institution, which receives deposit of money through
the extension & sale of its own credit. It is established to improve people’s
economic welfare. According to Black’iaw dictionary, Commercial bank means
a bank authorized to receive both demand &deposit to engage in trust
services,to issue letter of set time deposit boxes & to provide similar services.
As per commercial Bank Act 2031 “A commercial bank means a bank which
deals in exchanging currency, accepting deposit, giving loans and doing
commercial transaction.”3
Commercial bank occupy an important position in the banking structure of
every country. These banks are organized on joint stock or joint venture basis
and aim at making profit. The banks accept deposit from the public repayable
on demand paying a fair amount of interest and advance credit to the individuals
by charging a certain percentage interest. The difference of interest charge and
interest granted is the net income of the commercial banks .In the Neplease
context, Nepal Bank Ltd.established in 1994 B.S, is the first commercial bank .
Other commercial banks in operation in Nepal are Rastriya Banijya Bank,
Standard Chartered Bank Ltd. Bank of Kathmandu, Kumari Bank etc.
1.1.3 Profile of Banks Under Study

1.1.3.1 Profile of Nabil Bank Ltd.
Nabil Bank Limited is the first foreign joint venture bank of Nepal,
started operation in july 1984. Nabil was incorporated with the objective of
extending international standard modern banking services to various sectors of
the society. Pursuing its objectives, NBL provides a full rang of commercial
banking services through its 19 points of representation across the kingdom and
over 170 reputed correspondent banks across the globe.
NBL, as a pioneer in introduction many innovative product and
marketing concept in the domestic banking sector, represent a milestone in the
banking history of Nepal as it start an era of modern banking with the customer
satisfaction measures as a focal objective while doing business.
Operation of the bank include day to day operation and risk
management are managed by highly qualified and experience management
team. Banks is fully equipped with modern technology which includes ATMs,
credit cards, state-of-art, world-renowed software from Infosys Technologies
System, Banglor, India, Internet banking system and tele-banking system.
The capital structure of the NBL bank is shown below:
Authorized Capital 1600000000

Issued Capital 689216000
Paid up Capital 689216000
Sources: Profit copy of NBL
3
Commercial Bank Act 2031 quoted from “An Introduction to Banking ” by Bhuvan Dahal.
3
An overview of the existing share owners and amount of shares held by them is
as present below:
S.N Share owners Percentage Share Capital(RS)
1 Promoter 70.00 482451200
2 Government of Nepal - -
3 Foreign entity 50.00 344608000
4 A Class licensed -
institution
5 Other licensed 6.15 42364600
institution
6 Other Entities 10.42 71787600
7 Individuals 3.44 23691000
8 Others
9 General Public 30.00 206764800
Total 100.00 689216000
1.1.3.2 Profile of Kumari Bank Limited.
Kumari Bank Limited come into existanceas the 15 th commercial bank by

starting its banking operations from Chaitra 21, 2057 B.S. (April 03, 2001) with
an objective of providing competitive and modern banking services in Nepal.
KBL has been providing wide-range of modern banking services through
5 points of representation across the country. Tha bank has adopted Giobous
Banking software, developed by Temenos NV, Switzerland to provided
centralized data base system to all the branches. The bank has also been
providing Visa Debit Card, which has an access on ATMs (including 6 own
ATMs) and POS (point of sale) terminals both in Nepal and India.
Within 5 years of establishment the bank has been able to recognize itself
as an innovation and growing institution striving to enhance customer value and
satisfaction by backing transparent business practice, professional management,
corporative governance and total quality management as the organization
mission. It was the first ever commercial bank in the country to provide Internet
Banking and Mobile banking services to its customers.Moreover, its also aims
to be the preferred provider of financial services to target clients by embracing
good governance, services excellence and professionals culture in order to
achieve sound business growth and maximize shareholders value.
KBL has been guided with the philosophy “We do it.”
The capital structure of the bank is as shown below:

Authorized Capital Rs.1 billion
Issued Capital Rs.500 million
Paid up capital Rs.500 million
Sources: Profit copy of KBL
4
An over view of the existing share owners and amount of shares held by them
is as presented below:
S.N Share owners Percentage Share capital
(%) (in rupees)
1 Nepal Government - -
2 Commercial Banks - -
3 Financial Corporation 16 79620000
4 Organized Institution 2 10390000
5 General Public 82 409990000
6 Other - -
Total 100 500000000
Source:profit copy of KBL
1.2 Purpose of the study

The primary purpose of this field work is to make a comparative
analysis of profitability and liquidity position of NBL and KBL using various
tools and techniques. Other objectives related to the study are:
a) To know the historical background of NBL&KBL.

b) To compare the financial performance of NBL&KBL.
c) To make a comparative study of financial stability of NBL&KBL.
d) To provide necessary suggestion and recommendation base on the analysis
and conclusion of data.
e) To make a comparative analysis of liquidity and profitability position of
NBL&KBL.
1.3 Focus of the study

Banks play an important part in the development of the economy of a
country. They are not only dealers in money but also leader in the development
process. They are considered as the store house of country’s wealth as well as
reservoirs of resources of economic of development. However, economic
progress can be achieved only through sound profitability and liquidity position
of these banks in the country in fact, industrial revolution that took in European
countries in the 18th and 19th centuries come out successfully to a great extent
because of the existence and development of good banking system in them.
In this context, it become necessary to adjust the profitability and
liquidity position of the banking system and bank of our country in order to spot
out the financial weakness to the suitable corrective action. Thus, it become
necessary to evaluate, analyze and interpret the comparative profitability and
liquidity position of banking of our country.
The study is focus on to selected commercial bank of Nepal (Nabil Bank
Limited and Kumari Bank Limited) by examining their financial statement in
F/Y 2061/62, 2062/63, 2063/64 and 2064/65. The evolution and analysis of the
liquidity and profitability position of the above selected banks is carried out by
applying different analytical tools and techniques.
5
1.4 Need and Importance of the study
The significant and important of the study can be highlighted from the
following points:
a) The finding and condition of the study will add to the literature of liquidity and
profitability, participation in the Neplease context.
b) The comparative interpretation derived from the study will be of great
significance of each bank under study to know their respective position as
compared to that of the competitor.
c) The study will be open generally vistas for the general readers to broaden their
knowledge about the liquidity and profitability position of the two renowned
commercial banks of Nepal.
d) The study will also be to great use to the individual investors in making
comparison between the banks under study before making the investment
decision.
e) The study throws light on the degree of the management. Hence, the conclusion
drawn form this study will be important to the management of banks under
study in making their financial decision.
f) The shareholders are the real owners of a bank. They are interested in a fair
return on their investment through proper utilization of their funds. Hence, the
present study will be of immense helps to the shareholders in adjudging,
whether their funds are properly utilized and whether they are getting a fair
share of return on their investment.
g) The study will also be of immense helps to the policy makers (i.e. officials of
government, concerned industry, Nepal Stock Exchange, Internal Revenue
Office, etc.) in formulating policies, rules and regulation regarding the
operation of the commercial banks.
h) Last but not the least, the study will be helpful to the future management
students in the course of preparation and reviewing of their research work.
1.5 Literature Survey

Every ban presents its annual report to its stockholders. The information
given in these reports are of two types. First, there is a verbal section, often
presented in the form of descriptive essay from the chairman, which describes
the banks liquidity and profitability position during the past years and discuss
new developments that will affect the future operation. Second, the annual
report presents the economic figures in the form of financial statements of the
P/L a/c and Balance sheet. Taken together, these statements give and accounting
picture of the banks operation and liquidity and profitability position of the
bank.
The P/L a/c reports the profit or loss earned during a period while Balance
Sheet shows the assets and liabilities that stand on a particular date. Both these
statements cannot fully report the real liquidity and profitability position of
bank. If fails to provide useful financial data required for making decisions by
the management.
6
In the light of the foregoing discussion, the financial statement needs to be

analyzed in order to determine the real financial position of the bank using
various financial tools. The present study is promoted towards this objective.
1.5.1 Financial Statements

Financial statements given the financial information of a bank. It is a
statement through which accountant communicate to the management, owners,
bankers, investors and other interested parties in a summary from on the
financial position of the concern and how this position has been arrived as
present. It is a summary of the accounts of assets, liabilities and capital period.
“ The financial statement contains summarized information of the firms
financial affairs organized systematically”4
The financial statements are prepared for the purpose of presenting a
periodic review or report on the progress by the management and deal with the
status of the investments in the business and results achieved under review. The
financial statements or reports are prepared for the purpose of external and
consistent according procedures.”5
The financial statements or reports are prepared for the purpose of external
reporting to owners, investors and creditors, and its comprises of P/L a/c and
Balance Sheet as describe below.
Balance Sheet
The balance sheet is also known as the statement of financial position,
statement of assets, liabilities and capital and statement of worth. It is one of the
most significant financial statements. It is a static statement as it shows the
position of business at a certain moment of time. It is a summary of debt and
credit balances of assets and liabilities to be carried forward which reflects the
financial condition of the bank.
“The Balance Sheet contains information about the resources and
obligation of a business entity and about the owner’s interest in the business at a
particular point of time.”6
The B/S provides a snapshot of the financial position of the bank at the
close of the banks accounting period. It can be prepared either in account from
or statement from. The B/S used for the present purpose was obtained form the
annual report of the respective banks.
Profit and Loss Account

The second major statement of financial information is the P/L a/c the P/L
a/c is also known as income statement, statement of earning, statement of
operation and P/L statement. It is prepared to determine the operational position
of the concern.
4
Pandey I.M. Financial Management, Bikash Publishing House Pvt. Ltd. New Delhi, 1988, P-
427.
5
Hampton, John, J Financial Decision Making Concepts, Problems and Cause, Prentice-Hall of
India Pvt, Ltd. New Delhi, 1986, P-85.
6
438
7
“The profit and loss portrays a flow, the operations over/during a

particular period of time.”7
It is a scoreboard of the firm’s performance during a particular period of
time. The P/L a/c is a statement of revenues earned and the expenses incurred
for earning the revenue. If there is an excess of revenues over expenditures, it
will show a profit otherwise loss. Moreover, as the P/L a/c presents the
summary of revenue, expenditure and net income or loss of bank for a particular
period of time, it serves as a measure of the banks profitability.
1.5.2 Financial Tools

Financial statements must be made simple for any reader to analyze the
profitability and liquidity position of a bank. This can be done by applying the
financial tools such as comparative balance sheet and income statements,
common size percentages, fund flow analysis, cash flow analysis, ratio analysis
etc. However, only ratio analysis has been used for the present purpose of the
study.
Ratio Analysis
Ratio analysis is the universally used technique of financial analysis,
which was pioneered by Alexander Wall in 1919. It is the principal technique
used in judging the condition portrayed by the financial statements. Ratio
analysis is a systematic use for ratios to intercept the financial statements so that
the strengths and weaknesses of a firm as well as its historical performance and
current condition can be determined.
A ratio is a yardstick that provides a measure of relationship between
two accounting figures. It is defined as “The indicated quotient of two
mathematical expressions and as the relationship between two or more things.”8
A ratio may also be defined as a fixed relationship in degree and number
between two numbers. In finance ratios are used to point out relationships that
are not obvious from the raw data.
Ratio analysis is useful in making a rational decision not only for the
enterprise itself but also for the outsiders, shareholders, investors, bankers
depositors etc. It provides guides and clues especially in supporting trends
towards better or poor performance and in finding important deviations from as
average applicable standard. There are also several ratios that can be
Employed but the type of ratio one would use depends on the purpose
for which the analysis is made.
Various ratio that can be calculated form the accounting data includes.
7
Khan, M.Y. and Jain, P.K. Financial Management Text and Problems, Tata McGrow Hill
Publication Company Ltd, New Delhi, 1992, P-166.
8
501.
8
a. Liquidity ratios
b. Profitability ratio
c. Structural ratio
d. Turnover ratio
e. Market Value ratio
f. Other ratios
However, only liquidity and profitability ratios need to be calculated for our
purpose.
a. Liquidity ratios
Liquidity or solvency as it is often referred to be is the ability of bank to
meet its current/short-term obligations when they become due for payment.
Liquidity is the pre-requisite for the survival of a bank. The liquidity is
measured with a help of liquid ratios.
According to Khan and Jain, “Liquidity ratios measure the ability of a
strength/solvency of the firm.”9 The lack of liquidity damages the credit
standing of the bank and as a result the public lose trust in the bank. Higher
liquidity means higher solvency, which shows sound short-term financial
position of the bank.
The ratio that indicate the liquidity position of the bank are:-
1. Current Ratio
The current ratio measures the banks short-term solvency position. It is a ratio
between current assets and current liabilities. It shows how many times the
current assets is greater than current liabilities.
Current assets consists of cash and bank balance, money at call and short
notes, loans, cash, credit, overdrafts, bills purchased and discounted. The
current liabilities include saving deposits, fixed deposits, current deposits, call
and short deposit, bills payable, tax provision, staffs bonus, dividend payables,
other deposits and short term loans including miscellaneous current liabilities.
The current ratio is determined by dividing the current assets by the
current liabilities.
CurrentAss ets
Current ratio =
CurrentLia bilities
Note: In the absence of complete information about the classification of the

fixed deposit according to their maturity, all the fixed deposits are taken as
current liabilities.
Higher the ratio, higher is the ability of the bank to pay its liabilities. The
optimum current ratio should be 2:1.
9
Publication Company Ltd, New Delhi, 1992, P-81.
9
2. Quick Ratio
This ratio shows the relationship between quick or liquid assets and current
liabilities.
LiquidAssets
Quick Ratio =
CurrentLia bilities
Liquid Assets = Total current assets – Inventory – Prepaid Expenses

Higher quick ratio indicates, higher the firm’s capacity for paying its current
liabilities.
b. Profitability Ratio
Profitability ratios are concerned with measuring the operating efficiency of the
bank. “Profitability ratio are designed to provide answer to basically to those
questions: (i) Is the profit earned by the firm adequate? (ii) What rate of return
does it represent? (iii) What is the rate of profit for various divisions and
segments of the firms? (iv) What are the earnings per share? (v) What amount
was paid on dividends? (vi) What is the rate of return to equity holders and so
on?”10
Profit is the ultimate output of the bank and it will have no future if it fails
to make sufficient profits. A profit is the difference between total revenue and
total expenses over a period of time. The profit and obtained by successful
administration management, credit management, operating management and
risk management. Thus, a bank realize profit as long as interest-earning assets
exceeds interest-bearing liabilities.
The profitability of the bank is measured with a help of profitability ratio.
Such profitability ratios include.
1. Return on assets (ROA)

The ratio between net profit and total assets is known as return on assets. It
shows the contribution of assets on profits.
NPAT
ROA =
TotalAsset s
Higher return on total assets is reasonable.
2. Return on Share Holder’s Equity

The ratio clarifies the relation between net profit and shareholders equity.
10
Publication Company Ltd, New Delhi, 1992, P-99
10
NPAT
Return on Share Holder’s Equity = ShareholderEquity
Higher the ratio, better the use of capital.
3. Return on capital Employed

It informs the percentage of profit on capital employed
NPAT
Return on capital Employed = CapitalEmployed
4. Return on common equity

After paying the interest on debenture and dividend on preference share,
the remaining amount of profit is called return on common equity.
NPAT  Pr eferencedividend
Return on common equity= CommonShareholderEquity
Higher the ratio, proper will be the utilization of investment
5. Earning per share (EPS)

The earning per share on EPS is determined by dividing the earnings
available to the equity holders by number of equity holders or number of equity
shares outstanding.
EarningAvailabletoEquityShareholders
EPS = No.ofEquityShareouts tan ding
or
NPAT  Pr eferencedividend
EPS = No.ofEquityshareouts tan ding
Earnings available to equity shareholders are the earning available after

deducting the preference dividend.
6. Dividend Per Share (DPS)

DPS is determined by dividing the earning paid to the shareholder by the
no. of equity share outstanding.
Dividendpaidtoshareholders
DPS= No.ofEquityshareouts tan ding
7. Dividend Payout Ratio (DPR)

The DPR measures the relationship between earning of the firm
belonging to the ordinary shareholders and dividend paid to them out of
11
those earnings. It tells as to what proportion of the earnings per share has been
paid as cash dividends and what proportion has been return to plough back for
the banks expansion and growth.
The DPR is calculated by dividing dividend per share by earnings per
share.
Dividendpershare
DPR = Earningpershare
8. Dividend Yield
The dividend yield evaluates the shareholder cash receipts in relation to
the market price per share. It expresses the dividend per share as a percentage of
the bank market price per share.
The dividend yield is determined by dividing the cash dividends per share
by the market price per share.
Dividendpershare
Dividend Yield = Marketpricepershare
Higher the growth potential, grater the retention of earning and hence forth,
lower and dividend yield and vice-versa.
9. Earning Yield
The earning yield or earning price ratio may be defined as the ratio of
earning per share to the market price per share. It indicates the shareholders
return in relation to make market price per share.
The earning yield is obtained by dividing earning per share by market
price per share.
Earningpershare
Earning Yield= Marketpricepershare
10. Price Earning Ratio

The price/earning ratio reflects the investors perception about the overall
risk of the bank earnings and the growth in the bank earnings. It indicates the
investors judgment about the bank performances. It also tells the price currently
bargained by the market participant in common stock for each rupee of earning.
The P/E ratio is determined by dividing market price per share by earning
per share.
Marketpricepershare
Price Earning Ratio= Earningpershare
1.6 Limitation of Study
12
The study suffers from the following limitations

1. The study is confined to selected banks namely Kumary Bank and Nabil
Bank Limited.
2. The study covers a period of only four years (F/Y 2061/062, 2062/063,
2063/064 and 2064/065).
3. The study is based on the historical data. So it only shows the liquidity and
profitability position in the past but cannot forecast the future.
4. The data used in the study are of secondary nature, extracted from the
financial statements of the banks. So all those limitation underlined in the
financial statements are the limitation of the study too.
1.7 Research Methodology

The basic objective of the study is to gain an insight into the liquidity and
profitability position of selected commercial banks in Nepal. Hence, to
accomplish this objective a good research methodology has to be followed.
Research methodology basically describes the methods, processes tools and

techniques applied in the entire process of a scientific research.
The research methodology adopted in this study to accomplish the
objective of liquidity and profitability analysis constitutes of : Sources of data,
data collection technique and data analysis tools.
1.7.1 Sources of Data

There are two sources from which data can be collected primary source and
secondary source.
The data that are originally collected by an investor for the first time for
the purpose of statistical enquiry are knows as primary source data. Thus the
data collected through the primary source is original in character while the data,
which are not originally collected but obtained from published or unpublished
source are secondary source of data. These types of data are not original in
character.
1.7.2 Data Collection Technique

In course of preparation of the research, the data though to be appropriate
for the study was the secondary data which could be obtained from the annual
reports of Nabil Bank and Kumari Bank. After the collection of data, the
required data have been processed and recast in condensed forms. Therefore,
they have been tabulated and presented, using the financial tools.
1.7.3 Data Analysis Tools
13
The present study has used financial tools to access the liquidity and
profitability position of the selected banks under study. The financial tools
consist of ratio analysis under which liquidity and profitability ratios are
calculated.
CHAPTER-II
2. DATA PRESENTATION AND ANALYSIS
14
This chapter presents the collected data from various sources and attempts
to analyze and interpret the data in order to assess the liquidity and profitability
position of the commercial banks in Nepal selected for the study in the F/Y
2061/062, 2062/063, 2063/064, and 2064/065.For this purpose, description
analysis is carried out to make an inter-bank analysis of the liquidity and financial
position of the banks under study using ratio analysis. Here, liquidity and
profitability ratios are calculation.
2.1 Presentation and Tabulation of Data
Table No.1
NABIL BANK LIMITED
SN. Particulars 2061/062 2062/063 2063/064 2064/065

1 Current Assets 23984822900 24369820110 26966497780 36534720140
2 Current Liability 19182390120 20118829660 24686925360 34018187140
3 Fixed Assets 225180192 240892618 286895224 598038998
4 Total Assets 18119834900 22883902119 27253393008 37132759149
5 Total Debt 17182396182 20183669180 24686925360 34018187140
6 Shareholders Equity 1546098120 1944097182 2057049715 2437198989
7 Net Profit 450183176 582196183 673959698 746468394
8 No. of share 2293183 3183142 4916544 6892160
outstanding
9 Proposed Dividend 102118306 389001187 509417925 437373004
Source: Annual Report of NBL
Table No.2
KUMARI BANK LIMITED
SN. Particulars 2061/062 2062/063 2063/064 2064/065
1 Current Assets 7354897975 8918343227 11728987680 14801457520
2 Current Liability 67924499589 8146425627 10892681260 13261713900
3 Fixed Assets 82984150 91932957 189323741 2220000872
4 Total Assets 7437882105 9010276184 11918311429 15026599175
5 Total Debt 6792449589 8146425627 10892681260 13261713900
6 Shareholders Equity 645441536 863850557 1025630159 1364885269
7 Net Profit 87880557 103666767 170262909 174930227
8 No. of share 5000000 6250000 7500000 10700000
outstanding
9 Proposed Dividend - 6578947 - -
Sources: Annual Report of KBL
2.2 Analysis of Data:
15
This part of the analysis deals with the inter- bank comparison of the banks
performance using selected ratios pertaining to the liquidity 2nd profitability during
the study period.
2.2.1 Liquidity Ratio :

1. Current Ratio
This ratio is calculated by dividing current assets by current liabilities. It
indicates the extent to which current liabilities are converted into cash in the near
future.
CurrentAss ets
Current Ratio =
CurrentLia bilities
Where,
Current Assets = Cash and bank balance+ Money at call and advance + bills
purchase = other assets + investment
Table No. 3
Current Ratio of NBL and KBL
For the F/Y 2061/062, 2062/063, 2063/064, and 2064/065
Bank 2061/062 2062/063 2063/064 2064/065
NBL 23984822900 24369820110 26966497780 36534720140
19182390120 20118829660 24686925360 34018187140
= 1.25:1 =1.21:1 =1.09:1 =1.07:1
7354897976 8918343227 1172898768 0 14801457520
6792449589 8146425627 10892681260 13261713900
KBL =1.08:1 =1.09:1 =1.08:1 =1.12:1
Source: Table 1 & 2
The above table shows that the current ratio of KBL is higher than that of NBL in
fourth year. NBL had current ratio of 1.25:1 in the F/Y 2061/062, 1.21:1 in the F/Y
2062/063, 1.09:1 in the F/Y 2063/064 and 1.07:1 in the F/Y 2064/065, while KBL
had 1.08:1 in the F/Y 2061/062, 1.09:1 in the F/Y 2062/063, 1.08:1 in the F/Y
2063/064 and 1.12:1 in the F/Y year 2064/065. This proves that although the
16
capacity of NBL to pay its liability is proved but current ratio has been decreased
every year and that of KBL has decreased in F/Y 2063/064 but when compared
with one another KBL has better capacity to pay its liabilities than that of NBL.
2.2.2 Profitability Ratio :

I. Return on Assets (ROA):
The ratio of the net income to total assets provides an idea of overall earnings
of the firm.
Net Pr ofitAfterTax( NI )
Return on Assets = × 100
TotalAsset s
Table No. 4
ROA of NBL and KBL
Bank 2061/062 2062/063 2063/064 2064/065
NBL 450183176 582196185 673959698 746468394
1811983490 0 22883902119 27253395008 37132759149
=2.48 % 2.54% =2.47% =2.01%
87880557 103666767 170262909 174930227
KBL 7237882125 9010276184 1191831142 9 15026599175
=1.18% =1.15% =1.43% =1.16%
For the F/Y 2061/062, 2062/063, 2063/064 & 2064/065
Source: Table No. 1 & 2
The above table shows the percentage of profit earned on the assets employed by
the business. The above table reflects that ROA of NBL was 2.48 % in the F/Y
2061/062, 2.54% in the F/Y 2062/063, 2.47% in the F/Y 2063/064 and 2.01% in the
F/Y 2064/065. While that of KBL was 1.18% in the F/Y 2061/062, 1.15% in the
F/Y 2062/063, 1.43% in the F/Y 2063/064 and 1.16% in the F/Y 2064/065. This
shows that both the banks has decreased ROA in F/Y 2064/065 as compared to F/Y
2063/064.However, NBL has better ROA compared to KBL. This means NBL is
able to utilize its resources more efficiently than that of KBL.
II. Return on Shareholder Equity (ROE) :
17
The ratio of net profit to shareholder measures the ratio return on

shareholders equity investment.
Net Pr ofitAfterTax
Return on Shareholder equity = SharholdersEquity ×100
Table No. 5
ROE of NBL and KBL
For the F/Y 2061/062, 2063/063, 2063/064 and 2064/065
Bank 2061/062 2062/063 2063/064 2064/065
NBL 450183176 582196183 673959698 746468394
1546098120 1944097182 2057049715 2437198989
=29.12% =29.95% =32.76% =30.63%
87880557 103666767 170262909 174930227
KBL 645441536 863850557 1025630159 1364885269
=13.62% =12% =16.60% =12.82%
Source: Table No.1 & 2
The ROE of NBL was 29.12% in the F/Y 2061/062, 29.95% in the F/Y 2062/063,
32.76% in the F/Y 2063/064 and 30.63% in the F/Y 2064/065. While that of KBL
was 13.62% in the F/Y 2061/062, 12% in the F/Y 2062/063, 16.60% in the F/Y
2063/064 and 12.82% in the F/Y 2064/065.This shows that although the ROE of
NBL has decreased in the F/Y 2064/065, and that of KBL has also decreased in the
F/Y 2064/065, but the comparative analysis shows that ROE of NBL is higher than
that of KBL in the Fourth year. This means NBL is able to utilize the owner funds
in a better way than that of KBL.
III. Earning per Share (EPS):

Earning per share shows the amount of return earned on every outstanding
share.
Net Pr ofitAfterTax( NI )
Earning Per Share (EPS) =
No.ofshareouts tan ding
18
Table No. 6
EPS of NBL and KBL
For the F/Y 2061/062, 2062/063, 2063/064 and 2064/065
Bank 2061/062 2062/063 2063/064 2064/065
NBL 450183176 582196183 673959698 746468394
2293183 3183142 4916544 6892160
=Rs. 196.31 =Rs. 182.89 =Rs. 137.08 =Rs. 108.31
87880557 103666767 170262909 174930227
5000000 6500000 7500000 10700000
KBL =Rs. 17.58 =Rs. 16.35
=Rs. 15.95 =Rs.22.70
Source: Table 1 & 2
The EPS of NBL was Rs.196.31 in the F/Y 2061/062, Rs. 182.89 in the F/Y
2062/063, Rs. 137.08 in the F/Y 2063/064 and Rs. 108.31 in the F/Y 2064/065.
The EPS of NBL is decreased every year comparing of past years and the EPS of
KBL was Rs. 17.38 in the F/Y 2061/062Rs. 16.59 in the F/Y 2062/063 which is
decrease in the F/Y 2061/062, Rs 22.70 in 2063/064 which increase in the F/Y
2062/063 and Rs 16.35 in 2064/065.Although the NBL have been able to provide
more EPS than the previous year .But the EPS of NBL is decreased by it’s
previous year EPS.However ,when compared with one another NBL has higher
EPS than in fourth fiscal year.
This reflects NBL has higher efficiency in it’s operation and has been able
to provide higher earning to it’s shareholders than that of KBL.
IV. Dividend Per Share (DPS):

The dividend per share shows the dividend carried by each year.
Pr oposeDividend
Dividend Per Share (DPS) = No.ofOuts tan dingShare
Table No:-7
DPS of NBL and KBL
19
For the F/Y 2061/062,2062/063,2063/064 &2064/065

Banks 2061/062 2062/063 2063/064 2064/065
BOK 102118306 389001187 509417925 437373004

= = = =
293183 3183142 4916544 6892160
=Rs.348.31 =122.21 =Rs.103.61 = Rs.63.45
KBL _ 6578947 _ _
=
6250000
=Rs.1.05
Sources: Table 1&2
The above table shows that NBL provides Rs.348.31 in the F/Y 2061/062,
Rs.122.21 in the F/Y 2062/063, Rs.103.61 in the F/Y 2063/064 and Rs.63.45 in the
F/Y 2064/065 as dividend to its equity shareholders .While KBL provides dividend
Rs.1.05 only in the F/Y 2062/063 and fail to do in three years. This is because of
KBL wants to expand its operation and want to invest it’s additional earnings in
more productive sector that would produce more earnings in the future However,
comparatively NBL will be more attractive to those investors who are interested in
earning s dividend income.
V. Dividend Payout Ratio (DPR):

Dividend pay out ratio shows the percentage of profit distribute to the
shareholders as dividend
Pr oposedividend
Dividend Payout Ratio (DPR) = ×100
Netincome
Table No. 8
DPR of NBL
For the F/Y 2061/062, 2062/063, 2063/064& 2064/065.
Banks 2061/062 2062/063 2063/064 2064/065
NBL 102118306 389001187 509417925 437373004

= = = =
450183176 58196183 673959698 746468394
=22.68% =66.82% =75059% =58.59%
20
KBL _ 6578947 _ _
=
103666767
=6.35%
Source :Table 1&2
It’s obvious from the above table that the dividend payout ratio of NBL
has increase in the F/Y 2062/063 (66.82 %) compared to the F/Y 2061/062
(22.68%). The dividend payout of NBL increase in the F/Y 2063/064(75.59%)
compared to the F/Y 2062/063 (66.82%) but DPR of NBL has decrease in the F/Y
2064/065 (58.59%) compared to the F/Y 2063/064. This shows the negative growth
trend for NBL on the other hand DPR of KBL is 6.35% in the F/Y2062/063 and
other year could not be calculated because it has not provided any dividend to its
shareholders.
2.3 Graphical Presentation of Data
Diagram-1
Net Profit for Four Years
800000000
700000000
Net Profit in Rs
600000000
500000000
400000000
300000000 NBL
200000000 KBL
100000000
0
2061/062 2062/063 2063/064 2064/065
Fiscal Year
Diagram-2
Return on Assets
21
3.00%
2.50%
Figure in %
2.00%
1.50%
NBL
1.00%
KBL
0.50%
0.00%
2061/062 2062/063 2063/064 2064/065
Fiscal Years
Diagram-3
Return on Shareholders Equity
35
30
25
Figure in %
20
15 East
10 West
5
0
2061/062 2062/063 2063/064 2064/065
Fiscal Years
Diagram-4
Earning Per Share
22
200
180
160
Figure in rupees
140
120
100
80 NBL
60 KBL
40
20
0
2061/062 2062/063 2063/064 2064/065
Fiscal Years
Diagram-5
Dividend per Share
350
300
Figure in rupees
250
200
150 NBL
100 KBL
50
0
2061/062 2062/063 2063/064 2064/065
Fiscal Years
Diagram-6
Dividend Payout Ratio
23
80
70
60
Figure in %
50
40
NBL
30
20 KBL
10
0
2061/062 2062/063 2063/064 2064/065
Fiscal Years
2.4 Study Result
He following are the results obtained from the comparative study on liquidity
and profitability position of NBL &KBL.
1) The historical background of NBL shows that right from its establishment is
1984 A.D.NBL has been able to mobilize domestic savings and channeling
them to productive area. Similarly, NBL was established in 1984 A.D. and it has
been providing competitive and modern banking services in Nepal.
2) The comparative study of financial performance shows that NBL is comparative
ahead of KBL in its operation efficiency. However both the banks are getting
more efficient each year.
3) The financial stability analysis shows NBL as more stable bank compared to
KBL and has been showing higher level of consisting.
4) Necessary suggestion and recommendation based on the analysis and
conclusion is shown in the next chapter.
5) The comparative analysis of liquidity position shows KBL has better capacity to
pay its liability than NBL. However, NBL is head of KBL in profitability
position and maintains a higher level of efficiency.
CHAPTER-III
24
SUMMARY, CONCLUSION AND RECOMMENDATION

3.1 Summary
The report is a comparative study of liquidity and profitability position
of Nabil Bank Limited and Kumari Bank Limited. The study is divided into 3
chapters.The first chapter deals with background, history of bank, purpose of
the study, focus of the study, literature survey, and limitation of the study band
research methodology.
Similarly in the second chapter necessary dates are presented and
various ratios are calculated. Various ratios that are calculated are current ratio,
under liquidity ratio and return on assets. Return on shareholders equity, earning
per share, dividend per share and dividend payout ratio under profitability ratios
comparative graphical presentation in made for Net Profit, return on assets,
return on shareholders equity and earning per share.
Graphical presentation could not be shown for dividend per share and dividend
payout ratio because they were nil for KBL.
Finally, the third chapter deals with the summary, conclusion and
recommendation. The study results have been summarized and various
conclusions are out lined and then recommendation has been given to improve
the liquidity and profitability position of NBL and KBL.
3.2 Conclusions
Banks are the most important financial institutions that help in the
commercial and economic development of a country. The sustainable
commercial and economic development of a country demands a proper banking
system. A smooth functioning of the banking system demands a sound liquidity
and profitability position which can be judged by proper analysis of the
financial statements. Thus, in order to tests the bank’s ability,
Financial analysis has been an important task from the view point of all stake
holders. Financial analysis helps in identifying the financial strengths and
25
weaknesses of a bank during a certain period of time, based on the published

financial statements. Financial analysis provides an in depth and true
understanding of the problems and the solutions there off. The present study is,
concerned with the inter-bank analysis of the liquidity and profitability position
of NBL and KBL. The major conclusions derived from the study are as follows:
1) KBL is a better performer than NBL in terms of current ratio i.e. KBL has
more capacity to pay its liability than NBL.
2) NBL has higher ROE than that of KBL which means NBL is able to utilize
the owners fund in a better way than KBL.
3) The EPS of both the banks has decrease this year compared to the preceding
fiscal year. But comparatively NBL has higher EPS in both the years than that
of KBL which means NBL has higher operating efficiency than KBL.
4) The ROA of both the banks has decrease this year. However NBL has better
ROA compared to KBL and is able to utilize its resources more efficiently than
KBL.
5) NBL is more attractive to those investors who are interested in dividend
income than KBL because NBL Provided dividends to its shareholders in both
the years and KBL did not provided any dividends to its shareholders.
In conclusion, NBL appears a better performer than KBL. It has shown
some significant results right from its establishment and is able to maintain a
higher level of consistency.
KBL, although comparatively behind has significant results in its short life
time and the efforts made by the bank, to make its operation more efficient is
praise worthy.
Both the banks have a good liquidity and profitability position and have
proved themselves as one of a pioneer bank of Nepal.
3.3 Recommendation
26
The following are some of the recommendation which could be considered

for the improvement of liquidity and profitability position of NBL and KBL.
a) The inter- bank analysis of current ratio shows NBL as a poor performer than
KBL. Hence, the management of the bank should concentrate on its liquidity
position. The liquidity position could be improved by diverting investment fund
from long term investment fund to risk free securities and other short term
investments. It should also maintain a higher cash reserve.
b) The inter- bank analysis of profitability ratios has shown the KBL has lower
overall profitability. Although it has been producing a good amount of net
income, the profitability of the bank is low. Therefore, the reasons behind and
low profitability should be examined by the management of the bank and the
problems should be rectified. The ROA, ROE and EPS should be increased and
appropriate amount of dividend should be provided to the shareholders in order
to attract those investors who are interested to earn higher dividend incomes.
27

Financial Analysis of Everest Bank

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Financial Analysis of Everest Bank

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A Comparative Study on Liquidity and Profitability Position of Nabil Bank Limited and Kumari Bank Limited

This introduction chapter aims to provide a simple & apt introduction of

1.1.1 History of Bank In Nepal

Nepal Bank Limited in 1994 B.S

1.1.2 Kinds of Banks with Emphasis on Commercial Bank:

1.1.3 Profile of Banks Under Study

The capital structure of the NBL bank is shown below:

Authorized Capital 1600000000

1.1.3.2 Profile of Kumari Bank Limited.

Kumari Bank Limited come into existanceas the 15 th commercial bank by

The capital structure of the bank is as shown below:

1.2 Purpose of the study

a) To know the historical background of NBL&KBL.

1.3 Focus of the study

1.4 Need and Importance of the study

1.5 Literature Survey

In the light of the foregoing discussion, the financial statement needs to be

1.5.1 Financial Statements

Profit and Loss Account

“The profit and loss portrays a flow, the operations over/during a

1.5.2 Financial Tools

Note: In the absence of complete information about the classification of the

Liquid Assets = Total current assets – Inventory – Prepaid Expenses

1. Return on assets (ROA)

Higher return on total assets is reasonable.

2. Return on Share Holder’s Equity

3. Return on capital Employed

4. Return on common equity

5. Earning per share (EPS)

Earnings available to equity shareholders are the earning available after

6. Dividend Per Share (DPS)

7. Dividend Payout Ratio (DPR)

10. Price Earning Ratio

1.6 Limitation of Study

The study suffers from the following limitations

1.7 Research Methodology

Research methodology basically describes the methods, processes tools and

1.7.1 Sources of Data

1.7.2 Data Collection Technique

1.7.3 Data Analysis Tools

2. DATA PRESENTATION AND ANALYSIS

2.1 Presentation and Tabulation of Data

SN. Particulars 2061/062 2062/063 2063/064 2064/065

2.2 Analysis of Data:

2.2.1 Liquidity Ratio :

2.2.2 Profitability Ratio :

II. Return on Shareholder Equity (ROE) :

The ratio of net profit to shareholder measures the ratio return on

III. Earning per Share (EPS):

IV. Dividend Per Share (DPS):

For the F/Y 2061/062,2062/063,2063/064 &2064/065

BOK 102118306 389001187 509417925 437373004

V. Dividend Payout Ratio (DPR):

Banks 2061/062 2062/063 2063/064 2064/065

NBL 102118306 389001187 509417925 437373004

2.3 Graphical Presentation of Data

2.4 Study Result

SUMMARY, CONCLUSION AND RECOMMENDATION

weaknesses of a bank during a certain period of time, based on the published

The following are some of the recommendation which could be considered

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