LIQUIDITY AND PROFITABILITY ANALYSIS OF

PARIWARTAN SAVING AND CREDIT CO-OPERATIVE

COMPANY LIMITED

A Project Work Proposal

Submitted By
Arju Kumari Shah
T.U. Regd. No: 7-2-0202-0258-2018
Symbol number: 702020025

Submitted To
The Faculty of Management
Damak Multiple Campus

In partial Fulfillment of the Requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)
Damak, Jhapa

Chaitra 2079
 Chapter 1
Introduction

1.1 Background study:

Liquidity creation is a core function of banks and financial institutions and an economic
service of substantial importance to economy. Liquidity measures the ease at which a business
can meet its immediate and short-term financial obligations (usually due within the next 12
months). Liquid assets are those that can be converted to cash quickly if needed to meet
financial obligations; examples of liquid assets generally include cash, central bank reserves,
and government debt. To remain viable, a financial institution must have enough liquid assets
to meet its near-term obligations, such as withdrawals by depositors. Liquidity Analysis
measures the Short-term solvency which means the ability of the enterprise to meet its short-
term obligations as and when they become due.
Similarly, Profitability is a measure of business success. It ensures the financial sustainability
of the business and gives the business the capacity to endure. It is the ability of a business to
earn a profit. A profit is what is left of the revenue a business generates after it pays all
expenses directly related to the generation of the revenue, such as producing a product, and
other expenses related to the conduct of the Business activities. Profitability analysis measures
management’s overall effectiveness as shown by the returns generated on Revenue from
Operations and Investment.

1.1.1 Brief Profile of Credit Co-operation Company Limited:

Pariwartan Savings and Credits Co-operative Company Limited was established around ten
years ago dated 2069 B.S. at Ramaut Tole, Badhrapur road, Birtamode and since then, it has
been operating its objective functions and activities continuously. This Co-operative Company
is operated by its members to provide financial support to their members and to those who
needs it. This Company collects monthly sum from its members as saving and utilizes it on
commercial/ agricultural areas. It also provides credit facilities to their members and other
interested parties.
Credit Co-Operative Company Limited has the goal to provide the continuous reliable and

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promising services coping with the changing needs of the customers and persisting the
perpetual existence and growth of the business.

1.2 Statement of Problems:

Liquidity measures the ease at which a business can meet its immediate and short-term
financial obligations (usually due within the next 12 months). If liquidity is low enterprise
should be prepared to cover outflows by liquidating assets and if it is high than the enterprises
should plan where to invest so that income can be increased.
Similarly, Profitability is the ability of a business to earn a profit which ensures the financial
sustainability of the business and gives the business the capacity to endure. After analyzing the
relevant the relevant ratios through profitability analysis, the present investors can decide
whether to hold, sell or purchase the shares and the prospective investor can decide whether or
not to buy the shares.
To provide a basis to conclude the problem statement stated above, the report seeks to
answer the following research questions:
• How much is the Pariwartan Savings and Credit Co-operative Company Limited
operationally efficient?
• What is the Profitability position of the Co-operative?
• Are they maintaining sufficient liquidity position?
• Do Pariwartan Savings and Credit Co-operative Company Limited utilize its assets
efficiently?
• What is the financial performance of the organization?

1.3 Objectives of Study:

The objectives of the analysis are to apprehend the information contained in financial
statements with a view to know the strength and weakness of the firm and to make a forecast
about the future prospects of the firm. The objectives of this study are also an answering form
for the statement of problem. It gives the idea of what the study is actually going to find. The
basic purpose of this research is to analyze liquidity and profitability position of Pariwartan
Savings and Credit Co-operative Company Limited, however, another specific objective can be
termed as follows:

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 ✓ To examination of the profitability position i.e., EPS, DPS and ROA.
✓ To analyze the performance of the financial institution.
✓ To determine the ability of the enterprise to meet its short-term obligations as and
when they become due.
✓ To assess the condition of cash movement of the firm.

1.4 Rationale of the study:

As we know the main reason behind the venture of business is profit maximization. In
respect of finance companies, deposit and its mobilization plays a vital role for the
profitability of the financial institution. If the financial institution is able to convince
people to deposit money and use such money at effective and profitable areas then
financial institutions will be able to maximizeits profit. This study intends:
• To provide detail information about deposit and its utilization carried outby Credit
Co-Operative Company Limited.

• To aware the citizens regarding the need of banking concepts for theoverall
development of economy of the country.

• To provide information regarding the trend of savings and deposits in the financial
sectors.

• To provide and gain conceptual as well as analytical knowledge of current situation

that is being faced by Credit Co-Operative Company Limited.

• To provide suggestions and implication to the financial institution for

enhancing its performance.

• To explain the relation between interest rate and deposit collection.

1.5 Definition of terminology:

In order to ascertain actual financial position of any firm, various analytical tools can be
used. It is true that suitable or appropriate tools, according to the nature of statement and
data make the analysis more effective and significant for achieving these objectives
basically two sorts of tools can be used, financial and statistical the researcher has
therefore, applied these tools extensively. As this study is related to financial

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performance analysis financial tools are more useful, they help to identify the financial
strength and weakness of the firm in spite of various financial tools available the research
has primarily stressed on ratio analysis assuming it the most suitable tools. The various
formulas that are beneficial for the study are as follows:
✓ Current Ratio:

The current ratio measures a company's ability to pay off its current liabilities
(Payable within one year) with its current assets such as cash, accounts
receivable and inventories. The higher the ratio, the better the company's
liquidity position:

Current Ratio= Current Assets/ Current Liabilities

✓ Quick Ratio:

The quick ratio is the ratio of total quick assets to total current liabilities and
measures the short-term solvency of a firm. It is calculated by dividing quick
assets by current liabilities. Inventories are excluded from current assets. It is
also called “Acid Test”. The higher the ratio, the better the company's liquidity
position.

Quick Ratio= (Current Assets- Inventories-Prepaid expenses)/ Current Liabilities

✓ Cash Ratio

The cash ratio is the ratio of a company's total cash and cash equivalents to its
current liabilities. The ratio calculates a company's ability to repay its short-term
debt; this information is useful to creditors when deciding how much debt they
would be willing to extend to the company. The cash ratio is more conservative
look at a company's ability to cover its liabilities than many other liquidity ratios
because other assets, including accounts receivable, are left out of the equation.

Cash Ratio= (Cash and Cash Equivalent)/ Current Liabilities

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1.5.1 Method of Data Collection:
It indicates the sources of data and how they collected. In this study data are collected
through published sources. They were collected from the correspondent offices and their
respective websites. NRB publications have been collected from official websites of
NRB. The data regarding the profile of MBL and other related documents were
collected from internet websites. Unpublished fieldwork report, books, research papers,
articles, journals have been collected mainly from library and NRB magazines and
newspapers and from concerned authorities. After collecting data, as necessarily
required, they were separated and analyzed. Presentation and analysis of the collected
data are the main themes of the research work. Collected raw data were first presented
in systematic manner in tabular forms and then analyzed by applying different financial
and statistical tools to achieve the research objectives. Besides these, some graph, charts
and tables have been presented to analyze and interpret the study.

1.5.2 Tools of Analysis:

1.5.2.1 Financial tools:
Financial tools are those which are used for the analysis and implementation of financial
data these tools can be used to get the precise knowledge of a finance company, which
in true is meaningful in exploring effects and liquidity position of a current assets and
liabilities.
Following financial tools have been used to analyze the data in this study.
a) Current ratio
b) Gross working capital
c) Net working capital growth
d) Working capital to total assets
e) Growth in working capital

1.6 Research Methodology:

Research methodology simply refers to the process that is used to collect informationand data,
which helps to collect reliable data and information from various sources in order to prepare
report writing. The research methodology will consist of analytical and descriptive research

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design to collect, present and analyze the data where analytical research design will be developed
for the purpose of evaluating the facts and information whereas descriptive research design will
be developed for the purpose of studying the subject of research in detail, collecting and
presenting the facts.

1.7 Sources of Data Collection:

There are various sources of data collection i.e., primary sources and secondarysources. This
study will utilize secondary sources of data. Secondary data are those data which are already
available and have been collected for some other purpose. Thedata in this study are collected
from the published and unpublished sources such as annual report of the co-operative,
newspaper and articles, websites, references and so on.

1.7.1 Data presentation and Analysis tool:

In this study, various financial and statistical data are presented. For to achieve the goal of the
study, the data collected are presented, tabulated and graphed. The tools used for data
presentation and analysis are:

a) Liquidity ratios

b) Profitability ratios

c) Tabulations

d) Bar Diagrams

1.7.2 Expected Outcomes:

This study will analyze the liquidity and profitability position of the Co-operative which will
help analyze and determine the ability of the firm to meet its short-term obligations as well as
measures management’s overall effectiveness as shown by the returns generated on Revenue
from Operations and Investment. This study will also help to identify the operational efficiency
of the Co-operative and examine its financial performance.

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1.8 Limitations of the Study:
The limitation of the study refers to the extent up to which the study is made. It is the boundary
line of the study which narrows the area of study into only a certain specific areas or parts. In
other words, it can be defined as the things that cannot be covered by the study. The
limitations of the study are mentioned as follows:

a) The Research is based on the financial year analysis of only five years starting from
2074/75 to 2078/79.
b) The researcher has used limited statistical tools for to present and analyze the data.
Most of the data used are collected from the secondary sources.

c) In this research, quantitative aspect is focused more than the qualitative aspect.

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