FINANCIAL PERFORMANCE ANALYSIS OF NEPAL

DOORSANCHAR COMAPANY LIMITED

A Project Work Report

By

Bibek Aryal
T.U. Regd. No.: 7-2-530-127-2018
Southwestern State College

Submitted to

The Faculty of Management

Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu, Nepal
April, 2023
 DECLARATION

I hereby declare that the project work entitled “Financial Performance Analysis of Nepal
Doorsanchar Company Limited.” submitted to the Faculty of Management, Tribhuvan
University, Kathmandu is an original piece of work under the supervision of Mr. Ravi
Chapagain, faculty member of Southwestern State College, Basundhara, Kathmandu and is
submitted in partial fulfillment of the requirements for the degree of Bachelor of Business
Studies (BBS). This project work report has not been submitted to any other university or
institution for the award of any degree or diploma.

Signature:

Bibek Aryal
Date: April, 2023

ii
 SUPERVISOR’S RECOMMENDATION

The project work report entitled “Financial Performance Analysis of Nepal Doorsanchar
Company Limited.” submitted by Mr. Bibek Aryal of Southwestern State College, Basundhara,
Kathmandu, is prepared under my supervision as per the procedure and format requirements laid
by the Faculty of Management, Tribhuvan University, as partial fulfillment of the requirements
for the degree of Bachelor of Business Studies (BBS). I, therefore, recommend the project work
report for evaluation.

Signature:

Mr. Ravi Chapagain

Southwestern State College
Date: April, 2023

iii
 ENDORSEMENT

We hereby endorse the project work report entitled “Financial Performance Analysis of Nepal
Doorsanchar Company Limited.” submitted by Mr. Bibek Aryal of Southwestern State
College, Basundhara, Kathmandu, in partial fulfillment of the requirements for the degree of the
Bachelor of Business Studies (BBS) for external evaluation.

Signature: Signature:
Name of Chair: Mr. Dr. Rajendra K.C.
Chairman, Research Committee Campus Chief,
Date: April, 2023 Southwestern State College
Date: April, 2023

iv
 ACKNOWLEDGEMENTS

The purpose of this report, entitled "Financial Performance Analysis of Nepal Doorsanchar
Company Limited", is to fulfill the requirements for the degree of Bachelor of Business Studies
(BBS). Throughout this research, I received support and guidance from various individuals and
institutions, and I would like to take this opportunity to express my gratitude.

First and foremost, I would like to express my deepest gratitude to my supervisor, Mr. Ravi
Chapagain, a faculty member of Southwestern State College. His expert guidance and support
were crucial in completing this report successfully. His constructive feedback, insightful
suggestions, and unwavering support kept me motivated throughout the research process.

I would also like to thank my institution and faculty members for providing me with the
opportunity to undertake this project. I extend my heartfelt thanks to my teachers for their
valuable advice, suggestions, and continuous support throughout the project work. I am grateful
to my family members and friends whose encouragement and support were vital to the
completion of this project.

Additionally, I would like to express my gratitude to all those who indirectly and directly
supported me in writing this report. Their contributions have been invaluable and have enabled
me to achieve success in this project.

Finally, I hope that this report will be of help to anyone who is concerned with the financial
performance analysis of Nepal Doorsanchar Company Limited. It will be my pleasure and
success if this report can be useful to anyone.

Signature:

Bibek Aryal
Southwestern State College
Date: April, 2023

v
 TABLE OF CONTENTS

Financial performance analysis of NEPal DOOrsanchar comapany limited..................................i

Declaration......................................................................................................................................ii

Supervisor’s Recommendation.......................................................................................................iii

Endorsement...................................................................................................................................iv

Acknowledgements...........................................................................................................................v

Table of contents.............................................................................................................................vi

List of tables..................................................................................................................................viii

List of Figures..................................................................................................................................x

Abbreviations..................................................................................................................................xi

INTRODUCTION............................................................................................................................1

1.1 Background..............................................................................................................1

1.2 Profile of the Organization......................................................................................2

1.3 Objectives of Study..................................................................................................4

1.4 Rationale..................................................................................................................4

1.5 Review of Literature................................................................................................5

1.6 Research Methods....................................................................................................8

1.6.1 Research Design...........................................................................................8

1.6.2 Nature and Sources of Data.........................................................................8

1.6.3 Method of Data Analysis.............................................................................9

1.7 Limitations...................................................................................................................16

RESULTS AND ANALYSIS............................................................................................................16

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 2.1 Data Presentation and Analysis...................................................................................16

2.2 Major Findings.............................................................................................................46

SUMMARY AND CONCLUSION..................................................................................................49

3.1 Summary......................................................................................................................49

3.2 Conclusion...................................................................................................................50

Bibliography..................................................................................................................................51

appendices.....................................................................................................................................53

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 LIST OF TABLES

Table 2.1: Calculation of Current Ratio …………………………………………………...15

Table 2.2: Trend Analysis of Current Ratio………………………………………………. 16

Table 2.3: Calculation of Quick Ratio ….…………………………………….....................17

Table 2.4: Trend Analysis of Quick Ratio ………………………………………...……….18

Table 2.5: Calculation of Receivables Turnover Ratio ……………………………….........19

Table 2.6: Trend Analysis of Receivables Turnover Ratio.………………...........................20

Table 2.7: Calculation of Working Capital Turnover Ratio ………………………………..21

Table 2.8: Trend Analysis of Working Capital Turnover Ratio ……………………………22

Table 2.9: Calculation of Inventory Turnover Ratio…………………………………….......23

Table 2.10: Trend Analysis of Inventory Turnover Ratio …………………………………..24

Table 2.11: Calculation of Total Assets Turnover Ratio…………………………….............25

Table 2.12: Trend Analysis of Total Assets Turnover Ratio ……………………………......26

Table 2.13: Calculation of Net Profit Margin…………………………………………..........27

Table 2.14: Trend Analysis Net Profit Margin …………………………….………………..28

Table 2.15: Calculation of Return on Assets………………………………………….….......29

Table 2.16: Trend Analysis Return on Assets.……………….................................................30

Table 2.17: Calculation of Return on Equity………………………………………………....31

Table 2.18: Trend Analysis Return on Equity ………………………………………………..32

Table 2.19: Calculation of Average Earnings Per Share and its Trend Analysis………...........33

Table 2.20: Calculation of Debt-Assets Ratio……………………………………...………….35

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Table 2.21: Trend Analysis of Debt-Assets Ratio……………………………………..............35

Table 2.22: Calculation of Debt-Equity Ratio …………………………………………….......37

Table 2.23: Trend Analysis of Debt-Equity Ratio ……………………………….....................37

Table 2.24: Calculation of Debt to Total Capital Ratio …………………………….…………39

Table 2.25: Trend Analysis of Debt to Total Capital Ratio …………………………...............39

Table 2.26: Calculation of Times Interest Earned Ratio.……………………………………....41

Table 2.27: Trend Analysis of Times Interest Earned Ratio ……………………….……….....41

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 LIST OF FIGURES

Figure 1.1: Organization Structure of Nepal Telecom ………………………………….............4

Figure 2.1: Bar diagram and straight-line trend for Current Ratio ……………………..……...17

Figure 2.2: Bar diagram and straight-line trend for Quick Ratio ……………............................19

Figure 2.3: Bar diagram and straight-line trend for Receivables turnover Ratio ……………....21

Figure 2.4: Bar diagram and straight-line trend for Working Capital Turnover Ratio ………...23

Figure 2.5: Bar diagram and straight-line trend for Inventory Turnover Ratio.…………...........25

Figure 2.6: Bar diagram and straight-line trend for Total Asset Turnover Ratio ………….…...27

Figure 2.7: Bar diagram and straight-line trend for Net Profit Margin ………………………...29

Figure 2.8: Bar diagram and straight-line trend for Return on Assets ………………...……......31

Figure 2.9: Bar diagram and straight-line trend for Return on Equity…………………………..33

Figure 2.10: Bar diagram and straight-line trend for Earnings Per Share.……………...……….34

Figure 2.11: Bar diagram and straight-line trend for Debt-Asset Ratio ………………………...36

Figure 2.12: Bar diagram and straight-line trend for Debt-Equity Ratio …………………….....38

Figure 2.13: Bar diagram and straight-line trend for Debt to Total Capital Ratio ………...……40

Figure 2.14: Bar diagram and straight-line trend for Times Interest Earned Ratio ……………..42

x
ABBREVIATIONS

xi
 CHAPTER - I

INTRODUCTION

1.1 Background

Banking has been instrumental in the development of the national economy, contributing
significantly to economic growth and stability by supporting capital formation, wealth
preservation, price stability, fund transfer, monetization of the economy, and various
other crucial factors.

The primary function of the bank is to collect deposit and lend it to the borrower. Banks
play an intermediary role to transfer fund from surplus side to deficit side. Banks collect
deposit from household, business, government, and foreign sector and lend it to them.
Banking sector is the backbone of every country's economy (Singh, 2009).

Profitability is a major concern for every firm, and this applies to banking as well, which
is crucial for both the bank and the national economy. Financial ratio analysis is often
used to evaluate a company's bottom line and its return on investment, with profitability
ratios being one of the most frequently used tools in this analysis. This measure of
profitability is critical for various stakeholders, including company management,
shareholders, depositors, and others (Shrestha, 2011).

The term profitability simply means the ability to make profit. Profitability analysis is a
component of enterprise resources planning (ERP) that allows administrators to forecast
the profitability or optimize the profitability of an existing project. An analysis of cost
and revenue of the firm which determines whether or not the firm is profiting is known as
profitability analysis. Profitability Analysis can also be done by analyzing the
profitability ratios as these shows a company's overall efficiency and performance. Most
frequently used tools of financial ratio analysis are Profitability ratios. These are the
ratios that show returns and represent the firm's ability to measure the overall efficiency
of the firm in generating returns for its shareholders.

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Common profitability ratios used in analyzing a company's performance include Return
on total capital, Return on Equity (ROE) , Net Interest Margin (NIM), Return on Assets
(ROA), Earning Per Share (EPS), Gross Profit Margin (GPM), Operating Profit Margin,
Net Profit Margin,(NPM) etc. Therefore, the current study tries to examine the
profitability status of the Nepal SBI Bank Limited.

The study of the profitability of Nepal SBI Ltd will be valuable to key stakeholders
interested in bank performance, such as shareholders, bank management, the public,
depositors, prospective customers, and other financial institutions. It will provide concise
and practical insights that can be used in decision-making to take corrective action in the
bank activities. Financial executives and policymakers concerned with banking will also
find the study useful. Additionally, students of banking and finance can benefit from the
study's insights. This study might be helpful to measure the financial performance of
bank.

1.2 Profile of the Organization

Nepal SBI Bank Ltd. (NSBL) is the first Indo-Nepal joint venture in the financial sector
sponsored by three institutional promoters, namely State Bank of India, Employees
Provident Fund and Agricultural Development Bank of Nepal through a Memorandum of
Understanding signed on 17th July 1992. (Nepal SBI Bank Limited, n.d.)

State Bank of India is India's largest bank, a fortune 500 company and is among top 50
global banks. State Bank of India (SBI), has a 211 year history, after the merger of its
five Associate Banks (State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State
Bank of Mysore, State Bank of Patiala and State Bank of Travancore)

Nepal SBI bank was established in July1993 as a Subsidiary of State bank of India (SBI)
where SBI holds 55% of ownership, Employee Provident Fund Nepal (Karmachari
Sanchaya Kosh) holds15%. The balance 30% shares are held with the general public. The
bank emerged as one of the leading banks of Nepal with 976 skilled and dedicated
Nepalese employees (as on Poush end 2079) working in a total of 132 outlets that include
92 full-fledged branches, 22 extension counters, 7 province offices, 10 branchless
banking outlets and corporate office. With presence in 51 districts in Nepal, the Bank is

2
providing value added services to its customers through its wide network of 130 ATMs (4
CDMs), internet banking, mobile wallet, SMS banking, IRCTC Ticket Online Booking
facility, etc. NSBL is one of the fastest growing Commercial Banks of Nepal with more
than 1.10 million satisfied deposit customers and over 0.80 million ATM/Debit
cardholders. The Bank enjoys leading position in the country in terms of penetration of
technology products, viz. Mobile Banking, Internet Banking and Card Services. The
Bank is moving ahead in the Nepalese Banking Industry with significant growth in Net
Profit with very nominal NPA. As of 31st Ashad, 2079, the Bank has deposits of Rs.
121.63 billion and advances (including staff loan) of Rs. 111.55 billion, besides
investment portfolio (including investment on subsidiary) of Rs. 22.78 billion. Nepal
SBI Bank Ltd (NSBL) is the first ever Bank in Nepal rated "AA* by ICRA Nepal. Nepal
SBI Bank has been awarded "Visa Excellence Award 2017" in the category "International
Debit Card Business". The bank provides wide range of services which includes Life
Insurance, Merchant Banking, and Mutual Funds. Moreover, "NSBL Payment Gateway",
the first real time remittance between India and Nepal.

The Vision and mission of SBI Bank are as follows (Nepal SBI Bank Limited, n.d.):

Vision:

The vision of Nepal SBI Bank is to be the most preferred bank for a transforming Nepal.

Mission:

The mission of Nepal SBI Bank is to provide high quality, reliable and innovative
financial solutions.

1.3 Objectives of Study

 To evaluate profitability ratios of Nepal SBI Bank Limited by using financial

tools.
 To examine the profitability position of the Nepal SBI Bank Limited by using
different statistical tools.
 To measure the relationship between profitability & loan and advances.

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1.4 Rationale

The banking sector plays a crucial role in reflecting the economic situation of a country,
making it an essential component of the economy. The stability of the financial sector is a
key factor in maintaining overall economic stability. The profitability of banks plays a
critical role in ensuring the financial sector's stability since banks collect deposits from
numerous depositors. If a bank becomes insolvent or goes bankrupt due to losses, it can
have significant ripple effects on the public. Therefore, analyzing the profitability of
banks is crucial in identifying potential risks to the financial system and mitigating their
impact to ensure the stability of the economy.

Different profitability ratios are used to conduct the study. Profitability ratios have their
own importance. ROE reveals how much profit a company earned in comparison to the
total amount of shareholders equity found on the balance sheet. NIM is the key indicators
that help to analyze banking stocks. GPM determine the value of incremental sales and to
guide pricing and promotion decision and ROA shows investors how the company is
actually behaving in terms of converting assets into net capital.

In general, this project's outcomes will help to gain a comprehensive understanding of

Nepal SBI Bank’s profitability situation. This will allow making well-informed decisions
about its future profitability prospects.

This study can serve as a valuable reference for future researchers who want to
understand the profitability status of commercial banks and financial institutions. It can
also be useful for library purposes, providing students with a clear idea of similar
projects. Moreover, this study report can serve as a helpful guide when preparing small
project reports related to financial institutions and commercial banks, making it a
valuable asset for future project.

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1.5 Review

1.5.1 Theoretical Review:

Poudel, (2013) has conducted thesis entitled," Liquidity and Profitability Position of
commercial Banks of Nepal". The main objective of the study is to examine the liquidity
and profitability position of the commercial banks of Nepal.

Tarawneh (2006) measured financial performance as a dependent variable, using Return

on Assets (ROA) and the size of the net income as indicators. The independent variables
are the size of banks as measured by total asset of banks, assets management measured by
asset utilization ratio (Operating income divided by total assets) and operational
efficiency measured by the operating efficiency ratio (total operating expenses divided by
net income).

Smirlock (1985) studied the relationship of profitability with concentration, market share
and other control variables. He found the positive relationship between market share and
profitability and concluded that efficient structure hypothesis is in effect.

Gajera (2015)in his research article an financial performance evaluation of private and
public sector banks found that there is significance difference in the financial
performance of these banks and private sector bank are performed better than public
sector banks in respect of capital adequacy ratio and financial performance.

1.5.2 Review of Related Studies:

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1.6Research Methods

1.6.1 Research Design

1.6.2 Nature and Sources of Data

1.6.3 Method of Data Analysis

1.6.3.1 Ratio Analysis:

ii. Profitability Ratios:

Profitability is the end result of a number of corporate policies and decisions.

Particularly, owners are eager to know their returns whereas managers are interested in
their operating efficiency. So, they calculate profitability ratios because the expectations
of both owners and managers are evaluated in terms of profit earned by the firm. Besides
owners and managers, creditors are also interested to know the financial soundness of the
firm and use profitability ratios. The following are the major ratios used to measure the
profitability of the firm:

a) Net Profit Margin (NPM):

Net profit margin is the ratio between net income and sales of a firm. It shows the firm’s
ability to generate net income per rupee of sales. Generally, a higher NPM is desirable for
the firm.

Net Profit
NPM =
Sales

b) Return on Assets (ROA):

The return on assets ratio measures how efficiently a company is using its assets to
generate profit. ROA can be used by management, analysts, and investors to determine
whether a company uses its assets efficiently to generate a profit. It is calculated as:

Net Income (¿)

ROA=
Total Asssets

b) Return on Equity (ROE):

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ROE measures the return on the owner’s investment in the firm. The owners’ investment
refers to the equity capital employed by the firm, it includes common stock, paid-in
capital, and retained earnings. A higher ratio of return on equity is better for the owner.
ROA factors in a company's debt while ROE does not. It is calculated as follows:

Net Income
ROE =
Total Equity

c) Earnings Per Share (EPS):

Earnings per share (EPS) is a company's net profit divided by the number of common
shares it has outstanding. EPS indicates how much money a company makes for each
share of its stock and is a widely used metric for estimating corporate value. A higher
EPS indicates greater value because investors will pay more for a company's shares if
they think the company has higher profits relative to its share price. It is calculated as:

Net Income
EPS =
Number of commom Stock Outstanding

1.6.3.2 Descriptive Statistics:

Since this study relies on quantitative data, descriptive statistics such as the measure of
central tendency (Arithmetic mean) is used to obtain a nutshell description of data, and
trend analysis is used to observe the trend of ratios and forecast ratios for the next period
(year).

i. Arithmetic Mean or Average of ratios:

It is calculated as:
∑Ratios for the period
Arithmetic Mean (Average) =
Number of Periods(5)

ii. Trend Analysis:

It is Conducted as The Straight-Line Trend fitted based on the least square method
over the study period.
Let the line trend represented by: Yc = a + b(X)
Where,

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 ∑X
a=
n
∑ XY
b= 2
X
n = No of study periods = 5.
X= The deviations are taken from the middle year (i.e., 2019/20)
⸫ X = Given Year (A) - 2019/20.
Y = Respective Ratios.
YC = Estimate of the Trend.

1.7 Limitations

 The study is based on the past five year’s data ranging from the fiscal year
2017/18 to 2021/22 which may not be sufficient to generate the accurate financial
position of the company.
 The study has considered only quantitative factors to conduct the study.
 This study is based on a case; findings may not apply to other organizations.
 The required time to complete the study is limited.

CHAPTER-II

RESULTS AND ANALYSIS

This chapter focuses on the analysis of data from NDCL and the presentation of major
findings to meet the study's objectives. It serves as the core of the study and is divided
into two sections, i.e., Data presentation and analysis, and Major findings.

2.1 Data Presentation and Analysis

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2.2 Major Findings

CHAPTER III

SUMMARY AND CONCLUSION

3.1 Summary

3.2 Conclusion

BIBLIOGRAPHY

Neupane, B. P. (2020). Profitability determinants of nepalese commercial banks. 12, pp.

40-45. Istanbul: PressAcademia Procedia (PAP).
doi:http://doi.org/10.17261/Pressacademia.2020.1345

Shrestha, B. (2011). Financial Ratio Analysis of Commercial Banks in Nepal. Journal of

Nepalese Business Studies, 7(1), 1-9.

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APPENDICES

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