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Comrative study on theProfitability Analysis ofNepal SBI Bank and Nepal EverestBank
Limited
Summer Project
Submitted to
Pokhara University
Office of the Dean
Faculty of Management
Submitted by
Bhakti Ram Poudel
Kshitiz Int'l College
Exam Roll No. 10030291
P.U. Registration No. 2009-2-03-1329
In Partial Fulfillment of the Requirements for the BBA Degree
Butwal, Nepal
November, 2011
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Recommendation
This is to certify that the summer project report
Entitled
" Comprative analysis on profitability Analysis of Nepal SBI Bank and Nepal
Everest Bank Limited"
Submitted By
Bhakti Ram Poudel
Has been prepared in accordance with the requirement of BBA programme of Pokhara
University. This report has been forwarded for examination.
Supervisor Principal
....................... ...................
Lalit Man Shrestha Surya Rana
Date:........................ Date:..............
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Acknowledgement
This summer project report entitled Comparative study onProfitability Analysis of Nepal SBI
Bank and Neoal Everest Bank Limited has been prepared to satisfy the partial requirements for
the degree of BBA, Pokhara University.
This study has not been possible with an overnight sole effort of the author. A long-time efforts
and inspiration of many benevolent creditors have made possible to bring this study into its
present form.
First of all, I am always indebted to my respected supervisor Lalit Man Shrestha, who not only
provided valuable guidance but also inspired me to carry out the researches in the days to come.
Similarly, I would like to express my gratitude to Principal Surya Rana for his kind support.
Last but not least, I would like to express my warm respect to my parents Ganga Ram Poudel
and Manrupa Poudel including my friends Sagar Adhikari and Bhupati Pandey for their affection
and emotional support to pursue further work. Despite of sincere efforts made, the chance of
human error cannot be neglected. Therefore, I would also like to take full responsibility of any
kind of deficiency presented in the report.
Bhakti Ram Poudel
November, 2011
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Table of Contents
Acknowledgement
RecommendationsTable of Contents
List of Tables
List of Figures
Chapter 1: Introduction......... (1-7)
1.1 General Background.....11.2 Justification of the Study.............31.3 Purpose of the Study........41.4 Conceptual Framework....41.5 Methodology of the Study...61.6 Limitation Of the Study.......61.7 Organization Of the Study...7
Chapter 2: Presentation and Analysis of Data... (8-26)
2.1 Data Presentation and Analysis..8
2.1.1 Net Interest Margin......8
2.1.2 Net Operating Margin.....10
2.1.3 Earnings per Shares.12
2.1.4 Net Profit Margin.14
2.1.5 Return on Assets..17
2.1.6 Asset Utilization...19
2.1.7 Return on Equity..21
2.2 Major findings of the Study24
Chapter 3: Summary Conclusions and Recommendations..... (26-30)3.1 Summary.........26
3.2 Conclusions.........27
3.3 Recommendations..........29
Bibliography
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List of Tables
Table No. Title of the Table Page
2.1 Net Interest Margin 9
2.2 Net Operating Margin 11
2.3 Earnings per Shares 13
2.4 Net Profit Margin 15
2.5 Return on Assets 17
2.6 Asset Utilization 20
2.7 Return on Equity 22
List of Figures
Figure
No.
Title of the Figure Page
1.1 Schematic Diagram 5
2.1 Net Interest Margin 9
2.2 Net Operating Margin 11
2.3 Earnings per Shares 14
2.4 Net Profit Margin 16
2.5 Return on Assets 18
2.6 Asset Utilization 20
2.7 Return on Equity 23
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CHAPTER-1
INTRODUCTION
1.1 Background of the study
Banks are those financial institutions that offer the wide range of financial services especially
credit, saving, and payments services and perform the widest range of financial of any business
from in the economy.
Comparative study refers to the comparison of two or more firms. This study focuses on the
comparison of profitability of two renowned joint venture banks, namely, Everest Bank Ltd. And
Nepal SBI Bank Ltd.
The banking sector is the backbone of the Nepalese economy and plays an important financial
intermediary role therefore, its health is very critical to the health of the general economy at
large. In the last ten or more years there has been a rapid increase in the activity of banks in
Nepal, and this has fostered rapid competitiveness among banks in Nepal. In this increasing and
dynamic world of business and finance, the task of each bank operating to make more profit is
becoming a challenge with each passing day. In order for an organization like commercial banks
to operate optimally, it has to be able to measure its profitability with regards to it inputs and
output.
Given the relation between the well-being of the banking sector and the growth of the economy
(Rajan & Zingales, 1998; Levine, 1998), knowledge of the underlying factors that influence the
financial sector's profitability is therefore essential not only for the managers of the banks, but
also for numerous stakeholders such as the central banks, bankers associations, governments, and
other financial authorities. Knowledge of these factors would be useful in helping the regulatory
authorities and bank managers for formulating future policies aimed at improving the
profitability of the banking sector.
Profitability of a firm should be accessed by concerned parties in order to reveal the relative
strength and weakness of the firm compared to other firms in the same industry or to show
whether the firms position has been improving or deteriorating over the years. So analysis of
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financial statement is most essential to management as well as to other stakeholders of the firm
for various purposes.
Simply, excess of income over expenses is termed as profit. It is the residual income left after the
payment of all expenses. Most of the business enterprises are established with an ultimate goal to
achieve profit and so their activities are directed towards the achievement of the profit.
Lord Keynes (1995), says, "Profit is the engine that drives the business enterprise.
Maximization of profit is the main objective of each and every business concern. Profit is very
much necessary for the successful running of the business concern. Profit is the pillar to
strengthen and expand business firm. A part of profit is used to pay short term as well as long
term financial obligation of the firm. It is also used to expand the business. So measurement of
how effectively and efficiently a firm is able to manage its resources is one of the major issues
for an organization.
Profitability is the key factor that measures how effectively the firm is being managed and
operated. Profitability ratios are used to analyze the financial strength and weakness of the firm.
Profitability of a business concern may be measured by two ways:
1. In relation to revenue and,2. In relation to assets and equity.
Due to the competitive, challenging, and dynamic environment faced by financial institutions,
assessing profitability is a must in sustaining in this environment. This study aims at assessing
the profitability of the NSBI bank ltd. and providing suggestions about the financial health of
the bank.
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. NSBL was incorporated as a public limited
company at the Office of the Company Registrar on April 28, 1993 under Regn. No. 17-049/50
with an Authorized Capital of Rs.12 Corers and was licensed by Nepal Rasta Bank on July 6,
1993 under license No. NRB/l.Pa./7/2049/50. NSBL commenced operation with effect from July
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7, 1993 with one full-fledged office at Durbar Marg, Kathmandu. Fifty five percent of the total
share capital of the Bank is held by the State Bank of India, fifteen percent is held by the ,m xs
Everest Bank Limited (EBL) started its operations in 1994 as a commercial bank with a view and
objective of extending professionalized and efficient banking services to various segments ofthe society. The bank is providing customer-friendly services through its Branch Network. All
the branches of the bank are connected through Anywhere Branch Banking System (ABBS),
which enables customers for operational transactions from any branches. Punjab National Bank
(PNB), the joint venture partner (holding 20% equity in the bank) is the largest nationalized
bank in India.
1.2Justification of the study:
Profitability is the measure of how effectively and efficiently a firm can manage its available
resources. Profitability is the key factor to determine the progress of the firm. In fact,
managers, shareholders, government, customers, creditors, and other stack holders are also
interested to know the profitability of the firm. Profitability is one of the major issue for every
organization. Good profitability ratio indicates better performance of the firm so, this study
tries to find out the comparative operational efficiency as well as resource utilization efficiency
of Nepal SBI Bank Ltd and Everest bank Ltd.
Profitability is the key factor that measures how effectively the firm is being managed and
operated. Profitability ratios are used to analyze the financial strength and weakness of the
firm.
The finding of this project report can be used by managers to know the efficiency of these firms
and to improve their overall efficiency. The investors can evaluate the profitability to invest in
one of these firms. This study will concise practically usable and valuable to the major parties
interested in the performance of Nepal SBI Bank Ltd and Everest bank Ltd. shareholders,
management of bank, brokers, financial institutions, general public depositors, prospective
customers, creditors etc. Financial executive as well as those other policy making bodies which
are concerned with banking would also find it useful to the advance teachers and students of
the subjects particularly those in commerce, charted accountancy and institution of Finance.
The study basically deals with the following specific issues:--
1) What is the trend of profitability over the years?2) How efficiently the firms are able to make profit out of their revenue?
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3) How efficiently the firms are able to utilize their assets?4) How efficiently the firms are able to manage their productive use of equity?
1.3Purpose of the study:
The main objective of this study is to compare the profitability of Nepal SBI Bank Ltd and
Everest Bank Ltd. However, the specific objectives of the study are as follows:--
1) To compare the trend of profitability over the years.2) To compare the firm's capability in converting revenue to profit.3) To compare the firm's capability in utilizing its assets.4) To compare the firms' productive use of equity.
1.4 Conceptual framework
Banks play an important role in financing and contributing to different economics and social
sectors in the country. Various internal as well as external factors affect profitability of a firm.
Internal factors may be manageable by firm to some extend but external factors are often out of
the reach of the firm. Profitability of firm is affected by the revenue generated by firms, total
assets of the firm, and amount of shareholders equity.
Revenue of the bank determines its profit earning power. The higher the revenue generated the
greater the firms profit because some of the cost are fixed which remains constant to certain level
of activity. So revenue generated is converted to profit more after fixed cost has been satisfied.
This will certainly improve profitability of the firm. The relation between revenue and profit is
measured by net profit margin. Higher net profit margin indicates higher profitability and vice
versa.
The determinant of profitability is the assets of the firm. There should be effective use of
available assets in order to achieve more profitability. If assets are not utilized properly the
profitability of the firm declines. There must be proper tradeoff between current assets and fixed
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assets for higher profitability. However firms with too few current assets may incur shortages
and difficulties in maintaining smooth operations (Horne and Wachowicz, 2000). So,
maintaining proper balance between current and fixed assets results in profitability of the firm.
ROA is used to measure how effectively the available assets are used by the Bank. Higher ROA
indicates better utilization of available assets.
Shareholders equity is also one of the determining factors of the profitability. The firm cannot
operate without the equity. Use of too much debt will increase the bankruptcy cost and is riskier.
However use of equity maintains the solvency position of the firm thereby reducing the risk
associated with the use of too much debt. But use of debt to some extend will be profitable. so;
bank should maintain proper balance between debt and equity. ROE is used to measure how
effectively the shareholders equity is utilized to generate profit. Higher ROE indicates better
return on equity and vice versa.
The following schematic diagram shows the relation between the dependent and independent
variables of this model.
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1.5 Methodology of the study
1.5.1 Method of data collection
While preparing this report, the necessary data and documents are collected from secondary
sources. The sources of these secondary data in preparing this report are as follows:
1. Internal secondary data:-Trading a/c, profit & loss a/c, balance sheet and Annual report ofthe firm are used in this report from the internal secondary source. The data are collected
via websites of the NSBI Bank and NEBL. (www.nsbi.com) and(www.nebl.com).
2.
External secondary data: - various reports and literature on this field are reviewed forsufficient knowledge of the subject matter. Various account and finance books from the
library are also reviewed.
1.5.2 Method of data presentation
Collected data from different sources has presented by using various tools. They are presented
here by the help of pie chart, tabulation, bar diagram, trend line, etc.
1.5.3 Methods of Data Analysis
After the presentation of collected data they are analyzed by using various analytical tools. While
preparing this report the data have been analyzed by the help of various financial ratios like net
profit margin, operating ratio, return on assets, return on equity, earning per share, net interest
margin, etc.
1.6 Limitation of the study
The validity of this fieldwork report is confined by some limitations. The limitations of this
fieldwork report are as follows:
1. The report writing is limited only with NSBI Bank limited and Nepal Everest Banklimited.
http://www.nsbi.com/http://www.nsbi.com/http://www.nsbi.com/http://www.nebl.com/http://www.nebl.com/http://www.nebl.com/http://www.nebl.com/http://www.nsbi.com/ -
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2. The scope of the study is limited to profitability only.3. Data limitation of five years due to lack of old data.4. Financial ratios are only used to judge the profitability of the firm.5. Only secondary data are used in the report.
1.7 Organization of the study
This report consists of three chapters. They are introduction, data presentation and analysis and
summary and conclusion.
The introduction chapter consists of the background of the study, justification of the study,
purpose of the study, conceptual framework, and methodology of the study, limitation and
organization of the study. Second chapter consists of presentation of data, analysis of data byusing various financial ratios. The major findings are also listed at the last of this chapter. Third
chapter consists of summary, conclusion and recommendation.
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Chapter 2
PRESENTATION AND ANALYSIS OF DATA
In this section the data collected from secondary sources are presented in the tables,
graphs and trend lines. These tables are presented to ease analysis and interpretation. The
analysis is made by using different statistical and financial tools. The major findings of
the study are listed in the last part of this section.
2.1 Data presentation and analysis
2.1.1 Net interest margin
This section attempts to analyze NIM of NSBI bank and NEBL for past five years. For this
purpose annual data of five years is depicted on the table 2.1 for the period 2063/064 to 067/068.
Net interest margin (NIM) is a measure of the difference between the interest income generated
by banks or other financial institutions and the amount of interest paid out to their lenders (for
example, deposits), relative to the amount of their (interest-earning) assets. It is usuallyexpressed as a percentage of what the financial institution earns on loans in a time period and
other assets minus the interest paid on borrowed funds divided by the average amount of the
assets on which it earned income in that time period. The net interest margin helps a company
determine whether or not it has made wise investment decisions. This ratio measures how far the
management has been able to achieve the objectives by close control over the banks earning
assets and the pursuit of the cheapest source of financing. By using Net interest margin one can
track the profitability of a bank's investing and lending activities over a course of time. Along
with a period-end balance sheet, average balance sheet published by the banks showing the
breakdown of bank's loans, investments, deposits, and borrowed funds, and their related interest
rates gives more insight to investors looking for more information on the fluctuation of the Net
interest margin.
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The negativity of the Net interest margin shows that the decisions taken by the firm is not the
best possible one as it shows that interest expenses were greater than the amount of the returns
generated by investments. Higher NIM indicates better profitability and vice versa. It can be
calculated by using the following relation.
Net Interest Margin = Net interest income/Total assets
Where, Net interest income = interest incomeinterest expenses
Table 2.1
Net Interest Margin
Year NIM (Nepal SBI Bank) NIM (NEBL)
2063/064 0.0287 0.0315
2064/065 0.0301 0.0292
2065/066 0.0300 0.0337
2066/067 0.0206 0.0318
2067/068 0.0022 0.0369
Table 2.1 shows the NIM for the years. In the year 2064/065 NIM is highest i.e. 0.0301 andlowest in the year 2067/068 i.e. 0.0022. The NIM over the year is decreasing except in the year
2064/065 and 2065/066. This indicates that net interest on total assets is decreasing. The
profitability of the firm is declining at greater rate after the year 2065/066 for NSBI Bank.
But in the case of NEBL, in the year 2067/066 NIM is highest i.e. 0.0369 and lowest in the year
2064/065 i.e. 0.0292. The NIM over the year is increasing except in the year 2064/065. This
indicates that net interest on total assets is increasing. The profitability of the firm is inclining at
greater rate after the year 2064/065 for NEBL.
NIM can be shown by trend line to show the movement in different years.
Figure 2.1
Net Interest Margin
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The figure 2.1 shows net interest margin of various time periods with the help of the trend line.
NIM is relatively stable up to the year 2065/066 but in the later years it is decreasing at greater
rate. The return on a company's investments relative to its interest expenses is declining in the
later years. So, the firm should invest in the portfolio such that to increase NIM. But for NEBL
the NIN is starting to incline from the year 2064/065 at lower rate. The return on a company's
investments relative to its interest expenses is inclining in the later years. So, the firm shouldinvest in the portfolio such that to increase NIM for higher rate in later years.
2.1.2 Net Operating Margin
This section attempts to analyze NOM of NSBI bank and NEBL for past five years. For this
purpose annual data of five years is depicted on the table 2.2 for the period 2063/064 to
2067/068.
Net operating margin (NOM) is the ratio between difference in operating revenue and operatingexpenses to total assets. Operating margin is a measurement of what proportion of a company's
revenue is left over after paying for variable costs of production such as wages, raw materials,
etc. A healthy operating margin is required for a company to be able to pay for its fixed costs,
such as interest on debt. It is used to measure a company's pricing strategy and operating
efficiency. Operating margin gives analysts an idea of how much a company makes profit from
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.04
NIM (NSBI Bank)
NIM (NEBL)
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its day to day operation. If a company's margin is increasing, it is earning more per dollar of
sales. The higher the margin, the better will be the profitability. Operating margin can be
computed using the following relation.
Operating Margin = Net Operating Income/ Total Assets
Table 2.2
Net Operating margin
Year NOM (Nepal SBI
Bank)
NOM (NEBL)
2063/064 1.293% 2.805%
2064/065 2.164% 2.695%
2065/066 2.056% 3.013%
2066/067 1.431% 2.887%
2067/068 1.499% 3.260%
Table 2.1 shows the NOM for the years. In the year 2064/065 NOM is highest i.e. 2.164% and
lowest in the year 2063/064 i.e. 1.293%. The NOM over the year is increasing except in the year
2065/066 and 2067/068 for Nepal SBI Bank.
Similarly, in the case of NEB, in the year 2067/068 NOM is highest i.e. 3.260% and lowest in
the year 2064/065 i.e. 2.695 %. The NOM over the year is increasing except in the year
2064/065 and 2066/067.
The NOM can be shown by trend line to show the movement in different years
Figure 2.2
Net Operating margin
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Figure 2.2 shows NOM 0f Nepal SBI Bank for various years. In the year 2064/065 NOM is
highest i.e. 2.164% and lowest in the year 2063/064 i.e. 1.293%. In the early sample years NOM
is increasing but after 2064/065 it declines for two years and again it increases in the last year.
This shows that the firm is able to increase its operating revenue in the year 2067/068. But in the
case of NEBL, NOM is highest in the year2067/068 i.e. 3.260% and lowest in the year 2064/065
i.e. 2.695%. The NOM is increasing at greater rate but it declined at the year 2064/065 and
2066/067. This shows that the firm is able to increase its operating revenue from the year
2064/065.
2.1.3 Earning per shares
This section attempts to analyze the EPS of NSBI bank and NEBL for past five years. For this
purpose annual data of five years is depicted on the table 2.3 for the period 2063/064 to 067/068.
An earning per share (EPS) is the profit attributable to shareholders (after interest, tax, minority
interests and everything else) divided by the number of shares in issue. It is the amount of a
company's profits that belong to a single ordinary share. Trends in EPS are also an important
measure of growth. It is also used to screen for growth companies. EPS growth is a key measure
of management performance as shows how much money the company is making for
shareholders, not only because of changes in profits, but also after all the effects of new share
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
NOM (Nepal SBI Bank)
NOM (NEBL)
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issues. Higher EPS is desirable to the shareholders. It is computed by using the following
relation.
EPS = Net Income after Tax/ No of common shares outstanding
Table 2.3
Earning Per Share
YearEPS (Nepal SBI
Bank)EPS (NEBL)
2063/064 18.27 62.47
2064/065 39.35 78.04
2065/066 28.33 91.82
2066/067 36.18 99.702067/068 23.69 97.85
Table 2.3 shows EPS for five years calculated using the above stated relation. The highest EPS
for NSBI Bank over sample years is Rs. 39.35 and lowest is Rs. 18.27 in the year 2063/064. The
EPS of NSBI Bank is fluctuating over the years. The EPS is seen to be decreasing in the year
2065/066 and 2067/068. This indicates that EPS is not sufficiently increasing in the later years.
The EPS is fluctuating in the sample period. In the year 2064/065 the EPS is RS 39.35 but itdecreases to RS 28.33, RS 36.18 and RS 23.69 in the years 2065/066, 2066/067 and 2067/068
respectively.
The highest EPS for NEBL is Rs.99.70 in the year 2066/067 and lowest is Rs.62.47 in the year
2063/064. The EPS for NEBL is seen to be increasing in the years at higher rate. This
indicatesthat EPS is sufficiently increasing in the later years. In the year 2063/064 the EPS is RS
62.47but it increases to RS 78.04, RS 91.82 and RS 99.70 in the years 2064/065, 2065/066,
2066/067 but in the year2067/068 the EPS declined slightly then in the year 2066/067.
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Figure2.3
Earning Per Shares
Figure 2.3 shows EPS for various years. In the year 2064/065 EPS is highest i.e. 39.35 and
lowest in the year 2063/064 i.e. 18.27. In the early sample years EPS is increasing but after
2064/065 it declines and again it increases in the year 2066/067 and again declines at the last
year. This shows EPS is fluctuating over the years for Nepal SBI Bank. But in the case of NEBL,
EPS is highest in the year2066/067 i.e. 99.70 and lowest in the year 2063/064 i.e. 62.47. The
EPS is increasing at greater rate but it declined at the year 2067/068. This shows that the firm is
able to increase its earnings per share for the years.
2.1.4 Net profit margin
This section attempts to analyze the Net profit margin of NSBI bank and NEBL for past five
years. For this purpose annual data of five years is depicted on the table 2.4 for the period
2063/064 to 2067/068.
Net profit margin measures the overall profitability of the firm by establishing relationship
between net income and operating income. It is the ratio between net income and operating
revenue. Higher NPM enables the firm to run at better economic condition, so higher NPM is
0
20
40
60
80
100
120
EPS (Nepal SBI Bank)
EPS (NEBL)
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regarded better. Higher the NPM higher the firm firms profitability and vice versa. NPM is
calculated using the following relation.
NPM = Net income/ Total operating income
Net Profit Margin
Table 2.4
Table 2.4 shows NPM for five years calculated using the above stated relation. The highest NPM
for NSBI Bank over sample years is 0.4369 in the year 2064/065 and lowest is 0.2517 in the year
2063/064. The NPM of NSBI Bank is fluctuating over the years. The NPM is seen to be
decreasing in the year 2065/066 and 2067/068. This indicates that NPM is not sufficiently
increasing in the later years. The NPM is fluctuating in the sample period. In the year 2064/065
the EPS is 0.4369 but it decreases rapidly after the year 2064/065.
The highest NPM for NEBL is 0.7207 in the year 2064/065 and lowest is0.6385 in the year
2063/064. The NPM for NEBL is seen to be increasing in the years at lower rate. This indicates
that EPS is satisfactorily increasing in the later years. In the year 2063/064 the NPM is 0.638 but
it increases to 0.7095 and 0.7063in the years 2066/067 but in the year2067/068 the EPS declined
slightly then in the year 2066/067 and 2067/068.
yearNPM (Nepal SBIBank)
NPM (NEBL)
2063/064 0.2517 0.6385
2064/065 0.4369 0.7207
2065/066 0.3883 0.6595
2066/067 0.3818 0.7095
2067/068 0.3539 0.7063
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The NPM can be shown by trend line to show the movement in different years
Figure 2.4
Net profit margin
In the figure 2.4 net profit margins is plotted with their consecutive time periods. The NPM is
increasing for Nepal SBI Bank from the year 2063/064 to year 2064/065 and then it starts
declining. This indicates that profitability of the firm in later year is decreasing. But for NEBL
NPM is increasing from the year 2063/064 to year 2064/065 and then it starts declining and
again stats inclining from the year 2065/066. This indicates that profitability of the firm is
fluctuating during the years.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
NPM (Nepal SBI Bank)
NPM (NEBL)
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2.1.5 Return on assets (ROA):
This section attempts to analyze the Return on assets of NSBI bank and NEBL for past five
years. For this purpose annual data of five years is depicted on the table 2.5 for the period
2063/064 to 067/068.
Return on Asset (ROA) is the ratio of net profit to the total asset. It is the relationship between
net profit (after interest and tax) and organizations total asset. This ratio establishes the
profitability from the organizations asset point of view. This ratio is one of the most important
ratios used for measuring the overall efficiency of a firm. Return on assets shows the overall
effectiveness of management in generating profit with its available assets. ROA represents a
better measure of the ability of a firm to generate returns on its portfolio of assets also as an
indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how
efficient management is at using its assets to generate earnings. Calculated by dividing a
company's net income by its total assets, ROA is displayed as a percentage. The higher the
Return on assets the better it is doing in operation and vice versa. ROA is calculated in following
ways:
ROA = Net income/ Total assets
Table 2.6
yearROA(Nepal SBIBank)
ROA (NEBL)
2063/0640.898%
1.487%
2064/0651.834%
1.383%
2065/066
1.442%
1.660%
2066/0671.023%
1.730%
2067/0681.029%
2.009%
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The table 2.5 shows ROA for five years. Return on assets, ratio between net income and total
assets shows how well the firm is able to manage its productive use of assets used in the firm.
The highest ROA of Nepal SBI Bank is 1.834% in the fiscal year 2064/065. The lowest ROA is
0.898% in the fiscal year 2063/064. The ROA over the years is fluctuating which can be seen
from the figure 2.5. ROA is increasing up to the year 2064/065 and then it decreased in year
2066/067 and again it starts increasing. However, ROA for later year is greater than that in the
earlier year. This shows that the firm is improving its productive use of assets in the later year
but it is not increasing at higher rate. So the firm should make a better portfolio of assets in order
to increase its profitability.
In the case of NEBL highest ROA is 2.09% in the fiscal year 2067/068. The lowest ROA is
1.383% in the fiscal year 2064/065. The ROA over the years is increasing which can be seen
from the figure 2.5. ROA is increasing after the fiscal year 2065/066. However, ROA for later
year is greater than that in the earlier year. This shows that the firm is improving its productive
use of assets in the later years. So the firm should make a better portfolio of assets in order to
increase its profitability.
The ROA can be shown by trend line to show the movement in different years
Figure 2.5
Return on assets
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Figure 2.5 shows ROA for several years and its trend over the years. ROA is lowest for Nepal
SBI Bank in year 2063/064 i.e., 0.898% and highest in the year 2064/065 i.e., 1.834%. ROA
over the years is increasing except in the year 2066/067 but for the earlier years ROA is
increasing at an increasing rate. ROA is greater for later years which indicate better profitability.
Similarly in the case of NEBL highest ROA is 2.09% in the fiscal year 2067/068. The lowest
ROA is 1.383% in the fiscal year 2064/065. The ROA over the years is increasing which can be
seen from the figure 2.5. ROA is increasing after the fiscal year 2065/066. However, ROA for
later year is greater than that in the earlier year. This shows that the firm is improving its
productive use of assets in the later years. So the firm is making a better portfolio of assets in
order to increase its profitability.
2.1.6 Asset Utilization
This section attempts to analyze the asset utilization ratio of NSBI bank and NEBL for past five
years. For this purpose annual data of five years is depicted on the table 2.6 for the period
2063/064 to 2067/068.
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
ROA(Nepal SBI Bank)
ROA (NEBL)
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The asset utilization ratio calculates the total revenue earned for every dollar of assets a company
owns. This ratio indicates a company's efficiency in using its assets. Asset utilization ratio
indicates rupee a company earned for each rupee of assets held by the company. This ratio
indicates how well the firm is using its assets to generate income. It can be calculated as follows.
Assets Utilization = total operating income/total assets
Figure 2.6
Assets utilization ratio
Year AU ( Nepal SBI Bank) AU ( NEBL)
2063/064 0.0357 0.0438
2064/065 0.0420 0.0387
2065/066 0.0371 0.0566
2066/067 0.0268 0.0609
2067/068 0.0291 0.0663
Table 2.6 presents asset utilization ratio for five years. The highest asset utilization ratio of Nepal
SBI Bank is 0.0420 in the year 2064/065. The lowest asset utilization ratio for the firm is 0.0268
in the year 2066/067. Asset utilization ratio is fluctuating over the years but the general pattern
of asset utilization is declining over the year. Asset utilization for later year is less than in the
earlier period.
The highest asset utilization ratio of NEBL is 0.0663 in the year 2067/068. The lowest asset
utilization ratio for the firm is 0.0387 in the year 2064/065. Asset utilization ratio is increasing
over the years in an increasing rate. So the asset utilization of NEBL is better because utilization
ratio is increasing over the years in the general pattern.
Asset utilization ratio for different year can be presented in trend line as in table 2.6
Figure 2.6
Asset utilization
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Figure 2.6 shows the trend of asset utilization of NSBI Bank and NEBL for five years. In the
case of Nepal SBI Bank the line is fluctuating but we can clearly see the line downward sloping
which indicates that asset utilization in later year is not as effective as it was in previous period.
The firm should manage the assets so as to generate higher revenue from their use. But in the
case of NEBL the AU is lowest in the year 2064/065 i.e. 0.0387 and after then it starts inclining
in later years. This indicates that asset utilization in later year is effective as it was in previous
period. The firm should manage the assets in same pattern so as to generate higher revenue from
their use for coming years.
2.1.7 Return on equity (ROE)
This section attempts to analyze the Return on equity of NSBI bank and NEBL for past five
years. For this purpose annual data of five years is depicted on the table 2.7 for the period
2063/064 to 2067/068.
Return on equity measures the return on owners investment in the firm. ROE indicates the profit
out of a rupee of shareholders equity. ROE is a measure of how well a company used reinvested
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
AU ( Nepal SBI Bank)
AU ( NEBL)
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earnings to generate additional earnings, equal to a fiscal year's after-tax income (after preferred
stock dividends but before common stock dividends)divided by book value, expressed as a
percentage. It is used as a general indication of the company's efficiency; in other words, how
much profit it is able to generate given the resources provided by its stockholders. Investors
usually look for companies with returns on equity that are high and growing. Higher ROE is
better for the owner and management as well.ROE reflects how effectively a bank management
is in utilizing its shareholders funds. Since ROA tend to be lower because most banks heavily
utilize financial leverage to increase their ROE to competitive levels (Hassan & Bashir, 2003).
ROE is calculated as follows:
ROE = Net income/total equity
Where,
Total Equity = share capital + reserves and Funds
Table 2.7
Return on equity
YearROA ( Nepal SBIBank)
ROA ( NEBL)
2063/064 11.91% 24.65%
2064/065 21.91% 24.67%
2065/066 17.51% 23.48%
2066/067 18.47% 28.98%
2067/068 15.99% 30.15%
The table 2.7 shows the computation of total equity and ROE as per the above formulas for the
five years. Highest ROE of Nepal SBI Bank is in the year 2064/065 i.e. 21.91% and lowest ROE
is in the year 2063/2064 i.e. 11.91%. ROE is increasing up to the year 2064/065 and then it
declines at higher rate.
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In the case of NEBL the ROE is higher in the year 2067/068 i.e. 30.15% and lowest ROE is in
the year 2065/2066 i.e. 23.48%. ROE is decreasing up to the year 2065/066 and then it starts to
increase from the year 2065/2066 at higher rate and becomes maximum in the final year.
The pattern of movement of ROE is shown in following diagram.
Figure 2.7
Return on equity
The figure 2.8 shows the ROE in percentage in horizontal axis and years in vertical axis. The
ROE is highest for Nepal SBI Bank in year 2064/065 and lowest in 2063/064. The ROE of NSBI
bank is increasing in the earlier year up to the year 2064/065 after then is starts decline. But in
the case of NEBL the ROE is higher in the year 2067/068 i.e. 30.15% and lowest ROE is in the
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
ROA ( Nepal SBI Bank)
ROA ( NEBL)
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year 2065/2066 i.e. 23.48%. ROE is decreasing up to the year 2065/066 and then it starts to
increase from the year 2065/2066 at higher rate and becomes maximum in the final year.
2.2Major finding listed
1. In the year 2064/065 NIM is highest i.e. 0.0301 and lowest in the year 2067/068 i.e.0.0022. The NIM over the year is decreasing except in the year 2064/065 and
2065/066. This indicates that net interest on total assets is decreasing. The profitability
of the firm is declining at greater rate after the year 2065/066 for NSBI Bank. But in the
case of NEBL, in the year 2067/068 NIM is highest i.e. 0.0369 and lowest in the year
2064/065 i.e. 0.0292. The NIM over the year is increasing except in the year 2064/065.
This indicates that net interest on total assets is increasing. The profitability of the firm
is inclining at greater rate after the year 2064/065 for NEBL.
In the year 2064/065 NOM is highest i.e. 2.164% and lowest in the year 2063/064 i.e.1.293%. In the early sample years NOM is increasing but after 2064/065 it declines for
two years and again it increases in the last year. This shows that the firm is able to
increase its operating revenue in the year 2067/068. But in the case of NEBL, NOM is
highest in the year2067/068 i.e. 3.260% and lowest in the year 2064/065 i.e. 2.695%.
The NOM is increasing at greater rate but it declined at the year 2064/065 and
2066/067. This shows that the firm is able to increase its operating revenue from the
year 2064/065.
2. In the year 2064/065 EPS is highest i.e. 39.35 and lowest in the year 2063/064 i.e.18.27. In the early sample years EPS is increasing but after 2064/065 it declines and
again it increases in the year 2066/067 and again declines at the last year. This shows
EPS is fluctuating over the years for Nepal SBI Bank. But in the case of NEBL, EPS is
highest in the year2066/067 i.e. 99.70 and lowest in the year 2063/064 i.e. 62.47. The
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EPS is increasing at greater rate but it declined at the year 2067/068. This shows that the
firm is able to increase its earnings per share for the years.
3. The NPM is increasing for Nepal SBI Bank from the year 2063/064 to year 2064/065and then it starts declining. This indicates that profitability of the firm in later year is
decreasing. But for NEBL NPM is increasing from the year 2063/064 to year 2064/065
and then it starts declining and again stats inclining from the year 2065/066. This
indicates that profitability of the firm is fluctuating during the years.
4. ROA is lowest for Nepal SBI Bank in year 2063/064 i.e., 0.898% and highest in the year2064/065 i.e., 1.834%. ROA over the years is increasing except in the year 2066/067 but
for the earlier years ROA is increasing at an increasing rate. ROA is greater for later
years which indicate better profitability. Similarly in the case of NEBL highest ROA is
2.09% in the fiscal year 2067/068. The lowest ROA is 1.383% in the fiscal year
2064/065. The ROA over the years is increasing which can be seen from the figure 2.5.
ROA is increasing after the fiscal year 2065/066. However, ROA for later year is greater
than that in the earlier year. This shows that the firm is improving its productive use of
assets in the later years. So the firm is making a better portfolio of assets in order to
increase its profitability.
5. The highest asset utilization ratio of Nepal SBI Bank is 0.0420 in the year 2064/065.The lowest asset utilization ratio for the firm is 0.0268 in the year 2066/067. Asset
utilization ratio is fluctuating over the years but the general pattern of asset utilization is
declining over the year. Asset utilization for later year is less than in the earlier period.
Whereas, the highest asset utilization ratio of NEBL is 0.0663 in the year 2067/068. The
lowest asset utilization ratio for the firm is 0.0387 in the year 2064/065. Asset utilization
ratio is increasing over the years in an increasing rate. So the asset utilization of NEBL
is better because utilization ratio is increasing over the years in the general pattern.
6. The ROE is highest for Nepal SBI Bank in year 2064/065 and lowest in 2063/064. TheROE of NSBI bank is increasing in the earlier year up to the year 2064/065 after then is
starts decline. But in the case of NEBL the ROE is higher in the year 2067/068 i.e.
30.15% and lowest ROE is in the year 2065/2066 i.e. 23.48%. ROE is decreasing up to
the year 2065/066 and then it starts to increase from the year 2065/2066 at higher rate
and becomes maximum in the final year.
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CHAPTER 3
SUMMARY, CONCLUSION AND RECOMMENDATION
3.1 Summary
Banking sector is the backbone of every economy and plays a vital financial intermediary role in
an economy. In this dynamic and competitive business world firms cannot perform if they are
not able to measure their performance and took corrective actions to be in right track. To be
successful in this competitive environment banks and other financial institutions must know their
profitability. Information about profitability helps managers to make plans and to determine
actions to increase performance.
Profitability of the firm should be accessed by concerned parties to know the strength and
weakness of firm. So, financial statement analysis is important. The main goal of business
enterprise is to earn profit. Profit is residual income after the payment to expenses. Profit is the
pillar to strengthen and expand business firm. Profitability is the key factor that measures how
effectively a firm is being managed and operated.
The report basically deals with finding out the profitability of NSBI Bank and NEBL. It aims at
evaluating the trend of profitability over the years, firms capability in converting revenue to
profit, firms ability to utilize assets and firms productive use of equity. Since firms profitability
is mainly dependent on the revenue generated by the firm, assets used by the firm and amount of
equity of the firm. It treats these factors as independent variables in this study.
For the purpose of analyzing the profitability of NSBI Bank and NEBLdata are collected from
secondary sources via internet and collected data were analyzed using various statistical and
financial tools. Various financial ratios are used to determine the profitability of the firm like
NIM, NOM, EPS, NPM, OER, ROA, ROE, etc. The data are presented in table and graphs to
ease the analysis. While analysis it is found that the profitability of NSBI Bank is decreasing in
the later years as shown by NMP, NIM, NOM, EPS, ROA and ROE. The bank is not as efficient
in utilizing its available assets, in generating more revenue and in maximizing return on
investment of shareholders. The trend of profitability of NSBI Bank is declining as shown by
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various profitability ratios. But the trend of profitability of NEBL is increasing the later years as
shown by NMP, NIM, NOM, EPS, ROA and ROE. The bank is efficient in utilizing its available
assets, in generating more revenue and in maximizing return on investment of shareholders. The
trend of profitability of NEBL is inclining as shown by various profitability ratios.
3.2 Conclusion
This fieldwork report is prepared to analyze the profitability of the NSBI Bank Limited and
NEBL. For this pertinent information are referred and analyzed. After the analysis of
profitability of NSBI bank and NEBL following conclusions have been made about the
profitability of the firms.
The NIM over the year is decreasing except in the year 2064/065 and 2065/066. This
indicates that net interest on total assets is decreasing. The profitability of the firm is
declining at greater rate after the year 2065/066 for NSBI Bank. But in the case of NEBL,
The NIM over the year is increasing except in the year 2064/065. This indicates that net
interest on total assets is increasing. The profitability of the firm is inclining at greater rate
after the year 2064/065 for NEBL.
In the early sample years NOM is increasing but after 2064/065 it declines for two years
and again it increases in the last year. This shows that the firm is able to increase its
operating revenue in the year 2067/068. But in the case of NEBL, NOM is highest in the
year 2067/068 i.e. 3.260% and lowest in the year 2064/065 i.e. 2.695%. The NOM is
increasing at greater rate but it declined at the year 2064/065 and 2066/067. This shows that
the firm is able to increase its operating revenue from the year 2064/065.
In the year 2064/065 EPS is highest i.e. 39.35 and lowest in the year 2063/064 i.e. 18.27. In
the early sample years EPS is increasing but after 2064/065 it declines and again it increases
in the year 2066/067 and again declines at the last year. This shows EPS is fluctuating over
the years for Nepal SBI Bank. But in the case of NEBL, EPS is highest in the year2066/067
i.e. 99.70 and lowest in the year 2063/064 i.e. 62.47. The EPS is increasing at greater rate
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but it declined at the year 2067/068. This shows that the firm is able to increase its earnings
per share for the years.
The NPM is increasing for Nepal SBI Bank from the year 2063/064 to year 2064/065 and
then it starts declining. This indicates that profitability of the firm in later year is decreasing.
But for NEBL NPM is increasing from the year 2063/064 to year 2064/065 and then it starts
declining and again stats inclining from the year 2065/066. This indicates that profitability
of the firm is fluctuating during the years.
ROA for Nepal SBI Bank over the years is increasing except in the year 2066/067 but for
the earlier years ROA is increasing at an increasing rate. ROA is greater for later years
which indicate better profitability. Similarly in the case of NEBL, ROA is increasing after
the fiscal year 2065/066. However, ROA for later year is greater than that in the earlier
year. This shows that the firm is improving its productive use of assets in the later years. So
the firm is making a better portfolio of assets in order to increase its profitability.
Asset utilization ratio of Nepal SBI Bank is fluctuating over the years but the general
pattern of asset utilization is declining over the year. Asset utilization for later year is less
than in the earlier period. Whereas, asset utilization ratio of NEBL is increasing over the
years in an increasing rate. So the asset utilization of NEBL is better because utilization
ratio is increasing over the years in the general pattern.
The ROE is highest for Nepal SBI Bank in year 2064/065 and lowest in 2063/064. The
ROE of NSBI bank is increasing in the earlier year up to the year 2064/065 after then is
starts decline. But in the case of NEBL the ROE is higher in the year 2067/068 i.e. 30.15%
and lowest ROE is in the year 2065/2066 i.e. 23.48%. ROE is decreasing up to the year
2065/066 and then it starts to increase from the year 2065/2066 at higher rate and becomes
maximum in the final year.
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3.3 Recommendation
After the analysis of profitability of the NSBI Bank Limited and Nepal Everest Bank Limited,
some lacking and weakness have been found. So to improve them, recommendation is furnished
here as follows.
1. The firms profitability trend is declining in the year after 2064/065 as shown by NIMand NOM. The firm should plan about interest rates, amount of interest earning assets,
non-interest earning, assets and other assets to improve the profitability in the later year.
Since the firms operating ratio is increasing in recent years the firms have to make
effective policies to reduce operating expenses of Nepal SBI bank. But the profitability of
NEBL inclining in the year after 2064/065 as shown by NIM and NOM. The firm should
plan about interest rates, amount of interest earning assets, non-interest earning, assets
and other assets to enlarge the profitability in the later years.
2. Nepal SBI Bank is poor in utilizing its assets because it has very small ROA and AssetUtilization (AU) ratio. The ROA and AU both are decreasing in the recent years. So the
firms have to invest in such portfolio of assets so as to increase ROA and AU ratio of
firm. For NEBL the ROA and AU both are increasing in the recent years, but in the later
years ROA and AU are not increasing in appropriate rates. So the firms have to invest
more in such portfolio of assets so as to increase ROA and AU ratio for following years.
3. ROE of Nepal SBI bank is decreasing over the recent years which indicate that return toshareholders is decreasing. The wealth of shareholders is declining. The EPS is also
declining in the year 2067/068. This all show that firm is not able to provide sufficient
return to shareholders. So the firm should make plans and policies to maximize
shareholders wealth. Similarly. ROE is decreasing up to the year 2065/066 and then it
starts to increase from the year 2065/2066 at higher rate and becomes maximum in the
final year. This shows that the ROE of NEBL is satisfactory but the firm should make
plans and policies to maximize shareholders wealth in coming years.
4. The firms NMP are also not satisfactory. The firms should increase its revenue byextending services and also has to reduce costs for more profit.
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5. The EPS of the firm are decreased in the recent years which indicate only small amount isearned per share in recent years. So firms should make attempt to increase EPS and this
will ultimately results in to higher profitability.
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