CHAPTER I
INTRODUCTION
1.1
General Background
Nepal is one of the least developed
countries in the world with a per capita income of less than $220 per
annum. Rapid economic development is important for all countries of the
world and it is more important for the country like Nepal
The Nepalese financial system is
dominated by the banking system, where commercial banks are the largest and
important constitution of nation. Keeping in mind the objectives of economic
liberalization policy, which paved the way for the establishment of qualitative
banking services by allowing even the foreign banks to operate in Nepalese
money market. As a result fifteen commercial banks including nine joint venture
banks came into operation up to now. Such banks are providing different
services and facilities i.e. collect deposits from public, grant
loan to the investor who want to invest in business, industry and other
sector, overdraft, letter of credit, discounting bills, promissory notes,
selling of other shares, agency function and storage of valuable commodity,
etc. apart from this, joint venture banks are providing modern banking
facilities by introducing higher technologies and efficient methods in banking
business that has invited a new era of banking in Nepal.
1.2 Focus of the
study
Financial management is essential to
utilize and manage scarce financial resource efficiently. Nowadays different
tools and techniques are applied to evaluate the performance of business
organization and ratio analysis is one of them. Evaluation of performance is an
important activity, which helps to sustain the organization and its improvement
.The financial performance of Nepal SBI Bank Ltd. is evaluated in this study.
For such evaluation information are basically derived from the published
financial statement. The user of information from financial statement analysis
is decision makers who are concerned with evaluating the economic situation of
the firm and predicting its future course of action. So, performance analysis
has a crucial in making the best uses of financial resources and suggests
remedial measures to improve the performance.
1.3 Need and Importance of the Study
Every business firm performs
economic activities. These activities affect on the economic condition of state
and financial condition of the firm and this is to be kept under consideration
to form economic policy of the state. A sound financial performance is
important for the growth of business enterprises and financial institution. It
is necessary that financial management of an institution must be appropriate to
yield a fair rate of return on capital employed in them. Any mistake made in
financial management adversely affects the financial condition of an
institution in this regard; it is required to measure the financial performance
of the commercial banks from time to time.
Apart from this, the institution and
firms can allow the suggestion of this study to make their policy and strategy
more practical and scientific. This study also helps the shareholders or
investors management of the bank, financial agencies, etc. By providing
information about the financial condition of the bank.
1.4 Objective of the study
The main objective of this study is
to show the financial position of SBI bank ltd. This study helps to know
exactly the financial strength and weaknesses of the bank. Some of objective of
the study are the following:
·
To examine the overall performance
of the bank in terms of ratio analysis.
·
To examine the success /failure of
the bank in terms of investments and deposits.
·
To analysis the liquidity position
of the bank.
·
To provide suggestions for the
improvement of future performance of bank.
1.5 Limitation of the study
The fieldwork study has some limitations which are mentioned
below.
- ·
This study is mainly based on the
financial report i.e. secondary data.
- ·
This study covers only the period of
three years.
- ·
This study is not free from monetary
inflation.
- · This study does not consider the
factors that affect the company's financial positions such as technical
condition, social condition, political condition personal, advisement etc.
· Only limited financial tools and
technique are used for analysis, so this study may not be sufficient for debt analysis.
Chapter II
Review of the Literature
This chapter highlights about the
relevant literature to make the base of knowledge for the study.
The scholars in respect of financial performance have expressed different
visions.
2.1 Concept of Bank
Banks are among most important financial
institution in the economy as essential in thousand of local towns and cities.
In this context, there is much confusion about exactly what bank is. Certainly
bank must be identified by the functions they perform in the economy. Different
views were shared against bank concepts. In general, bank means financial
institution that accepts deposits in different accounts and loan of different
types.
The term bank was originated from
Italian word "Banco" which means bench. The term bank was first used
in Italy. In reality, the history of modern banking had started from "Bank
of England" established in 1694. Different economists have given different
definition of the bank.
According to Sayers," A bank is
an institution whose debts (bank deposits) are widely accepted the in
settlement of their peoples, debts to each other.
According to Chandler," A bank
is an establishment which makes individuals such advances of money as may be
required and safely made to which individual money when not required by them for
use."[2]
In the opinion of Horace," A
bank is manufacture of credit and machine for facilitating exchange."[3]
In the view of Crowther," the
bankers business is to take the debts of other people to offer his own in
exchange and thereby create money."[4]
Therefore summarizing the above,
banks are those financial institutions that offer the widest range of financial
services, especially credit, savings and payments services and perform widest
range of financial functions of any business firm in the economy.
2.2 Types of Banks
Today is the age of specialization.
The modern economy demands different types of financial services. A single
institution cannot fulfill all the services demanded by the customers.
Therefore, different types of banks also emerged in the banking industry
specializing in different functional areas. These different types of banks are:
1) 1)Commercial
bank
2) Central bank
3) Development bank
4) Agricultural bank
5) Saving banks
6) Rural development banks, etc.
2) Central bank
3) Development bank
4) Agricultural bank
5) Saving banks
6) Rural development banks, etc.
2.3 Concept of Commercial Ban
Commercial Bank is an institution,
which deals with money and credit .IT accepts deposits from public, makes the
funds available those who need them and helps in remittance of money from one
place to another. In fact, a modern commercial bank performs such a variety of
functions that it is difficult to give a precise and general definition of it.
According to American Institute of Banking," Commercial Bank is the
corporation which accepts demand deposits subject to check ad makes short-term
loans to business enterprises regardless of the scope of its other
sources."[5]
Commercial Bank Act,2031 B.S. of
Nepal has defined commercial bank as," An organization which exchanges
money, accepts deposits, grant loans and performs commercial banking functions
and which is not a bank meant for co-operative, agriculture, industries or for
such specific purpose."[6]
Banks are dealer in credit; they
specialize in the exchange of money for credit and credit for money. They
receive deposits; current, fixed, savings, call and short, that can be
withdrawn by cheque. They borrow in order to lend. They trade in loan able
capital; they borrow it from the depositors and lend it to borrowers. They
thus, coordinate the demand for and the supply of floating funds; they form an
integral of part of credit mechanism.
2.3.1 Functions of commercial bank
The American institute of banking
has laid down four functions of commercial banks as receiving and handling
deposit (deposit function)' handling of payments of money (payment function),
making loans and investment (loan function) and creation of money by extending
credit (money function).
According to R.S. Sayers,
"ordinary banking business consists of changing cash from bank deposits
and bank deposits for cash; transferring bank deposits from one person or
corporation to another, giving bank deposits in exchange for bills of exchange
, government bonds, the secured promises of business to repay and so
forth."
Following are the basic functions
performed by a modern commercial bank:
1.Acceptance of deposits:
The bank has deposits from the
public in the form of demand deposits, saving deposits and fixed or term
deposits. Demand deposits are on current account and are withdraw-able on the
demand by cheque. Usually no interest is allowed on such accounts; some banks
even charge commission for rendering such service of safekeeping of the
depositor's funds and keeping his accounts. Saving deposits are designed to
mobilize the scattered small saving of the community. They are subject to
certain restrictions regarding the number of withdrawals or the total amount
withdrawn per period. Fixed or term deposit are on deposit account, i.e. for a
definite period whereby the customer gives notice gives notice of indented
withdrawal and is allowed interest according to the length of notice given.
They are repayable only on the period for which the deposit has been made and
are allowed the highest rate of interest.
2. The granting of loans to business
borrowers and to others:
Having accumulated deposits, the
commercial bank put them to use through loans to persons and business having
immediate use for them. The result of the polling of funds by the commercial
banks is a more utilization of funds. It does so, in order to pay interest on deposits
and meet its own establishment charges and pay dividends to its shareholders.
All those come from the profit it
earns by charging more on its loans and advances than it has to pay on
deposits, the banker's refusal to finance on ill conceived venture, preventing
is them from engaging in an activity that will results in loss to them.
Furthermore, the careful apportionment of loan funds to those businesses with
the best apparent chances of success makes possible the development of the
nation's resources to the greatest possible advantage.
3. Bills
Discounting
Discounting a bill or other
commercial paper means its purchase at its present worth, calculated at the
current market rate of interest. Bills are a handy asset for a bank to holds as
they can be easily resold or automatically turn into cash on maturity. They are
so easily re discounted or sold that they offer an ideal means of utilizing a
banker' surplus of liquid funds. On discounting, the seller of the bill may
have its price paid in cash or his deposit may be increased by the amount of
the against which he can draw cheque.
4. Purchase and sale of
foreign exchange:
The bank also carries on the business of buying and selling
foreign currencies.
5. Agency Functions of the Bank:
The various agency services rendered by the bank are as
follows.
· Transfer
of funds:
The bank helps its customers in
transferring funds from one place to another through an instrument known as the
'bank draft'.
·
Collecting customer's funds:
The bank collects the funds of its
customers from other banks and credits them to their accounts.
·
Purchase and sale of shares and
securities for the customers:
The bank buys and sells stocks and
shares of private company as well as government securities on behalf of its
customers.
· Collecting
dividends on the shares of customers :
The bank collects dividends interest
on the shares and debentures of the customers and credits them to their
account.
2.4 An introduction of Nepal SBI
Bank Ltd.
Nepal SBI Bank ltd. Is the fifth
joint venture bank in Nepal. It was established on 24th jestha
2050 B.S. under Nepal commercial Bank Act2031. Nepal SBI Bank is established
with the assistance of state bank of India. It was established with the
authorized capital of RS.24'00,00,000 (24,00,000 shares @RS.100) issued
capital of RS.120,0,0,0,000 (1200000 shares@RS100-) and paid up capital of R s
.11,99,46,000(11,99,460 shares @Rs.100)
2.5 Financial
Statement
The basis for financial planning,
analysis and decision making is the financial information. Financial
information is needed to predict, compare and evaluate the firm's earning
ability. It is also required to aid in economic decision making – investment
and financing decision making. The financial information of an enterprises is
contained in the financial statement or accounting reports.
Financial information contains
summarized information of the firm's financial affairs, organized
systematically. They are the means to present the firms financial situation to
the users. Preparation of the financial statements the responsibility of the
top management. As investors and financial analyst to examine the firm's
performance in order to make investment decision use these statements, they
should be prepared carefully and contained as much information as possible.
The basis for financial planning,
analysis and decision making is the financial information. Financial
information is needed to predict, compare and evaluate the firm's earning
ability. It is also required to aid in economic decision making – investment
and financing decision making. The financial information of an enterprises is contained
in the financial statement or accounting reports.
Financial information contains
summarized information of the firm's financial affairs, organized
systematically. They are the means to present the firms financial situation to
the users. Preparation of the financial statements the responsibility of the
top management. As investors and financial analyst to examine the firm's
performance in order to make investment decision use these statements, they
should be prepared carefully and contained as much information as possible.
Two basic financial statements
prepared for the purpose of external reporting to owners, investors and
creditors are; 1. Balance sheet or statement of financial position and 2.Profit
and loss account or income statement. These statements are contained in a
company's annual report. For internal management purpose, i.e. planning and
controlling, much more information than that contained in the published
financial statements are needed. Therefore, the financial accounting
information is prepared in different statements and reports in such a way as to
serve the internal needs of the management
2.6 Financial Analyses
Profit is essential for an
enterprise for its survival and growth and to maintain capital adequacy through
profit retention. Profit is one of indication of sound business management i.e.
cost control, credit risk management and general efficiency of operation.
Profit is important for any business concern including joint venture banks but
the sole objective of such institution is not profit.
Financial institution must maintain
adequate liquidity to meet a wide range of contingencies. If financial
institution fails to maintain adequate liquidity, it faces many difficulties.
Excess liquidity is the loss income. A bank must maintain adequate cash and
balance to meet day to day operation as well as for remote contingencies. It
measures the extent to which it can oblige its short-term obligation. Investors
are more concerned with a firm's long term financial strength. Which evaluating
the financial performance, it is more concerned with resource mobilization.
Failure to collect enough deposit exhibit inefficiency
Of the bank.
A bank communicates financial
information to the public through financial statements and reports. The
financial statement contains summarized information of the bank's financial
affairs. The two basic financial statements of the bank are balance sheet and
profit and loss accounts. Investors and financial analyst examine the banks
performance to make investment decision by analyzing the financial statement of
the bank. Thus financial analysis is the process of analyzing the financial
statement of the bank. Thus, financial analysis is the process of identifying
the financial strength and weakness judging profitability and overall
efficiency of a business. Analysis of financial statement, therefore, refers to
such treatment of the information contained in the income statement and balance
sheet so as to provide full diagnosis of the profitability and financial
soundness of the business.
Analysis of financial statement is
the purposeful and systematic presentation of information in the financial
statement by developing relationship between one fact with other in order to
measure the profitability, solvency, liquidity, operational efficiency the
growth potential of the business. Thus ratio is one of the widely used
financial tools that have been used to analyses the balance sheet and income
statement. The income statement or profit and loss account reflects the
performance of the bank over a period of time. In other words it shows the
result of business activities or operating during a certain period usually a
year. It represents the summary of income obtained and the cost incurred by the
bank during a year. The analysis of financial statements is an important aid to
financial analysis.
2.6.1 Users of financial analysis
Financial analysis can be undertaken
by management of the firm, or by parties out side the firm, viz. owners,
creditors, investors and others the natures of analysis will differ depending
on the purpose of analyst. The main users of financial analysis are;
Ø Trade
creditors are interested in firm's ability to meet their claims over
every short period of time. Their analysis will, therefore, confined to the
evaluation of the firm's liquidity position.
Ø Suppliers
of long term, debt are concerned with the firm's long term solvency
and survival. They analyses the firm's profitability overtime, its ability to
generate cash to be able to pay interest and repay principal and the
relationship between various sources of funds. Long term creditors do analyses
the historical financial statement, but they place more emphasis on the firm's
projected financial statements to make analysis about its future solvency and
profitability.
Ø Investors, who
have invested their money in the firm's shares, are most concerned about the
firm's earnings. As such, they concentrate on the analysis of the firm's
present and future profitability. They are also interested in the firm's
financial structure to the extent it influences the firm's earnings ability and
risk.
Ø Management of
the firm would be interested in every aspect of the financial analysis. It is
there overall responsibility to see that the resources of the firm are used
most effectively and efficiently, and that the firm's financial condition is
sound.
2.7 Ratio Analysis;
Of the various method of financial
statement analysis, ratio analysis is the most widely used method. Ratio
analysis is a major device of measuring the financial activities of
enterprises. A ratio analysis is a significant way by which financial stability
of a business concern can be judged. It also helps to draw future plans and
forecasting. The processes of determine and interpreting numerical relationship
are based on financial statement. The relationship between two accounting
figures, expressed mathematically is known as financial ratio. This
relationship can be expressed as percentage or as quotient. In other words,
ratio may be expressed in percentage, time or as proportion. Thus, it is very
valuable tool of management control. Ratio analysis is widely used tool for
financial analysis.
"Ratio analysis is defined as
the systematic use of ratio to interpreter the financial statements so that the
strengths and weaknesses of affirm as well as its historical performance and
current financial condition can be determined. The term ratio refers to the
numerical or quantities relationship between two variables".[7]
A ratio is defined as, "The
indicated quotient of two mathematical expressions" and as "the
relationship between two or more things".[8]
In financial, analysis, the
relationship between two accounting figures, expressed mathematically, is known
as financial ratio. Ratio helps to summarize the large quantities of financial
data and to make qualitative judgment about the bank's financial performance.
From the view point of this study,
ratios have been classified in to four groups;
- ·
Liquidity ratio
- ·
Leverage ratio
- ·
Activity ratio
- ·
Profitability ratio
Liquidity Ratio
I.
Liq
It is extremely essential for a firm
to be able to meet its obligations as they become due. Liquidity ratios measure
the ability to meet its current obligation.
A firm should ensure that it does
not suffer from lack of liquidity, and also that it does not have excess
liquidity. The failure of a company to meet its obligations due to lack of
sufficient liquidity, liquidity, will result in poor creditworthiness, loss of
creditor' confidence, or even in legal tangles resulting in the closure of the
company. A very high degree of liquidity is also bad, idle assets earn nothing.
The firm's fund will be necessarily tied up in current assets. Therefore, it is
necessary to strike a proper balance between high liquidity and lack of
liquidity.
II. Leverage
ratio:
The short-term creditors are
more concerned with the firm's current debt paying ability. On the other hand,
long-term creditors are more concerned with the firm's long-term financial
strength. In fact, a firm should have a strong short- as well as long-term
financial position. To judge the long-term financial position of the firm,
financial leverage, or capital structure, ratios are calculated. These ratios
indicate mix of funds provided by owners and lenders. As a general rule, there
should be an appropriate mix of debt and owners' in financing the firm's
assets.
III. Profitability ratio:
A company should earn to profits and
grow over a long period of time. Profit are essential, but it would be wrong to
assume that every action initiated by management of a company should be aimed
at maximizing profits, irrespective of social consequences. Profit is
difference between revenues and expense over a period of time. Profit is the
ultimate 'output' of a company, and it will have no future if it fails to make
sufficient profits. Therefore, the financial manager should continuously
evaluate the efficiency to measure the operating efficiency of the company.
Besides management of the company, creditors and owners are also interested in
the profitability of the firm. Creditors want to get interest and repayment of
prepayment of principal regularly. Owners want to get a required rate of return
on their investment. This is possible only when the company earns enough profits.
2.7.1 Utility of Ratio Analysis
The ratio is analysis is most
powerful tool of financial analysis. Many diverse groups of people are
interested in analyzing the financial information to indicate the operating and
financial efficiency, and the firm. These people use ratios to determine those
financial characteristics of the firm in which they are interested.
Performance analysis: A
short-term creditor will be interested in the current financial position of the
firm, while a long-term creditor will pay more attention to the solvency of the
firm. The long-term creditor will also be interested in the profitability of
the firm. The equity shareholders are generally concerned with their return and
may bother about the firm's financial condition only when their
earning is depressed. If a short- term creditor analyses only the current
position and finds it satisfactory, he/she cannot be certain about the safety
of his her claim if the firm's long term financials position or
profitability is unfavorable. The satisfactory current position would become
adverse in future if the current recourses are consumed by the unfavorable long
term financial condition. Similarly, the good long term is no guarantee for the
long term creditor's claim if the current position or the profitability of the
firm is 'bad'.
Credit analysis; in credit
analysis, the analyst will usually select a few important ratios. He she may
use the current ratio or quick – assets ratio to judge the firms liquidity or
debt paying ability; debt –equity ratio is to determine the stake of owners in
the business and the firm's capacity to determine the firm's earning prospects.
If the profitability is high, the current ratio is high, the current ratio is
low and the debt equity ratio is high, the extinction of credit may be approved
to the firm, because a profitable company will grow and will have improvement
in its current ratio and other ratio.
Security analysis: the ratio
analysis is also useful in security analysis. The major focus in
security analysis is on the long term profitability. Profitability is depend on
a number of factors and, therefore, the security analyst also analysis other
ratios. He would certainly be concerned with the efficiency with which the firm
utilizes its assets and the financial risk to which the firm is exposed.
Therefore, besides analyzing profitability ratio meticulously, he will also
analysis activity ratio and leverage ratios. The detailed analysis
of the earning power is important for security analysis.
Competitive analysis: The of a
firm by themselves do not revival anything. For a meaningful interpretation,
the ratio of a firm should be compared with the ratio of similar firm and
industry. This comparison will reveal whether the firm is significantly out of
line with its competitors. If it is significantly out of line, the firm should
undertake a detailed analysis spot out troubled areas.
2.7.1 Limitations of ratio Analysis
The ratio analysis is a widely used
techniques to evaluate the financial position and performance of business.
But there are certain problems in using ratios. The analyst should be aware of
these problems. The following are some of the limitations of the ratio
analysis:
· It is difficult to decide on the
proper basis of comparison.
· The comparison is rendered difficult because of differences in situation of two companies or of one
company over years.
· The price level changes make the
interpretation of ratio invalid.
· The difference in definition of item
in balance sheet and the profit and loss statement make the interpretation of
ratios more difficult.
· The ratio calculated at a point if
time are less informative and defectives they suffer from short term changes.
· The ratio are generally calculated
from past financial statements and thus are no indicator of future.
CHAPTER - III
Research Methodology
3.1. INTRODUCTION
Research Methodology may be defined
as a systematic that i.e. adopted by the researcher in studying a problem with
certain objective in view. In other words, research methodology describes the
methods and process applied in the entire aspect of the study.
The basic objective of the study is
to evaluate the overall performance of Nepal SBI bank Ltd. and to suggest for
its improvement of its performance. Data of the fiscal year 061/062 to 063/064
has been presented and analyzed through appropriate financial ratios.
3.2. Nature and sources of
Data:
The study conducted on the basis of
secondary data. It is collected from Nepal SBI Bank Ltd. The published
financial data are mostly used in the study to analyze the overall performance
of Nepal SBI Bank Ltd. from 061/062 to 063/064.
3.3.Methods of data collection:
Collection of data means the methods
that are to be used for getting the necessary information from the units under
investigation. Collection of relevant data is essential for correct and
important decisions.
Generally, data can be obtained from
primary and secondary sources. The data, which are obtained through a study
under proper investigation, are known as primary data. The primary data are
original in character and obtained by personal interviews, indirect oral
interviews and information from correspondent and so on. The data, which are
obtained from some published or unpublished source, are known as secondary
data.
In course of data collection, the
narrator collected primary data from the manager, employees of the bank, the
process employed to collect such was questionnaires to the employee. The
secondary data were collected from different booklist, fusibilities of bank.
3.4. Procedure of the Fieldwork
Ø Selection
of the topic in which the report is to be prepared.
Ø Selection
of the firm in which analysis is to be done.
Ø Collection
of data like annual reports income statements and various books of different
writers.
3.5. Tools and Techniques of
Analysis
Some tools and techniques have been
followed to analyze and evaluate the information of financial statement, viz.
Balance Sheet and P/L A/c.
A. Liquidity ratio
i. Current ratio
ii. Quick ratio
B. Leverage ratio
i. Debt ratio
ii. Debt equity ratio
iii. Interest coverage ratio
C. Profitability
ratio
- · Return on assets
- · Return on eqity
- · Earnings per share
- · Price earnings ratio
- · Earning yield
- · Dividend yield
- · Dividend per share
- · Dividend payout ratio
CHAPTER – IV
Presentation
and Analysis of Data
In this chapter, the annual report
of respective bank has been collected for analyzing the financial tools i.e.
ratio analysis.
4.1.1. Liquidity ratio
The liquidity measures the ability
of the firm to meet its current obligations. Liquidity by establishing a
relationship between cash and other current assets to current obligation provide
a quick measure of liquidity. This ratio has been analyzed with the help of
current ratio and super quick ratio.
a. Current
ratio:
This is the ratio of current assets
to current liabilities. "This is used to test the solvency as well as to
determine short term financial strength of the business organization. This
ratio is the indicator of the relationship between total of current assets and
total of current liabilities."
Table -1
Year
|
Current Assets
|
Current Liabilities
|
Ratio
|
2062
|
9668416579
|
8804379328
|
1.098:1
|
2063
|
12716170029
|
11241036746
|
1.131:1
|
2064
|
13592593847
|
11722544489
|
1.1595:1
|
Source: Appendix -1
The standard for this ratio is 2:1. The above table shows that the current
ratios of the bank are below standard in each f/y. It shows that the weakness
of the bank in paying the current liabilities.
b. Quick
ratio:
It is also known as liquid or acid
test ratio. It established a relationship between quick asset & current
liabilities.
Table -2
Year
|
Quick Assets
|
Current Liabilities
|
Ratio
|
2062
|
9668416579
|
8804379328
|
1.098:1
|
2063
|
12716170029
|
11241036746
|
1.131:1
|
2064
|
13592593847
|
11722544489
|
1.16:7
|
Source: Appendix -1
The standard deviation for this ratio is 1:1. The above table shows that all
the banks quick ratio higher than 1 during the fiscal year 061/62 to 063/64, so
it is considered satisfactory.
4.1.2.Leverage ratio
a. Debt
ratio:
It is the ratio of total debt to total
asset. It measures the percentage of the firms asset financed by creditors.
Table -3
Year
|
Total Debt
|
Total Assets
|
Ratio
|
2062
|
9274008191
|
9963021251
|
0.93 times
|
2063
|
12053465396
|
13035839124
|
0.848 times
|
2064
|
12737909708
|
13901200559
|
0.916 times
|
Source: Appendix -1
Highest ratio is not preferable for
a company. The table shows that ratio increased in f/y 2062.
b. Debt equity
ratio:
It measures the relationship between
debt capital and equity capital. Debt equity ratio can be expressed in
different ways; one of the most popular method is related to debt to the
shareholder capital.
Table -4
Year
|
Total Debt
|
Shareholder fund
|
Ratio
|
2062
|
9274008191
|
689013060
|
13.46 times
|
2063
|
12053465396
|
982373728
|
11.25 times
|
2064
|
12737909708
|
1163290941
|
10.95 times
|
Source: Appendix -1
The book can decrease Rs.13.46 debt
by decreasing Rs.1 equity and so on.
c. Interest coverage
ratio:
It measures the ability of the firm
to meet its annual interest payments. It is calculated by dividing the EBIT by
the interest.
Table -5
Year
|
EBIT
|
Interest
|
Ratio
|
2062
|
84688216
|
258430003
|
0.32 times
|
2063
|
168488987
|
334770096
|
0.50 times
|
2064
|
300790495
|
412261744
|
0.73 times
|
Source: Appendix -1
The interest coverage ratio shows increasing ratio from f/y 062 to 064. Highest
ratio shows that the firm can pay the interest easily. So the increasing ratio
in each f/y is satisfactory.
4.1.3.Profitability ratio
a. Return
on Assets
It shows the overall efficiency of
the bank in generating profit with its available assets.
Table -6
Year
|
Net Profit
|
Total Assets
|
Ratio
|
2062
|
57386634
|
9963021251
|
0.576%
|
2063
|
117001973
|
13035839124
|
0.898%
|
2064
|
254908844
|
13901200559
|
0.184%
|
Source: Appendix -1
Higher ratio indicated the better
utilization of its assets. The table focuses the increasing ROA. It is
considered good to have increasing ROA.
b. Return on Equity:
It is calculated by dividing NPAT by
shareholder equity.
Table -7
Year
|
Net Profit
|
Shareholders equity
|
Ratio
|
2062
|
57386634
|
689013060
|
8.33%
|
2063
|
117001973
|
982373728
|
11.91%
|
2064
|
254908844
|
1163290941
|
32.913%
|
Source: Appendix -1
Here the table show increasing ROSE
in each f/y. Higher ROSE is desirable for the company, which indicate that the
company is able to paid dividend to its shareholders.
c. Earning per share:
It measures the profit available to the equity holder on per share basis.
Table -8
Year
|
Net Profit
|
No. of equity
|
Ratio
|
2062
|
57386634
|
4318656
|
13.29
|
2063
|
117001973
|
642361
|
18.27
|
2064
|
254908844
|
6477984
|
39.35
|
Source: Appendix -1& 2
The table shows that EPS has increased
in each f/y which is positive signal for the company.
d. Price Earnings
Ratio:
The ratio of the market price per
share to earnings per share. It shows Rs. amounts the investors will pay for
Rs.1 of current earning.
Table -9
Year
|
MPS (Rs.)
|
EPS (Rs.)
|
Ratio
|
2062
|
335
|
13.29
|
25.20 times
|
2063
|
612
|
18.27
|
33.5 times
|
2064
|
1176
|
39.35
|
29.89 times
|
Source: Appendix -1& 2
This table indicates the increasing trend of
P/E ratio over the year 2062 to 2063 and decreasing trend from the year 2063 to
2064.
e. Earning
Yield Ratio:
It shows the relation between the
market value per share and earning per share. It is closely related to the
earning per share. EPS is expressed in terms of market value per share is known
as earning yield ratio.
Table -10
Year
|
EPS (Rs.)
|
MPS (Rs.)
|
Ratio
|
2062
|
13.29
|
335
|
3.96%
|
2063
|
18.27
|
612
|
2.985%
|
2064
|
39.35
|
1176
|
3.35%
|
Source: Appendix -1& 2
The earning yield increases from
2063 to 2064, which is positive for the company that is why it is satisfactory.
f. Dividend
yield:
It defines the relationship between
dividend per share and market value per share it is very useful for the
investors.
Table -11
Year
|
DPS
|
MPS
|
Yield
|
2062
|
-
|
335
|
-
|
2063
|
5
|
612
|
0.817%
|
2064
|
12.59
|
1176
|
1.07%
|
Source: Appendix -1
The dividend yield in 2062 has no
yield but in 2063 and 2064 has increasing trend of dividend yield.
g. Dividend
per Share:
The whole amount of earning may or
may not be distributed to shareholders by a company. How much per share the
dividend is distributed to common shareholder can be known from this ratio. The
dividend distributed among the common shareholder on a per share basis can be determined
by this ratio.
Table -12
Year
|
Dividend
|
No. of share
|
DPS
|
2062
|
-
|
4318656
|
-
|
2063
|
32011805
|
642361
|
5
|
2064
|
81554021
|
6477984
|
47.59
|
Source: Appendix -1
The dividend per share has an increasing trend from the year 2063 to 2064.
h. Dividend
payout ratio:
The purpose for calculating this
ratio is to know the portion of dividend distributed out of total earning. This
ratio shows the relation between the returns belonging to equity shareholders
and the dividend paid to them.
Table -13
Year
|
DPS
|
EPS
|
Ratio
|
2062
|
-
|
13.29
|
-
|
2063
|
5
|
18.27
|
27.36%
|
2064
|
12.59
|
39.35
|
32%
|
Source: Appendix -1
The dividend payout ratio from the
year 2063 to 2064 has an increasing trend.
CHAPTER - V
Summary, Conclusion & Recommendation
5.1.
Summary
In this chapter, the evaluation of
SBI Bank is done with the help of answers derived from available data. In fact
this chapter is based on some conclusion and suggestion attached with the
answer.
Table-14: Comparative Ratios
Ratio
|
061/62
|
062/63
|
063/64
|
Mean
|
1.
Liquidity Ratio
|
||||
a) Current Ratio
|
1.098:2
|
1.1316:1
|
1.16:1
|
1.13:1
|
b) Quick Ratio
|
1.096:1
|
1.131:1
|
1.16:1
|
1.31:1
|
2.
Leverage Ratio
|
||||
a) Debt equity ratio
|
13.46 times
|
11.25 times
|
10.95 times
|
11.87 times
|
b) Debt ratio (time)
|
0.93 times
|
0.848 times
|
0.916 times
|
0.898times
|
c) Interest coverage ratio
|
0.32 times
|
0.50 times
|
0.73 times
|
0.512 times
|
3.
Profitability Ratio
|
||||
a) ROSA (%)
|
0.576%
|
0.898%
|
0.184%
|
0.553%
|
b) ROSE (%)
|
8.33%
|
11.91%
|
21.913%
|
14.05%
|
c) EPS (Rs.)
|
Rs.13.29
|
Rs.18.27
|
Rs.39.35
|
Rs.23.64
|
d) P/E Ratio (times)
|
25.20
|
33.5
|
29.09
|
29.263
|
e) Earning Yield (%)
|
3.96%
|
2.985%
|
3.35%
|
3.432%
|
f) Dividend Yield (%)
|
-
|
0.817%
|
1.07%
|
0.629%
|
g) DPS (Rs.)
|
-
|
Rs.5
|
Rs.12.59
|
Rs.5.86
|
h) DPR (%)
|
-
|
27.36%
|
32%
|
18.456%
|
Source: Appendix -1 & 2
The average current ratio is 1.13:1,
which is less than standard, so their current ratio is not satisfactory.
Similarly the average quick ratio is also less than standard. So quick ratio is
also not satisfactory. The average debt equity ratio of SBI Bank is 11.89 times
and debt ratio is 0.898 times. Similarly the average interest coverage ratio is
0.512 times. The average ROA and ROSE of the SBI Bank is 0.555% and 14.051%
respectively. The average EPS is Rs/23.64. Similarly P/E ratio is 29.264 times
and earning yield is 3.432%. The average dividend yield, DPS, DPR are Rs.5.86
and 18.456% and 3.432% respectively.
5.2.
Conclusion
The SBI Bank was established on 24th Jestha,
2050 B.S. and is now the prominent commercial bank in Nepal. It has been
providing the services to businessman, factory and general people, also by
accepting deposits. The important role played by the bank in our country is
very significant. The bank is providing high quality of services.
Most of the ratio calculated above
seems to be much volatile. Three years analysis of the financial statement
shows the current ratio increase in last two fiscal years and remains constant.
It shows the negative sign for the bank performance in the future. Similar is
in quick ratio.
Leverage ratio measures the ability
of the bank to pay the long-term liabilities. So for this debt ratio, debt
equity ratio and interest coverage ratio is calculated. Debt ratio increases in
third f/y after being decreased in 2nd f/y debt equity ratio
decreases in second f/y and third f/y also. This shows that the bank has taken
lower financial risk in second f/y as well as in third year.
Profitability ratio measures the
overall efficiency of the firm. ROA increases in each f/y. ROSE also increases
in each f/y similarly EPS also increases. This shows the satisfactory result of
bank. The P/E ratio decreases in second f/y as compared to first f/y but
decreases in third f/y as compared in second f/y. Earning yield increases in
third year but decreases in 2nd year. This is positive result
of the bank. The DPS in 2nd f/y is Rs.5 and Rs.12.59 in 3rd year.
The DPR in third f/y is increased from first two years.
5.3. Recommendation
Since the bank has current ratio
below standard it should pay attention on the utilization of current liabilities.
Since the bank has low ROA it should mobilize its funds in more productive
sectors to increase profit and should take care in utilization of its assets.
They should maintain its present
management sound and extend more facility to its customers to increase its
transaction. They should try to keep proper liquidity level in all year to
increase current assets.
[1] 1sayers, R.S. MODERN Banking, Oxford Clearendo
press, India, 1967
[2] Chandler, L.V. The economics of money and
banking 5th edition, University of Chicago press
1985
[3] Horace White in money and Banking, Pg. 109
[4] Crowther Geoffery, An Outline of Money, revised
Edition, 1989.
[5] American Institute of Bankings,"Principle of
Banking Operation" USA, 1972, p. 345
[6] Commercial Bank Act, 2021 B.S.
[7] M. Y. khan and P.K. jain: 1988
[8] Webster: 1975 p.
958
