A Case Study OF Financial PERformance
of
Kumari Bank Limited
Damauli Branch
Submitted
by:
T.
U. Registered No.: ………………
Symbol
No. :
A Field Work Report
Submitted to:
Shree Chij Kumar-Bishnu Kumari Campus
Faculty
of Management
Tribhuvan University
In
partial fulfillment of the requirement for the degree of
Bachelor
of Business Studies
Tanahun
May, 2015
Faculty of Management
Tribhuvan University
Recommendation
This is to certify that the fieldwork
assignment report.
Submitted
by:
Deepak Bdr Kumal
T.
U. Registered No.: ………………..
Symbol
No. :
Entitled
A case Study OF Financial Performance of
Kumari Bank Ltd
(Damauli
branch)
has been prepared as approved by this
department.
This fieldwork assignment report is
forwarded for examination.
………………….. …………….………………..
Supervisor (Campus
Chief)
Shree Chij Kumar-Bishnu Kumari Campus
Piple,
Tanahun
Date:
May, 2015
Acknowledgement
I am very much grateful to the
Tribhuvan University authorities to include this Field work Programme in the
syllabus of B.B.S. 3rd year, which, I think is very much helpful in
development practical knowledge of the students.
I am, of course deeply indebted to our
teacher Umesh paudel instructor to this assignment of Shree Chij Kumar-Bishnu
Kumari Campus for providing necessary guidance and instructions in writing of
this report.
I would like to express may heartfelt
thanks to all the staffs of Kumari Bank Ltd. Especially to the honorable
Manager for providing necessary data, documents and information.
Lastly, my extend sincere thanks
goes to my friend Mr. Mahesh Sharma for computer typing and printing of this
report.
Thank you,
…..………………………..
(Deepak Bdr Kumal)
Date : May, 2015 Shree
Chij Kumar-Bishnu Kumari Campus
Symbol
No.
BBS
3rd Year
 |
Table of Contents
Page No.
Recommendation
Acknowledgement
Chapter-I : Introduction 1-11
|
List of Tables
Page No.
|
|||
|
|||
Chapter-I
Introduction
1.1 Background of the
Project
The
circular flow of money in a modern economy is maintained smoothly by the national
financial machine having now main wheels.
i) Money Market :
Mainly for short-term Finance to
provide working capital to industry and commerce; and
ii) Capital Market :
Primary for long-term finance to
provide block or fixed capital to business. These two markets work together and
are closely inter dependent. In fact, money market and capital market are the
components of one market called market of credit.
The growth of industries and planned
industrialization depends upon the development of both capital market which
satisfies long-term finance and money market, which fulfills short-term
finance. Banks provide both short-term finance as well a long term finance. The
development of banking system is a must for the overal development of the economy
of country. Banking system can be considered as the life blood of the economy.
In short banks are extremely necessary for the healthy and prompt progress of
country, its citizens and the societies it has. Banks create and mobilized the
capital, render several financial service that help boost the domestic and
international trade. Banks exercise considerable influence on the level of
economic activity through their ability to create money in the economy.
Banking
system is necessary to offer institutional service of promotion undertaking,
finance & investment for the economy utility functions performed by banks
of great economic significance for the
economy which can influence the course and direction of economic
activity within the economy. The pool together the saving of he community and
arrange of their productive use by providing short as well as long term loans
in different forms necessary for the trade and commerce. They discharge various
functions on behalf of their customers and in turn they paid for services.
Modern commercial banks perform
various functions like the payment of subscriptions, insurance premium, rent
etc. and collections of cheques, bills, salaries, pensions, dividends, interest
etc. on behalf of their customers by charging certain amount of commission for
the services. In addition, they purchase and discount bill of exchange
promissory notes and exchange foreign currency. Further more, commercial banks
also arrange to remit money from a place to another at very low fees by means
of cheques, drafts, SWIFT, etc. They buy and sell shares and securities on
behalf of the customers act as the custodian of the valuable such as jewellery,
documents of title to goods, securities etc. belongings to the customers.
1.2 Introduction to Kumari Bank Limited
Kumari
Bank Limited is a one of the Commercial ban in Nepal established under the
Commercial Bank Act 2031. This bank is established as limited company. So, the
liability of the Shareholders of this bank will be limited up to value of Share
of the bank.
The
head office of Kumari Bank Limited is situated in Putalisada, Kathmandu. This
bank was established in Mangsir 24, 2056 B.S. and started its service on 2057
B.S. Chaitra 17. This bank claimed to give modern, standard banking service to
the customers.
This
bank has branches in Biratnagar, Birgunj, Pokhara, Dharan & New Road,
Kathmandu. At the initial stage of the stage of the bank's establishment, it
was started with 35,00,000. Later on, in the year 2060/2061 B.S. it raised its
capital from 35,00,000 to 5,00,000 shares @ Rs. 100 each by selling 1,50,000
additional shares to the general public.
From
the very beginning of its establishment the bank is providing good service to
the general public. Up to now the bank has attempted 5 annual general meeting.
From
the year review, it is seen that the bank has achieved tremendous growth and
success in all areas of it's operations due to the patronage, trust and
confidences of its customers.
The
bank has continued to remain committed to maximize the return of the
shareholders investment in the bank have been pursuing actions and strategies
for steady growth and increase return while closely monitoring the quality of
assets.
The
bank is also contributing for the development of country from it side by
investing it's fund to the various sectors related to investment.
1.3 Statement of the Problem
A
sound banking system with wide spread branch throughout the country with
varieties of banking service to fulfills commerce, trade industry and
agriculture needs of the country is of crucial importance for Nepal. It can be
visualized that the banking development in Nepal is in its infants stage.
In
Nepal, private commercial banks have shown a good financial performance, people
believe that the productivity and profitability position of commercial banks
are strong. In these circumstances, it is highly useful to make the study on
Kumari Bank Ltd. This study enables us to see clear picture of the status of
the bank.
The
real evaluation has not been made to judge the performance of Kumar Bank Ltd.
Its profitability position and stock prices are generally considered to the
yard sticks of its better performance but one can raise the question whether it
is enough to reflect the performance of Kumari Bank Limited.
The
main problematic of the study is to inquire into the financial performance of
the Kumari Bank Ltd. This study has aimed to find out to the following
questions:
(a) Kumari Bank Limited is considered to be
operationally efficient. But how far it is efficient ?
(b) What is the financial performance of
Kumari Bank Limited ?
(c) Do Kumari Bank Limited utilize its
assets efficiently ?
(d) Does the overall financial statement
analyze the financial position indicating any special strength and weakness of
the Bank ?
(e) Are
they maintaining sufficient liquidity position ?
In
this context, the main purpose of the study is analyzing the financial
performance of the Kumari Bank Limited in terms of profitability, liquidity,
turnover, and efficiency in operation as well as other related dimensions.
1.4 Objectives of the Study
The
core objective of the study is to analyze the financial performance of Kumari
Bank Ltd. The specific objectives of this research study are as follows:
(a) To evaluate the financial performance of
Kumari Bank Limited
(b) To identify the profitability position of
the bank.
(c) To identify the liquidity turnover
efficiency of assets management.
1.5. Research Methodology/Review of Related Study
Research
methodology refers to the various segmental steps along with the rationale of
each step to be adopted by a researcher in studying a problem with certain
objectives in view. In other words research methodology describes the methods
and process applied in the entire aspects of the study.
The
basic objectives of this study is to analyze the financial performance of Kumari
Bank Limited. An appropriate research methodology has to be followed to achieve
the desired objectives of the study. It would be appropriate to mention here
that research study is not meaningful to any unless they are sequential in
order which will be determined by the particular problem at hand. This project
focuses and deals with the following parts of methodology.
1. Data
collection
2 Data
analysis
1. Data Collection
The
annual report of Kumar Bank Limited was obtained from the Bank itself.
Moreover, monthly and economic bulletin banking and financial statistics,
economic report etc. have been collected. The data collection of primary and
secondary sources.
2. Data Analysis
The
following tools are used to analyze the data presented in the study.
(i) Ratio
Analysis
A ratio is
simply one number expressed in terms of another and on such it express the
quantitative relationship between any two numbers. Ratio can be expressed in
terms of percentage, proportion and as a coefficient.
(ii) Liquidity
Ratio
Liquidity ratios are
used measure a firm's ability to meet short-terms obligations. They compare
short terms obligations to short-term (current) resources available to meet
these obligations. From these ratios, much insight can be obtained into the
present cash solvency of the firm and the firm's ability to remain solvent in
the event of the adversity.
The
following ratios are evaluated under liquidity ratio:
¨
Current
Ratio
¨
Cash
& Bank balance to Current deposit ratio
¨
Cash
& Bank balance to Current asset ratio
Current
Ratio
It
measures the short-term solvency position of firm by the current assets. It is
derived by dividing current assets by current liabilities as follows:
Current Ratio =
Current
assets are those assets that can be converted into cash within a year, such as
cash & Bank balance, Investment, Debtors, Inventories, Prepaid expenses,
Money at call and short notice, Overdrafts etc.
Higher
current ratio indicates better liquidity position and 2:1 or more is considered
satisfactory. But all times this standard cannot be followed blindly, it
depends upon quality of assets.
Cash
and Bank balance to Current Deposit Ratio
This
ratio measures the ability of bank's current
assets to fulfills the current deposit. High levels of liquidity is not
good as idle assets earn nothing. This ratio is calculated as under:
Cash and Bank balance to Current
Deposit ratio = 
Cash
and Bank balance to Total Deposit Ratio
This
ratio shows the percentage of liquid assets held on compared to the total
deposit. High ratio shows the strong liquidity position of the bank. But very
high ratio is not favorable for the bank, as it does not produce appropriate
profit to bear the high interest.
The
total deposit consists of current deposit, savings deposit, fixed deposit,
money at call and short notice and other deposits. This ratio is calculated as:
Cash & Bank balance to Total
Deposit Ratio =
Cash
& Bank balance to Current assets ratio
Cash
& Bank balance is the most liquid form of current assets. This ratio
measures the proportion of cash and bank balance held by the bank. Current
assets includes: Cash & Bank balance, Money at call and short notice, Loans
and Advances including, Bill discounted and Purchased, Investments in
government securities and other securities, Interests receivable and
miscellaneous current assets shown under used head other assets.
The ratio is calculated as follows =
Loan
and Advances to Total Deposit ratio:
This
ratio measures the banks ability to utilize the via fixed, savings, current
call and margin deposit to earn profit by providing loans and advances. Higher
ratios indicates higher utilization of funds and lower ratio is the signal of
balance remained un utilize or remaining idle. The ratio can be computed by
using following formula:
Loans and Advances to total deposit
ratio=
iii. Profitability Ratio
Profitability
ratio measures the efficiency and searches the degree of success in achieving
desired profit. Any firm should earn satisfactory profit to survive and grow
over a long period in the competitive environment profitability ratio can be
determined on the basis of either sales investment. Through this ratio the
investor decides whether to invest in a particular business or not. Some of the
important profitability ratio have been calculated and interpreted in this
study which is presented below:
Net
profit to total assets ratio
This
ratio measures the banks ability to earn as rate of return on the total assets
invested. It measures the return on assets. The ratio is calculated by dividing
the net profit after tax by total assets.
Net profit to total assets ratio=
Net
profit to Total deposit ratio
It
is used fro measuring the internal rate of return from deposits. Here net
profit means profit after tax and deposit, total deposits including savings,
current, fixed, call, margin and other deposits. Higher ratio indicates the
return from investment on loan and advances are better utilized and mobilized.
It is computed by dividing the net profit by total deposit.
Net profit to total deposit ratio=
Return
on Shareholders equity
It
is the most vital to judge whether a concern has earned a satisfactory return
to its owner or not. Here, return refers to net profit after tax. This ratio is
expressed by dividing net profit after tax to ordinary shareholder's equity.
Return on Shareholder's Equity=
Return
to Investment
Return
on investment measures the company's return from investment or the capacity to
generate profit from its investment. It can be computed by dividing net profit
after tax to total investment.
Return on Investment =
Earning
Per Share
It
measures the profit available to the common shareholders as per share basis
i.e. the amount they get from every share. This division will automatically
after the earning per share. The earning per share is calculated by dividing
net profit after tax to the shareholders by number of outstanding shares.
Earning Per Share =
Divided
Per Share
Divided
implies that portion of net profit, which is allocated to shareholders as
return on either investment on cash. The net profit after tax belongs to
shareholders. However, the income which they really received is the amount of
earning distributed as such dividend. The dividend per share is that portion of
earning which is allocated to shareholders divided by the total no. of shares
outstanding. Thus, dividend per share is computed by dividing the total amount
of dividend paid by the no. of outstanding share.
Dividend per share =
Dividend
Payout Ratio
Dividend
payout ratio indicated the percentage amount of dividend paid to shareholders
out of earnings per share i.e. this ratio reflects at what percentage of net
profit is to be distributed in terms of dividend and what percentage is to be
retained by company as retained earning. This earning is needed for business to
grow and to expand. From the shareholders point of view, the dividends are more
desirable to increase their current wealth and retained earning are the must
sufficient internal sources of financing for the earning per share. Therefore,
where there are not dividends paid, there is not dividend payout ratio. The
share holder of company always expects a higher dividend payout ratio.
Dividend Payout Ratio =
Leverage
Ratio
Leverage
ratio is known as capital structure ratio or solvency ratio. It is calculated
to measure the long term financial position of a firm. Debt and equity are
long-term obligation. This ratio indicates the fund provided by owners &
creditors. Leverage ratio measures the overall financial risk as well the
ability of the bank in using debt for the benefit for the share holders. Thus,
there should be appropriate mix of debt and owners equity in financing the
firm's assets. To find out the long solvency of the bank several ratio are
calculated. This ratio helps to find out the proportions of outsiders fund and
owners fund.
Long-term
debt to Shareholders fund ratio
Long-term
debt means total amount of fixed and loan from banks and share holders fund
consists of general reserve, share premium other reserves, general loans, loss
provision, retained earnings and proposed capitalization. The ratio shows the
proportion of outside long-term liabilities to shareholder's total funds. The
ratio can be calculated by using following formula:
Long-term debt to shareholders fund
ratio=
Total
debt to Shareholders fund ratio
Total
debt refers to the sum of long-term debt and short-term debt. Debenture or
bands, differed payment arrangements for buying capital equipment and bank
borrowing public deposits and any other interest bearing loan. Total debt to
fund ratio can be calculated by dividing total debt by the shareholders fund.
Total debt to shareholders fund ratio=
Total
debt to total assets ratio
This
ratio implies a bank's success in exploiting debts to be more profitable as
well as its riskier capital structure to assess the proportion of total funds
short-term and long-term, provided by outsider to finance assets the following
ratio may be calculated :
Total debt to Total assets ratio=
Interest
coverage ratio
Other
debt ratio describes above is state in nature and fail to indicated the firm's
ability to meet interests obligations. The interest coverage ratio is one of
the most conventional. Coverage ratio is computed by dividing earnings before
interest and tax by interest charges:
Interest Coverage Ratio=
Activity
Ratio
Activity
ratio measures efficiency of an organization from various angles of its
operations. This ratio indicates the efficiency of activity of an enterprise to
utilize available funds, particularly short-term funds. The following activity
ratios measure the performance, efficiency of an organization to utilize its
short-term funds. These ratios are used to determine the efficiency, quality
and the contribution of loans and advances in the total profitability.
Total
Investment to Total Deposits Ratio
This
ratio reveals now efficiency the resources of the banks have been mobilized.
High ratio shows the managerial efficiency regarding the utilization of
deposits and vice-versa.
Total Investment to Total Deposit
Ratio=
Loan
and Advances to Total Deposit Ratio
This
ratio indicates the proportion of total deposit investment in loan and
advances. Higher ratio indicates the proper use of total deposit where as lower
ratio indicates less use of deposit or idle cash. The ratio is calculated as:
Loan and Advances to Total Deposit
Ratio=
Non-Performing
Loans to Loan and Advances Ratio
This
ratio indicates the percentage of non-performing loans out of total loans and
advances. Higher ratio shows the inefficiency of the banks in lending and
vice-versa. The ratio is calculated as:
Non-Performing loans & Loan and
Advances Ratio=
Loans
& Advances to Fixed Deposit Ratio
This
ratio indicates the proportion of expenses incurred interest out of total
deposit of the bank. The ratio is calculated as under:
Loan and Advances to Fixed Deposit
Ratio=
Loan
loss Provision to Total Loans & Advances Ratio
This
ratio indicates the percentage of provision for loan loss out of total loans
and advances. Banks to provisioning as per the guidance of Nepal Rastra Bank.
Loan loss provision is interlinked with non-performing loans. Higher the
Non-performing loans, higher will be loan loss provision. The ratio is calculated
as:
Loan loss Provision to total &
advances ratio= 
Interest
Expenses to Total Deposit Ratio
This
ratio indicates the proportion of expenses incurred interest out of total
deposit of the bank. The ratio is calculated as under:
Interest Expenses to Total Deposit
Ratio=
Interest
Expenses to Total Expenses Ratio
This
ratio shows the percentage of interest of interest expenses out of total
expenses. High ratio indicates that the major portion expenses has been spent
for interest. The ratio is calculated as:
Interest Expenses to Total Expense
Ratio=
Chapter-II
Data
Analysis & Major Findings
2.1 Data Presentation and Analysis
The
main purpose of analyzing the financial performance and interpretation is to
highlight the strength and weakness of the business enterprises. Therefore,
this chapter includes the analysis and result of gathered with a view to
assessing financial performance of the bank for the period of 3 years. Consequently,
this analysis help the management take benefits of strategic management
technique by providing the information regarding the strength and weakness of
Kumari Bank Limited to exploit the opportunities lying in the environment and
manage the threat posed by the environment.
In
this chapter, the data are presented, calculated and analyzed. The secondary
data is used for the purpose and for the data presentation of three years (2011/12,
2012/13, 2013/14).
2.1.1 Financial Analysis
Ratio Analysis
As
mentioned in the earlier chapter, various ratios are applied to judge the
financial viability of the Kumari Bank Limited. The following ratios are used
to analyze and check the financial position of the bank.
(i) Liquidity Ratio
Profitability of a bank is more
closely related to liquidity of a commercial bank than any other business firm.
since it has to gain confidence from depositors and customers which is the
largest sources of fund as well as earning. Liquidity ratio measures the firm's
ability to pay its short-term obligations. It also assets the solvency of the
company and its ability to retain solvent even in difficult times. In case of
commercial banks, short-term obligations are current deposit, saving deposit,
short-term loans and source of meeting these obligations are cash and bank
balance, money at call and short-term notice, investments in government
securities and bill discounted and purchased. There is compulsion in banking
sector to maintain cash and bank balance as directed by the Nepal Rastra Bank.
From legal perspective cash and bank balance to total deposit ratio shows
actual liquidity position of the bank whereas other liquidity ratio are also
useful.
The
liquidity ratio can be analyzed under the following four classifications:
(ii) Current Ratio
This
ratio is applied to test solvency as well as in determining short-term
financial strength of the bank. The current ratio indicates the availability of
current assets in rupees for very one rupee of current liabilities. This ratio
more than 2.1 is satisfactory. It is computed as dividing current assets by
current liabilities. The current ratio of the bank for this report is
calculated as follows:
Current Ratio=
Year
|
Current Assets
|
Current Liabilities
|
Ratio
|
2011/12
|
2945750832
|
2625142306
|
1.120
|
2012/13
|
5437024355
|
4960773398
|
1.096
|
2013/14
|
7354897975
|
6792440589
|
1.083
|
Current
Assets = Cash & Bank balance +
Money at call & short notice + Loans and Advances + other assets
Generally,
higher current ratio indicates better liquidity position and 2:1 or more is
considered satisfactory. But here in the context of bank this ratio is less
than 2:1 but we considered it satisfactory because bank always have more liquid
current assets than other types of organization. Here in the context of Kumari
Bank Limited the current ratio of 2011/2012 is 1.120, 2012/13 is 1.096 and
2013/14 is 1.083. It indicates that the liquidity position of the bank has
decreased with comparison to the year 2011/2012.
(iii) Cash and Bank balance to Total Deposit Ratio
This
ratio shows the percentage of liquid assets held as compared to the total
deposit. High ratio shows the strong liquidity position of the bank. It can be
calculated as follows:
Cash & Balance to Total Deposit
Ratio= 
Year
|
Cash & Bank Balance
|
Total Deposit
|
Ratio
|
2011/12
|
291705250
|
2513144223
|
0.117
|
2012/13
|
658477911
|
4807936964
|
0.143
|
2013/14
|
443371369
|
6268954481
|
0.070
|
The
cash and bank balance to total deposit ratio of the bank in the fiscal year 2011/2012
is 0.116, in the fiscal year 2012/2013 is 0.143 & in the fiscal year 2013/14
is 0.070. It shows that the bank has more strong liquidity position in the
fiscal year 2012/2013 as compare to the fiscal year 2011/2012 but the bank has
not strong liquidity position in fiscal year 2013/14 as compare to 2012/2013.
The high ratio also indicates the idle portion of the total deposit amount
which cannot generate income.
(iv) Cash and Bank balance to Current Deposit
Ratio
This
ratio measures the ability of banks current assets to fulfill the current
deposit. It is calculated as follows:
Cash and Bank balance to Current
Deposit Ratio=
Year
|
Cash & Bank Balance
|
Current Deposit
|
Ratio
|
2011/12
|
291715250
|
135081020
|
2.519
|
2012/13
|
685477911
|
251045213
|
2.730
|
2013/14
|
443371369
|
279361097
|
1.588
|
The
bank's cash and bank balance to current deposit ratio is higher because it is
more than 2 times in the fiscal year 2011/12 and 2012/13 but the ratio in the
fiscal year 2013/14 is less than previous years. It indicates that there is
high level of idle assets in the year 2011/12 and 2012/13, which earn nothing.
But bank tires to minimize the idle cash by investing it to the productive
sectors. This shows by its lower ratio. The ratios are 2.519 in fiscal year 2011/2012,
2.730 in the fiscal year 2012/2013 and 1.588 in the year 2013/14.
(v) Cash and Bank Balance to Current Assets
Ratio
This
ratio measures the proportion of cash and bank balance held by the bank to
compare with current assets. It can be calculated as follows:
Cash and Bank Balance to Current
Assets Ratio=
Year
|
Cash & Bank Balance
|
Current Deposit
|
Ratio
|
2011/12
|
291715250
|
2945750832
|
0.099
|
2012/13
|
685477911
|
5437024355
|
0.125
|
2013/14
|
443371369
|
2354897975
|
0.060
|
This
ratio shows that the bank is not able to repay its current obligation by cash
and bank balance. In other words, cash and balance is very low with compare to
its current assets. In the fiscal year 2011/12 is 0.126 and in the fiscal year 2012/13
is 0.60. This means that the bank has increased its cash and bank balance in
the year 2012/13 but decrease in 2012/13. This ratio of the bank is somehow
satisfactory because high cash and bank balance increase cost as it is idle. So
the bank should maintain its cash and bank balance by analyzing its liquidity
factor.
(vi) Loan and Advance to Total Deposit ratio
This
ratio measures the banks ability to utilize the amount that has been collected
through saving, current & fixed deposit account. High ratio indicates the
higher utilization of amount and vice-versa. It can be calculated as follows:
Loans and Advances to Total Deposit
Ratio=
Year
|
Cash & Bank Balance
|
Current Deposit
|
Ratio
|
2011/12
|
2105736522
|
2513144223
|
0.838
|
2012/13
|
3649008723
|
4807936964
|
0.759
|
2013/14
|
5590925658
|
6268954481
|
0.982
|
The
loan and advances to total deposit ratio of the Kumari Bank Limited in the
fiscal year 2011/12 is 0.838 means about 83% of its deposit is utilized in the
loan and advances. In fiscal year 2012/13 is 0.759 means about 75% of its total
deposit is utilized in loan and advances and in the fiscal year 2012/13 is
0.892 means about 89% of its total deposit is utilized. This ratio decreased in
the fiscal year 2012/13, thus 2011/12 by about 13% that means the banks ability
to utilize its fund is decreased which is not good but in the year 2012/13
ratio increased by 14% which shows bank is trying to utilize its fund. This is
good.
2.1.2 Profitability Ratio
It
measures the efficiency and searches the degree of success in achieving desired
profit. Any firm should earn satisfactory profit for survive and grow over a
long period in the competitive environment. Moreover, through this ratio the
investor can decide whether to invest or not. Under this ratio the following
ratio are calculated.
(i) Net Profit to Total Assets Ratio
This
ratio measure the firm's ability to earn return on total assets invested. It
measures the return on assets. The higher rate of return is considered good and
vice-versa. This ratio can be calculated as follows:
Net profit to total assets ratio=
Year
|
Net Profit
|
Total Assets
|
Ratio
|
2011/12
|
12474065
|
2686175754
|
0.00918
|
2012/13
|
48685822
|
5494176578
|
0.00886
|
2013/14
|
87880557
|
7437885125
|
0.01182
|
The
net profit to total assets ratio of the bank is very low in fiscal year. It
indicates that the bank is not in good position to earn profit. In the latest
year bank's profit and ratio of net profit to total assets is increased, this
factor is good, but the increasing pattern is as the race of tortoise. Bank
should accelerate it speed to increase its profit ratio in the coming year.
(ii) Net Profit to Total Deposit Ratio
This
ratio is used to measure the internal rate of deposit. Here net profit means
profit after tax and deposit means total deposit including saving, current and
fixed. Higher ratio indicates the return from the loan and advances is better.
It can be calculated as follows:
Net Profit to Total Deposit Ratio=
Year
|
Net Profit after Tax
|
Total Deposit
|
Ratio
|
2011/12
|
12474065
|
2513144223
|
0.00496
|
2012/13
|
48685822
|
4807936964
|
0.01013
|
2013/14
|
87880557
|
6268954481
|
0.0141
|
The
net profit to total deposit ratio of the bank in fiscal year 2011/12 is
0.00496, in 2012/13 is 0.01013 and in 2012/13 is 0.0141. It indicates quite low
rate of return on deposit. But the bank is also increasing its rate return as
compared to increasing in total deposit. This ratio is low because here the net
profit is taken after deducting bonus to staff and provision for losses.
(iii) Return on Shareholders Equity
This
ratio is very important tool to judge whether the concern has earn satisfactory
returns to its over or not. Here return refers to the profit after tax. This
ratio is calculated as follows:
Return on Shareholder's Equity=
Year
|
Net Profit after Tax
|
Total Deposit
|
Ratio
|
2011/12
|
12474065
|
392883373
|
0.03175
|
2012/13
|
48685822
|
570147056
|
0.0854
|
2013/14
|
87880557
|
533801337
|
0.1647
|
The
return on shareholders equity measures the performance of the bank. The above
table reveals that Kumari Bank Limited has used very properly the shareholder's
fund which is represented by increasing trend of net profit. Ratio is also
increasing pattern. The Owners of the Kamari Bank Ltd. are satisfied by seeing
above table.
(iv) Return on Investment
Return
on investment measures the company's return from investment or the capacity to
generate profit from investment. This ratio is considered to know the investment
generates income from investment. The high ratio is considered as good
performance of company. This ratio is calculated as under:
Return on Investment = 
Year
|
Net Profit after Tax
|
Total Investment
|
Ratio
|
2011/12
|
12474065
|
423154880
|
0.029
|
2012/13
|
48685822
|
983504403
|
0.049
|
2013/14
|
87880557
|
1190271012
|
0.074
|
The
above table reveals that the ratio of increasing total investment is less than
the increase percentage of the ratio. It indicates that the bank has used its fund
to generate its income. From the increasing ratio of return on investment, we
can confidently say that the performance of the bank is in good condition
(v) Earning Per Share
It
measures the profit available to the common shareholders as per share basis. If
one forgets to calculate the return on shareholders equity, his performance
analysis cannot be completed. Common shareholders are entitled to the residual
profit. The rate of common dividend is not fixed, the earning many be
distributed to them or retained in the business. This ratio indicates how well
the firm utilizes the resources of owners. In fact, this ratio of great
interest to present as well as prospective shareholders is also of great
concern to the management, which has the responsibility of maximizing the
owner's welfare. This can be calculated as under:
Earning Per Share=
By
studying the above table, we can say that the bank has increased the
shareholder's equity by (9.74-3.56) i.e. 6.18 in the fiscal year 2012/13 and in
the latest fiscal year 2012/13 bank has also increased its earning per share by
(17.58 - 9.74) i.e. 7.84. However, the bank has increased its shareholders
equity or common stock by 15,00,000 in the year 2013/14. The above figure shows
that bank is in dynamic motion to increase its shareholder's earning per share
at the high rate. So, we can say that the performance of the bank is a very
good; it makes the common shareholders satisfied.
(vi) Dividend Per Share
Dividend
implies that portion of net profit, which is allocated to shareholders return
on either investment on cash. It is the net profit after tax belongs to
shareholders. However the income which they really received is the amount of
earning distributed as cash dividend per share is that portion of earning per
share that is distributed to common shareholder. It can be calculated as
follows:
Dividend Per Share=
Year
|
Earning Paid to Shareholder
|
No. of common stock
|
D.P.S.
|
2011/12
|
----
|
3500000
|
----
|
2012/13
|
26300000
|
5000000
|
5.26
|
2013/14
|
------
|
5000000
|
-----
|
The
Kumari Bank Limited has not distributed cash dividend on the fiscal year 2012/13
and 2012/13 but it paid the cash dividend on fiscal year 2012/13 is 5.26 per
share. It means the bank has earned more in the fiscal year 2012/13. This
factor is very good from the view point of shareholder. It makes shareholders
satisfied.
(vii) Dividend Payout Ratio
It
indicates the percentage amount of dividend paid to shareholders out of earning
per share. It means it refers to what percent of earning is distributed to
shareholders as cash dividend and what percent of earning is n the form of
retained earning. That is needed for business to grow and expand. From the
shareholders point of view more cash dividend is desirable however from
business point of view or organization's point of view more retained earning is
desirable for internal financing. It is calculated as follows:
Dividend Payout Ratio=
Year
|
Dividend Per Share
|
Earning Per Share
|
Ratio
|
2011/12
|
----
|
3.56
|
----
|
2012/13
|
5.26
|
9.74
|
0.54
|
2013/14
|
------
|
17.58
|
-----
|
The
bank has not distributed cash dividend in the fiscal year 2011/12 and 2012/13
but in the fiscal year 2012/13 the bank distributed 0.54 or 54% of its earning
to the shareholders. The rest portion of the earning of the bank is taken is
retained earning which is useful for internal financing. From the above table
we know that 46% of the earning is taken as retained earning in the fiscal year
2012/13. All the earnings is retained in the fiscal year 2011/12 & 2013/14.
2.1.3 Leverage Ratio
Leverage
ratio is also called structure ratio. It is the solvency ratio too. It is
calculated to measure the long-term financial position of a firm, debt &
equity. This ratio measures the solvency of long-term debt from equity.
But
in the context of Kumari Bank Limited there is not long-term. So, fixed deposit
is taken as its long-term liability. And here we have calculated the solvency
of fixed deposit by its equity under leverage ratio. The following ratios are
calculated:
(i) Long-term debt to shareholder fund ratio
This
ratio shows that the total amount of fixed deposit and long-term bank loan and
shareholders fund consists of general reserve, share premium, other reserves
and share capital. Here in the context of Kumari Bank Limited long-term loan is
taken as fixed deposit and loan advance from bank other institutions. This
ratio is calculated as under:
Long-term debt to shareholders fund
ratio=
Year
|
Long-term Debt
|
Shareholder's Fund
|
Ratio
|
2011/12
|
798402962
|
392883373
|
2.024
|
2012/13
|
1292449200
|
570147056
|
2.267
|
2013/14
|
2703848950
|
533801337
|
5.066
|
The
long-term debt to shareholder fund ratio of the bank in the fiscal year 2011/12
is 2.024 which mean the bank has more than double shareholders fund than the
fixed deposit. So it can cover the fixed deposit by shareholder fund. In the
fiscal year 2012/13 the ratio is increased than the fiscal year 2011/12. And in
the fiscal year 2012/13 the ratio is increased as double as 2013/14. This means
there is no risk to deposit in this ban from the depositor point of view.
(ii) Total long-term debt to Total assets ratio
This
ratio implies banks success in exploiting debts to be more as well as its
riskier capital structure. For the requirement fund to the firm the management
should financed the proper mix of fund from the debt and others. This ratio is
calculated as under:
Total debt to Total assets ratio=
Year
|
Long-term Debt
|
Total Assets
|
Ratio
|
2011/12
|
798402962
|
2986178454
|
0.267
|
2012/13
|
1292449200
|
5495176578
|
0.235
|
2013/14
|
2703848950
|
7437882125
|
0.364
|
The
total debt to total assets ratio of the bank in the fiscal year 2011/12 is
0.267, 2012/13 is 0.235 and 2013/14 is 0.364. It indicates that 0.267 times in
fiscal year 2011/12, 0235 times in fiscal year 2013/14 and 0.364 times in the
fiscal year 2012/13 of total assets is total debt. Total ratio is decreased in
the fiscal year 2012/13 than fiscal year 2011/12 but increased in fiscal year 2013/14
as compare to earlier.
(iii) Total Debt to Shareholders fund Ratio
This
ratio shows the relation between total debt and shareholder's equity. It shows
the ratio between total debt and shareholder's equity. It measures the solvency
of total debt from the shareholders equity. Here, in the context of Kumari Bank
Limited total debt is taken as fixed deposit and other short-term liabilities.
This ratio is calculated as follows:
Total Debt to Shareholders Fund Ratio=
Year
|
Total Debt
|
Shareholder's Fund
|
Ratio
|
2011/12
|
2625142306
|
392883373
|
6.682
|
2012/13
|
4960773398
|
570147056
|
8.701
|
2013/14
|
6937882125
|
533801337
|
12.99
|
The
total debt to shareholder's fund ratio of the bank is very high. It indicates
that in the fiscal year 2011/12 the bank has used 6 times more debt than
equity. In the fiscal year 2012/13 it has used 8 times more than shareholders
equity. And in the fiscal year 2013/14 it has used 12 times more than
shareholders equity. The bank is increasing its debt portion as compared to
equity portion. It is risky for the creditor.
(iv) Interest Coverage Ratio
Interest
coverage ratio measures the interest coverage power to the debt. It shows that
the bank is able to cover the interest on the debt others by earning before tax
or not. This is calculated as under:
Interest Coverage Ratio=
Year
|
EBIT
|
Interest
|
Ratio
|
2011/12
|
114298128
|
92945310
|
1.23
|
2012/13
|
201517886
|
163902663
|
1.23
|
2013/14
|
294529943
|
240130179
|
1.23
|
The
interest coverage ratio of the bank is also strong. It's interest coverage
ratio is more than one means that it can easily pay the interest to it's
creditors from earning before tax.
2.1.4 Activity Ratio
It
measures efficiency of an organization from various angles of its operations.
It indicates the efficiency of activity of an enterprise to it's utilizing
available funds. The following ratios measures the performance efficiency of an
organization to utilize the available funds.
(i) Total Investment to Total Deposit Ratio
This
ratio reveals that the resources of the bank have been mobilized less
efficiency. High ratio shows the managerial efficiency regarding the
utilization of deposit and vice-versa. This ratio can be calculated as follows:
Total Investment to Total Deposit
Ratio=
Year
|
Total Investment
|
Total Deposit
|
Ratio
|
2011/12
|
423154880
|
2513144223
|
0.168
|
2012/13
|
983504403
|
4807936964
|
0.205
|
2013/14
|
1190271012
|
6268954481
|
0.189
|
The
investment to total deposit ratio of the bank is very low in the fiscal year
2011/12 as about 17% in the fiscal year 2012/13 it is about 21% and in the
fiscal year 2013/14 as about 19% of the deposit has been invested means that
the mobilization of the fund is very low. From the comparison of first two
fiscal years, the ratio has been increased in the fiscal year 2012/13 which is
acceptable to some extent but decrease in the latest fiscal year.
(ii) Loan and Advances to Total Deposit Ratio
This
ratio indicates the proportion of total deposit invested in loan and advances.
Higher ratio indicates the proper use of deposit whereas the low ratio
indicates the low use of deposit. This ratio is determined as under:
Loan and Advances to Total Deposit
Ratio=
Year
|
Loan & Advances
|
Total Deposit
|
Ratio
|
2011/12
|
2105736822
|
2513144223
|
0.838
|
2012/13
|
3649008723
|
4807936934
|
0.759
|
2013/14
|
5590925658
|
6268954481
|
0.892
|
Loan
and Advances to total deposit ratio of Kumari Bank Limited is greater in fiscal
Year 2011/12 than that of the fiscal year 2012/13 (i.e. 0.838 Vs 0.759) and
also greater in fiscal year 2012/13 than that of fiscal year 2013/14 (i.e.
0.759 Vs 0.892). It indicates that the utilization of deposit in loan and
advances of the bank is decreased in the fiscal year 2012/13 but increased in
the fiscal year 2013/14. It indicates that the bank's performance is
fluctuating in the context of utilization of deposit in loan and advances.
(iii) Non-Performing Loans to Loan & Advances
Ratio
This
ratio indicates the performance of non-performing loans out of total loan and
advances. Higher ratio shows the inefficiency and lower ratio shows the
efficiency of the firm. This ratio is calculated as follows:
Non-Performing Loans to Loan &
Advances Ratio=
Year
|
Non-Performing Loans
|
Loan & Advances
|
Ratio
|
2011/12
|
36323814
|
2105736822
|
0.017
|
2012/13
|
28189656
|
3649008723
|
0.008
|
2013/14
|
53988537
|
5590925658
|
0.009
|
From
the above table, we can say that the efficiency performance of Kumari Bank
Limited in context of non-performing loan is efficient because its ratio of
non-performing loans is low.
(iv) Loan and Advances to Fixed Deposit Ratio
This
ratio indicates the utilization of fixed deposit in loans and advances. High ratio shows the efficiency in
utilization of fixed deposit amount in loan and advances and vice-versa. This
ratio can be calculated as follows:
Loan and Advances to Fixed Deposit
Ratio=
Year
|
Loan & Advances
|
Fixed Deposit
|
Ratio
|
2011/12
|
2105736822
|
795402962
|
2.64
|
2012/13
|
3649008723
|
1292449200
|
2.82
|
2013/14
|
5590925658
|
2302087622
|
2.42
|
This
table shows that the loan and advances of Kumari Bank Limited is two times more
than fixed deposit and in increasing trend in both the fiscal year. So, it
shows the bank's efficiency and better performance.
(v) Loan Loss Provision to Total Loans and
Advances Ratio
This
ratio indicates the percentage of Provision for loan loss out of total loans
and advances. Banks do make such provisions as per the guidance and direction
of Nepal Rastra Bank. This ratio can be calculated as follows:
Loan Loss Provision to Total Loans and
Advances Ratio=
Year
|
Loan Loss Provision
|
Loan & Advances
|
Ratio
|
2011/12
|
16805159
|
2105736822
|
0.0080
|
2012/13
|
17125580
|
344008723
|
0.0049
|
2013/14
|
41111258
|
559092568
|
0.0074
|
The loan loss provision to loan
advances ratio of the bank has decreased in the fiscal year 2012/13. In this
context, the performance of the bank is quite weak. But ratio is increased in
the latest year, which is quite satisfactory.
(vi) Interest Expenses to Total Deposit Ratio
This
ratio indicates the proportion of expenses incurred for interest out of total
deposit of the bank. This ratio is calculated as follows:
Interest Expenses to Total Deposit
Ratio=
Year
|
Interest Expenses
|
Total Deposit
|
Ratio
|
2011/12
|
92945310
|
2513144223
|
0.037
|
2012/13
|
163902663
|
4807936964
|
0.034
|
2013/14
|
240130179
|
6268954481
|
0.038
|
By
evaluating the above table, we came to know that the interest expenses to total
deposit ratio of the bank is 0.037 in the fiscal year 2011/12, 0.034 in the
fiscal year 2012/13 and 0.038 in the fiscal year 2013/14. The ratio has
slightly decreased in the year 2013/14 and slightly increased in the latest
year. The deduction of expenses is favorable for the bank. It should be
considered as efficient performance of the bank.
(vii) Interest Expenses to Total Expenses Ratio
This
ratio indicates the proportion of the interest expenses to the total expenses.
Higher ratio indicates that the major portion has been spent on interest
expenses. This ratio is calculated as follows:
Interest Expenses to Total Expenses
Ratio=
Year
|
Interest Expenses
|
Total Deposit
|
Ratio
|
2011/12
|
92945310
|
161703002
|
0.575
|
2012/13
|
163902663
|
258920112
|
0.658
|
2013/14
|
240130179
|
354337190
|
0.677
|
From
the above table, we can say that the bank's interest expense to total expenses
is higher than 50%. Which means about 58% of its total expenses are interest
expenses and the rest are other expenses in the fiscal year 2011/12, about 66%
of the total expenses are interest expenses in the fiscal year 2012/13 and
about 68% of the total expenses are interest expenses in the fiscal year 2013/14.
The ratio has increased in the latest years.
2.2 Major Findings of the Study
This
assignment work report has been prepared as per the format prescribed by the
subject lecturer and entitled 'A Study of Financial Performance of Kumari Bank
Limited." This report has been divided into three chapters as 'Introduction',
'Data Analysis and Presentation' and Summary and Conclusion' this main chapter
contains various subjects. The main part of this report is Presentation and
Analysis of Data. For the data analysis purpose Ratio Analysis tools have been
used to evaluate the performance of the bank. The major findings of the study
are as follows:
¨
From
the study, we found that Kumari Bank Limited is overall beneficial Commercial
Bank in the Nation and profitability position of the bank is much satisfactory.
¨
From
the Liquidity Ratio, we found that the Bank is in strong position to its
Short-term obligations and moreover the bank is increasing it's short-term solvency
power for short-term liabilities from current assets.
¨
From
the Leverage Ratio, we fond to conclude that the bank has taken some long-term
loans from central banks. So, by using fixed deposit and loan from bank as
long-term liability, we found that the financial structure of the bank is
satisfactory.
¨
From
the Activity Ratio, we found that the bank has utilized it's deposits
efficiently in the productive sector. The bank has invested high percent of
available funds to generate income.
¨
From
the profitability Ratio, we found that the bank is in profitable condition. In
the fiscal year 2011/12 and 2012/13, the bank has not distributed any cash
divided but in the fiscal year 2012/13, it has distributed cash dividend to
it's shareholders. Because of it's good financial performance, the bank has
generated profit the financial activities.
Some other findings of this study are
listed below:
¨
The
earning per share of the bank has in increasing pattern. In the year 2011/12
it's earning per share is Rs. 3.56, in the year 2012/13 it increased to Rs.
9.74 and in the year 2013/14 it increased to Rs. 17.58.
¨
In
the fiscal year 2011/12 and 2013/14, the bank has not paid any dividend but in
the fiscal year 2012/13 it paid 5.26% of share capital as dividend.
¨
The
interest income on loan and advances of the bank in fiscal year 2011/12 is
8.79%, in the year 2012/13 is 8.51% and in the year 2013/14 is 8.95%. Which is
the result of inefficient performance of the bank ?
¨
The
net profit on loan advances of the bank is 0.059% in the year 2011/12, in the
year 2012/13 is 1.32% and in the year 2013/14 is 0.16%, which is the indicator
of good financial performance of the bank.
Chapter-III
Summary,
Conclusion & Recommendation
3.1 Summary and Conclusion
This
field work report has been prepared for the fulfillment of the internal
assessment of BBS programme. From this purpose, here we have analyzed the
financial performance of Kumari Bank Limited. To evaluate the financial
performance of the bank, we have divided the whole report to different
chapters. In every chapter, there are several sub-chapter. The first
Introduction chapter gives background information about the project work,
introduction of Kumari Bank Limited, Review related studies etc. The second
chapter called Presentation and Analysis of Data, we tried to analyze it's
financial performance through Ratio Analysis. By using this financial tool, we
computed different ratios to evaluate it's Liquidity position, Management
Position, Profitability Position and overall Financial Position.
Ratio
analysis is a very significant tool to financial performance analysis. It is
one of the means by which financial stability, wealth, viability and
performance of a firm can be judged. Current ratio of Kumari Bank Limited is
how than it's theoretical norm that is 2:1. Its current ratio are 1.12, 1.096
and 1.083 in the year 2011/12, 2012/13 and 2013/14 respectively. But, there is
not matter to worry about because the bank has kept more liquid assets than
other types of organization. Other solvency power of bank to the different
deposit by its cash is also in increasing trend. Moreover, it should manage
cash properly because cash on hand doesn't generate any income. In aggregate,
there is nothing to be worried about the liquidity position of the bank since
it's quality of current assets is very good which can be easily converted into
cash within short period without any loss of it's assets.
The debt position is unfavorable to
the management because it has not borrowed loan from banks and institutions in
the earlier years. But is the latest year bank has borrowed some amount of
money from central banks which is good symptom. By borrowing loans at low rate
of interest from other banks, the institution may generate lots of income by
investing such loans on highly profitable sectors. The profitability position
of the bank is much satisfactory. The net profit of the bank has increased as
compared to it's increment in investment.3.2 Recommendation
However,
we are not authorized person to recommend the management of Kumari Bank Limited
but here we attempt to recommend the management of Kumari Bank Limited. Here
under we have given some recommendation which may be useful to the management:
¨
To
raise the total capital of Kumari Bank Limited by long-term debt and minimize
the use shareholders equity.
¨
To
maintain the idle cash or cash equivalents minimum.
¨
The
bank should finance the maximum fund in external assets.
¨
The
bank should take maximum advantage by maintaining minimum cash holding and
should finance in riskier assets that is Loan and Advances to earn high
interest.
¨
For
the better utilization of Shareholders fund, the bank should conduct research
frequently.
¨
Kumari
Bank should maintain Liquidity to meet current obligations easily.
¨
The
bank should identify better investment opportunity to get high rates of return.
¨
Management
of the bank should be effective.
¨
Personnel
should be trained and motivated by giving incentives.
¨
The
bank needs to adopt new technologies, which is very helpful to work effectively
and efficiency.
¨
Loans
Programs should be made attractive.
¨
Customer
Satisfaction should be the Bank's motto.
Biblography
Testbooks:
I.M. Pandey, "Financial
Management" Tata MC Graw-Hill Bup. New Delhi.
J. Fred Weston1983, Thomas E.
Copeland, "Managerial Finance, Addison Wesley 1983.
Khan, M.Y. and Jain P.K. (1992),
"Financial Management" Tata MC Graw-Hill, India.
P.R. Panta (1998),
Fieldwork Assignment and Report Writing, Veena Academic Enterprises, Ktm.
Paul A.
Samuelson Economic (New York M.C. Graw-Hill Company)
S.J. Khadka
and H.B. Singh (2056), Banking and Principles, Lesgislation and Practice, Nabin
Prakashan, Bhotahity, Ktm.
Ronald
Grywinshki, The New Fashoned Banking. (Harvered Business Review, May-June 1993)
Reference:
1. The Nepal Commercial Bank Act 23031
B.S.
2. Tiwari Netra, "A Comparative Study
of Financial Performance of Commercial Banks Unpublish" (Thesis of MBA)
3. Shrestha M.K. "Commercial Banks
Comparative Performance Evaluation" Kosh, Ktm, Karmachari Sanchaya Kosh
Publication, Year 16,2047.
Casino Player Reviews, Ratings & Games | DMC
ReplyDeleteFind casino player 영천 출장안마 reviews and 창원 출장마사지 information about upcoming promotions, games, and other 포천 출장마사지 casino players at 충청남도 출장샵 DMC. 바카라 사이트 승리바카라 Top rated Slots at the Casino.
The King Casino | Ventureberg
ReplyDeleteDiscover the rise ventureberg.com/ and fall of 출장안마 the king casino, one of the world's largest The Casino is https://vannienailor4166blog.blogspot.com/ operated by the King Casino Group. casinosites.one You communitykhabar can