project report of banking & insurance

Ratio Analysis Of

Nepal Investment Bank Limited

By

MOHAMMED AZIZ Bachelor of Business Studies

Part III

Exam Roll No: 5120003

TU Registration No: 7-2-512-5-2009

A Fieldwork Report Submitted to

Parashar College Damauli, Tanahun

Tribhuvan University

in partial fulfillment of the requirements for the degree of BACHELOR OF BUSINESS STUDIES

March , 2013

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Faculty of Management

TRIBHUVAN UNIVERSITY

RECOMMENDATION This is to certify that the fieldwork assignment report

Submitted by

MOHAMMED AZIZ

Entitled

Ratio Analysis

Of

Nepal Investment Bank Limited has been prepared as approved by this Department.

This fieldwork assignment report is forwarded for examination.

Date: March 24, 2013 Supervisor

………………… Head of Department

Parashar College Damauli, Tanahun

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Acknowledgement:

I would like to extend my gratitude to Tribhuvan University for involving this skill developing practical exercise in BANKING & INSURANCE (MGT 324) which provides us first hand knowledge about the world of work and also helps us to apply the conceptual knowledge acquired in classroom to real life. It is my great pleasure to present this fieldwork report for the partial fulfillment of the requirements for the Bachelors Degree of Business Studies (BBS). I would take the pleasure of offering thanks to the staffs of Nepal Investment Bank limited, Damauli Branch for providing me the required data and information. I am indebted to all those authors and scholars whose works have directly or indirectly supported me in its preparation. I sincerely acknowledge to all the teachers and especially to Mr. Mahesh Thapa (Branch Manager for NIBL) without whom this report would not have been completed. I would like to express my sincere gratitude to the respected teachers Mr. Amrit Bhandari (Campus Chief) & Mr. Surendra Shrestha (Fieldwork report supervisor). I have been able to prepare this report only by receiving significant help in different ways from my family and friends. I would like to express thanks to all of them for their guidance, inspiration and invaluable assistance. I would be extremely delighted to appreciate the efforts of Mr. Kehar Singh Ale ( Image Digital Pvt Ltd.) for computer setting and printing of the report. MOHAMMED AZIZ BBS -III Parashar College Damauli, Tanahun

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Abbreviations

A/c Account BBS Bachelors of Business Studies BOD Board of Directors BS Bikram Sambat EBIT Earning Before Interest and Tax eg exempligratia (for example) etc etcetera (and so on) FOM Faculty of Management FY Fiscal Year HDI Human Development Index i.e. id est (that is) Ltd Limited No Number P/L Profit and Loss ROA Return on Assets NPR Nepalese Rupees NIBL Nepal Investment Bank Ltd. TU Tribhuvan University NRB Nepal Rastra Bank % Percentage Fig Figure Ltd Limited Pvt Private Dia. Diagram

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List of Figures

Figure Page Fig.1 Shareholding Pattern of NIBL 15 Fig.2 Earning Per Share 15 Fig.3 Return on Asset 16 Fig.4 Price Earning Ratio 16 Fig.5 Valuation Highligts 17

List of Diagrams

Diagram Page Dia.1 Trend Analysis of EPS, ROA & PE Ratio 16 Dia.2 Bargraph of Valuation Highlights 17

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Table of Contents

Acknowledgement List of abbreviations List of Figures List of Diagrams

Chapter Page

1. Introduction 1

1.1 Meaning of Bank 1 1.2 History of Banking 1 1.3 Banking in Nepal 2 1.4 Introduction to NIBL 3 1.5 Vision 4 1.6 Mission 4 1.7 Statement of Problem 5 1.8 Objectives of Field Report 5 1.9 Literatures Review 6 1.10 Methodology of Fieldwork 7 1.11 Significance of the Study 8 1.12 Limitation of the Fieldwork 9 1.13 Organization of the study 10 2. Presentation and Analysis of data 11 2.1 Presentation and analysis of data 11 2.1.1 Earning Per Share 11 2.1.2 Return on Asset 12 2.1.3 Price Earning Ratio 12 2.1.4 Ratio of Net Proft to Gross Income 12 2.1.5 Exchange Gain to Total Income Ratio 13 2.1.6 Net Profit to Loans & Advances Ratio 13 2.1.7 Cash & Bank balance to Current Deposit Ratio 13 2.1.8 Cash & Bank balance to Total Deposit Ratio 13 2.1.9 Saving Deposit to Total Deposit Ratio 14 2.1.10 Fixed Deposit to Total Deposit Ratio 14

3. Appendices 15 Bibliography 18

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Table of Contents

Acknowledgement List of abbreviations List of Figures List of Diagrams

Chapter Page

1. Introduction 01 1.1 Meaning of Bank 01 1.2 History of Banking 01 1.3 Banking in Nepal 02 1.4 Introduction to NIBL 03 1.5 Vision 04 1.6 Mission 04 1.7 Statement of Problem 05 1.8 Objectives of Field Report 05 1.9 Literatures Review 06 1.10 Methodology of Fieldwork 07 1.11 Significance of the Study 08 1.12 Limitation of the Fieldwork 09 1.13 Organization of the study 10 2. Presentation and Analysis of data 11 2.1 Presentation and analysis of data 11 2.1.1 Earning Per Share 11 2.1.2 Return on Asset 12 2.1.3 Price Earning Ratio 12 2.1.4 Ratio of Net Proft to Gross Income 12 2.1.5 Exchange Gain to Total Income Ratio 13 2.1.6 Net Profit to Loans & Advances Ratio 13 2.1.7 Cash & Bank balance to Current Deposit Ratio 13 2.1.8 Cash & Bank balance to Total Deposit Ratio 13 2.1.9 Saving Deposit to Total Deposit Ratio 14 2.1.10 Fixed Deposit to Total Deposit Ratio 14

3. Summary , Conclusion & Recommendations 15 3.1 Summary 15 3.2 Conclusion 16 3.3 Recommendations 16 Appendices 17 Bibliography 20

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List of Figures

Figure Page

Fig.1 Shareholding Pattern of NIBL 17

Fig.2 Earning Per Share 17

Fig.3 Return on Asset 18

Fig.4 Price Earning Ratio 18

Fig.5 Valuation Highlights 19

List of Diagrams

Diagram Page

Dia.1 Shareholding Pattern of NIBL 17

Dia. 2 Trend Analysis of EPS, ROA & PE Ratio 18

Dia.2 Bargraph of Valuation Highlights 19

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Ratio Analysis of Nepal Investment Bank Ltd 2068-69

1

Chapter -1

Introduction

1.1 Meaning of Bank

Finance is the blood of trade, commerce and industry. Now-a-days

banking sector acts as the backbone of the modern business. Development of

any country mainly depends upon the banking system.

The term ‘Bank’ is derived from the French word Banco which means a

Bench or Money exchanging table. In olden days, European money lenders or

money changers used to display coin of different countries in big heaps

(quantity) on benches or tables for the purpose lending or exchanging.

A bank is a financial institution which deals with deposits and advances

and other related services. It receives money from those who want to save in the

form of deposits and lends money to those who need it.

A bank is a financial intermediary that performs one or more of the

following functions: safeguards and transfers funds, lends or facilitates lending,

guarantees credit worthiness and exchange money. These services are provided

by such institutions as commercial banks, central banks, savings banks, trust

companies, finance companies like insurer and investment bankers.

1.2 History of Banking

Functions performed by banks in present context have been carried out by

individuals, merchants, families or state official at least 4000 years ago. Clay

tablets dated from about 2000 BC indicates that the Babylonians deposited

personal valuables for a service charge of one 60th

of their worth. Interest

charges on loans ran as high as one third.

In medieval times, the knights Templates, a military and religious order

not only stored values and granted loans but also arranged for the transfer of

funds from one country to another. The great banking families of the

Renaissance such as the Medicis in Florence (Italy) were involved in lending

money and financing international trade. The first modern banks were

established in the 17th

century, notably the Risks bank in Sweden (1656) and the

Bank of England (1694).

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1.3 Banking in Nepal

Banks and banking activities have always played a prominent role in the

economic prosperity of the country. The pace of the economic development of

the country flourished as banks and its activities gradually developed. Ever

since democracy was restored in 2007 BS the government as well as citizen felt

the necessity of establishing banks in the country. Likewise, Nepal Rastra Bank

(NRB) was established in 1955 AD. It was established as an apex regulatory

body for the banks to be operated in Nepal.

The history of banking has started after the establishment of Nepal Bank

Limited (NBL) by special act in 1973 AD. The bank was established with an

authorized capital of NRS 10 million.

NRB worked hard to minimize the use of Indian currency in Nepal and to

teach the use of money instead of Barter exchange. It was overwhelmingly

successful by opening branches outside the valley. It helped a lot in raising

awareness of banking. In a decade it has its offices in 7 places which afterwards

turned into branches of commercial banks.

As the monetary transaction got more and more complex, NRB finally

suggested the movement to establish another commercial bank. As a result,

Rastriya Banijya Bank (RBB) came in to existence in 1966 AD.

After the re-establishment of democracy in 2007 BS, the government

holds the liberal policy for the economic prosperity of a nation. As a result,

various commercial banks established in a joint venture with other countries.

Likewise, there have been 32 commercial banks established so far till this

date. Apart from this many financial institutions and co-operatives societies

have also started contributing in the economy.

S.N Name of Bank Joint Venture With Established 1. Nabil Bank Ltd. Arab Emirates 1984 AD

2. Nepal Grindlays Bank Standard Chartered Bank 1986 AD

3. Nepal Indosuez Bank Bank Indosuez Group 1987 AD

4. Himalayan Bank Ltd. Habib Bank Ltd , Pakistan 1993 AD

5. Nepal SBI Bank State Bank of India 1993 AD

6. Nepal Bangladesh Bank IFIC Bank , Bangladesh 1994 AD

7. Everest Bank Ltd. Punjab National Bank , India 1994 AD © w

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1.4 Introduction to the Nepal investment Bank Limited

Nepal Investment Bank Limited (NIBL) previously Nepal Indosuez Bank

Ltd, was established in 1986 as a joint venture between Nepalese and French

partners. The French partners holding 50% of the capital was credit Agricole

Indosuez, a subsidiary one of the largest banking group in the world. The name

of the bank has been changed to Nepal Investment Bank Limited upon the

approval of bank’s annual general meeting , Nepal Rastra Bank and Company

Registrar’s office with the following shareholding structure.

A group of companies holding 50% of the capital.

Rastriya Banijaya Bank holding 15% of the capital.

Rastriya Beema Sansthan holding 15% of the capital.

The remaining 20% being held by general public.

Over the past 7 years, this bank has grown to become one of the biggest

commercial bank in Nepal. This bank has helped to fulfill growing requirements

of credit and collects deposits for the development projects and support in the

business.NIBL has the highest deposit amongst the private sectors banks

throughout the Nepal.

NIBL has been very aggressive in innovating and offering new products

and services in the financial market. NIBL started Visa Electron Debit Card for

the first time in Nepal after acquiring Principal Membership of Visa

International in 2003. Since then, NIBL has been pioneering other existing

banks and financial institutions in the card business. NIBL has the largest ATM

network in Nepal with the addition of nine more ATMs to the Bank's network.

At present, NIBL has in total, seven Visa Associate Member Banks and 260

ATM outlets connected to Switch. We have also enabled recharge card options

for telecom and Wi-Fi subscribers of Broadlink Ltd. to carry out top-ups

through their ATMs; they are the only Bank to have enabled this feature. It has

also enabled ATM-based money transfers for cardholders having multiple

accounts with NIBL. Currently, it is implementing their Switch based electronic

payment gateway which will enable card to card money transfer to any client

within their Switch network. They are also updating their systems to be EMV

compliant and to issue Smart Cards. They are currently undergoing PCI-DSS

certification as well. They now have 35 Member Banks and

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58 ATMs in their Proprietary Card Network called National Payment Network

which began in 2009. They now have over 400,000 cardholders in their Bank

and have issued 300,000 on behalf of their National Network.

NIBL has also launched NIBL Mobile (SMS) banking which incorporates

Fund Transfer, Bill Payments, and Nepal Telecom Prepaid PIN Purchase and

inquiry services as major features. We have also made available NIBL Mobile

(SMS) Banking application for Android Platform Smart Phones (2.1 and above)

and Java Enabled Phones (touch and non-touch). NIBL has also recently

launched Domestic e-Banking Remittance which avails customers the facility to

instantly transfer money to their relatives/friends online.

Financial highlights of NIBL:

No. 1 private sector bank in paid-up capital with NPR 3.01 billion

Highest assets base among private sector banks of NPR 58.35 billion

Topmost lender in Nepal with total loans and advances of NPR 41.88

billion

Highest deposits of NPR 50.13 billion

Net profit of NPR 1.17 billion

Interest income of loans and advances at 13.12 percent

Return on shareholders’ fund at 24.10 percent

25% cash dividend, 25% bonus shares

Highest paid up capital among the financial institutions in Nepal at NPR

3.01 billion .The highest capital base (including debentures) with NPR

5.15 billion.

Largest amongst taxpayers in Nepal.

1.5 Vision

To be the most preferred provider of financial services in Nepal.

1.6 Mission

They aspire to be the leading Nepali bank, delivering world class services

through a blend of state-of-the-art technology and visionary management in

partnership with competent and committed staff, to achieve sound financial

health with sustainable value addition to all their stakeholders. They are

committed to fulfilling this mission while ensuring the highest levels of ethical

standards, professional integrity, corporate governance and regulatory

compliance.

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1.7 Statements of Problems

The organized summary of detailed information about financial position

and performance of a concern is known as financial statement. It is prepared at

the end of accounting year for periodic review of the activities of organization

and results achieved by it. It includes Profit and Loss account or income

statement and Balance Sheet. The former shows the results of operation for a

particular period while the latter indicates the financial position of the concern

at the end of that period. Hence, financial statements are the condensed form of

accounts.

The financial statements of an organization are analyzed to dig up

meaningful information about its survival, stability, profitability, solvency and

growth prospect. They can be analyzed by using a number of techniques such

as comparative statements, common size statements, index analysis, ratio

analysis etc. Ratio analysis is the most popularly and widely used

technique of financial statements analysis.

A ratio is defined as the indicated quotient of two mathematical

expressions. Accordingly, accounting ratios mean a relationship between two

numerical variables obtained from financial statements. They are used as an

important tool for analyzing the financial performance of the organization over

the year. Since an absolute accounting figure on its own does not provide much

meaning by itself, it has to be analyzed in relation to other figures so that

significant information about the organization’s financial performance can be

derived. Ratio Analysis is a technique of analysis and interpretation of

financial statements through mathematical expression. It determines and

presents the quantitative relationship between to accounting figures. The

accounting ratios can be expressed in proportion, percentage, rate, times or

coefficient.

1.8 Objectives of Field Report

Since, the data given in financial statements are meaningless and

unable to communicate anything from analytical viewpoint unless the heaps of

figures contained in them are properly analyzed. The main purpose of the study

is to analyze the absolute figures contained in Profit & Loss A/C and Balance

Sheet of NIBL Ltd. to obtain a better understanding of the position of its

undertaking. The following are the important objectives of the study:

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To evaluate the liquidity and solvency position of the concern.

To judge the organization’s efficiency in terms of its operation and

management.

To ascertain earning capacity of the concern as well as prediction

relating to its future earnings.

To determine the liquidity ratio, profitability ratio and leverage ratio of

the organization.

1.9 Literatures Review Different journal articles, literature, books, annual reports, professional

magazines, brochures etc. were studied throughout the fieldwork to know what

is already known on the topic and to discover the shortcomings of the previous

studies so that due consideration can be given on them. In 2065, Miss Manisha

Thapa , a student of Shree Projjwal Collegiate Academy had made an analysis

about accounting ratios of NIBL Ltd. Her study shows that the firm is in quite

good condition and profit. According to her analysis, it still needs to improve in

various sectors and search for new areas of investment in order to raise

profitability and mobilize deposit efficiently. She states that the organization

has excess liquid assets and it needs to maintain satisfactory liquidity ratio.

Ratio Analysis is a popular technique of financial statement analysis

which is the process of determining and presenting the mutual relationship

between two accounting figures. According to Kennedy and McMullan

“The relationship of one term to another expressed in simple

mathematical form is known as ratio.” Ratio analysis revolves around the

calculation of ratios, comparing them with the ratios of same firm relating to

past and interpretation as well as evaluation of ratios. It makes possible to

analyze business activities systematically. This fieldwork report analyses

the following ratio of NIBL Ltd:

A. Liquidity Ratio:

It reflects the firm’s ability to pay its short terms debts or claims within a

period less than one year. They assess the capacity of the concern to repay its

short term liabilities. The position of the concern can be measured mainly by

using two liquidity ratios such as:

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I. Current Ratio/ Short term Solvency Ratio/ Working Capital

II. Quick Ratio/ Acid test Ratio/ Liquid Ratio

B. Leverage Ratio:

It is long term solvency ratio or capital structure ratio. It weighs up the

ability of a firm to meet the payments associated with its long term debts. It

measures the effectiveness of the long term financial position. It stands for

relationship between internal and external sources of funds of a firm. The major

types of leverage ratios are:

I. Debt Equity Ratio II. Debt to Total Asset Ratio

III. Interest Coverage Ratio/ Time Interest Earned Ratio

C. Profitability Ratio: It shows the overall efficiency of the concern to in terms of its sales,

investments, and earnings and dividends. An undertaking without profit is

unthinkable. The profitability ratio is related to profit. The following are the

major types of profitability ratios.

I. Net Profit Ratio

II. Return on Assets

III. Return on Shareholder’s Equity

IV. Interest on Total Assets

1.10 Methodology of fieldwork Fieldwork is a data-based systematic study of a specific situation in an

organization. Data is the essence of all fieldwork. Data is a raw information,

facts or statistics used for reference or analysis. Data can be generated from

primary sources, secondary sources or both.

A. Primary Sources Primary data refers to data collected for the first time for a specific

purpose. It can be collected through interviews, observations or

experimentation. The data needed for this fieldwork report was collected from

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face- to- face interview with the manager of the organization Mr. Hemanta

Karki and official Mr. Ram Bahadur Poudel. The respondents were asked

questions through questionnaire.

B. Secondary Sources Secondary data refers to data already available. It was collected earlier

for another purpose and exists in published form. The necessary data is also

gathered from the organization’s financial statements Income statement,

Balance Sheet and the annual report submitted in Annual General Meeting

(AGM). It is also collected from published magazines, books, articles and

literature about the organization.

The collected data and information are edited, classified, tabulated and

presented in different types of charts to serve the needs of the study.

1.11Significance of the study: Business results and situations can be understood properly only when

relevant figures are considered together. A ratio is simply a number that shows

the relationships between two financial figures. The study is important from the

point of view of investors, depositors and management for analysis and

interpretation of the concern’s financial health. It is also useful for judging the

firm’s operating efficiency, identifying strength and weakness of its financial

standing and comparing its performance with other vying firms. Ratio analysis

is helpful in financial forecasting and planning. The ratio calculation of past

years works as a guideline for future. It presents the financial data in purposeful

and conclusive manner to facilitate rational decision making of any financial

activity. The fieldwork report is expected to serve the following purposes of the

different users:

Management: Management can draw significant conclusion and determine

the new policies and procedures.

Owners: It lets them be acquainted with profitability and financial

position of the organization. Reliable information assures them safety of

their investment.

Creditor: It helps them to know whether the firm will be financially able

to pay their debt or not, in time.

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Bankers/ Lenders: The report can help them to determine whether their

principal and interest will be paid when due.

Employees: It is purposive for them to ascertain how much

emoluments and bonus are possible from the profits of the organization.

Researcher students: The report supplies secondary data for their

research efforts.

1.12 Limitation of the fieldwork The fieldwork report may suffer from the following pitfalls:

This fieldwork report is prepared in partial fulfillment of the requirement

for the degree of Bachelor of Business Studies of Tribhuvan University.

It is just a case study of the NIBL Ltd.

The fieldwork report is based only on the financial statements of

fiscal year 2067/68 and 2068/69.

It considers only liquidity ratio, leverage ratio and profitability ratio

of the concern based on financial statements.

The relevant information and data obtained from the concern for the

study are presumed to be accurate.

The study depends heavily on secondary data and is not free from its

limitations.

It may suffer from the inherent weaknesses of the financial

statements of the organization.

The deadline for the submission of report restricted the depth study.

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1.13 Organization of the study A well managed and orderly arranged scheme of the study is essential to

facilitate the overall study, which is known as organization of the study.

This fieldwork report encompasses three different parts as stated below:

1.13.1 Part One

It is the preliminary section of the report. It consists of acknowledgement

which expresses thanks to different individuals for their pivotal role to prepare this

report in this existing form. It also includes lists of abbreviation used as well as

lists of tables and figures.

1.13.2 Part Two

It contains three chapters. It is the main text of the report. It provides a bird’s

eye view of the report. The first chapter deals with introduction, background of the

fieldwork, statement of the problems, objectives of the fieldwork, literatures

review, methodology of the fieldwork, significance of the study and limitations of

the fieldwork.

The second chapter is the largest section of the report. It involves analysis and

presentation of data by using appropriate techniques. The third chapter comprises

summary, conclusion and recommendation.

1.13.3 Part Three

This part incorporates bibliography and appendices. Bibliography presents an

alphabetical list of books, articles, and other source materials to which references

have been made. Appendices contain the materials used in the report but related

indirectly and not explained in details.

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Chapter -2

Presentation & Analysis of Data

2.1 Presentation & Analysis of Data Presentation and analysis of data is the chief task of this fieldwork. In

this chapter, the data and information gathered during the course of fieldwork

have been organized in tables, charts and diagrams. The data is analyzed by

using statistical tools. The analyzed data has been interpreted candidly for clear

understanding of findings. It is attempted to make the presentation consistent

with the objectives of fieldwork.

Every presentation of data follows its analysis so that future prediction

can be initiated. For the purpose of the analysis simple method of financial

tools, ratio analysis is used.

Ratio Analysis is widely used as a tool of financial analysis. It is defined

as a systematic use of ratios to interpret the financial statement so that strength

and weakness of firms as well as its historical performance and current

financial condition can be defined. The main kinds of financial tools to

measure the performance are:

2.1.1 Earning Per Share (EPS)

It simply shows the profitability of the firm of a per share basis. It is

calculated from the point of view of the ordinary shareholder. It is calculated

by dividing the profit after tax by the total number of ordinary share

outstanding.

EPS = 𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝑨𝒇𝒕𝒆𝒓 𝑻𝒂𝒙

𝑵𝒐.𝒐𝒇 𝒄𝒐𝒎𝒎𝒐𝒏 𝑺𝒉𝒂𝒓𝒆

Findings:

The EPS trend is fluctuating, but it is clear that the EPS of NIBL is

substantially high than other competitors. The average EPS of NIBL is Rs

51.77. The highest and lowest EPS of NIBL are Rs 62.57 and Rs 37.42 resp. in

the FY 2064/2065 and 2066/2067. Therefore, from above analysis we can say

that the earning power of NIBL is in good condition.

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2.1.2 Return on Asset (ROA):

It measures the firm’s return on investment of financial resources. It also

helps us to provide the information of proper utilization of the resources. It is

the relation between profit and total assets. Lower ROA means lower profit and

higher ROA means higher profit. In the present study, this ratio is examined to

measure the profitability of all financial resources in the bank assets.

ROA = 𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝒂𝒇𝒕𝒆𝒓 𝒕𝒂𝒙 (𝑵𝑷𝑨𝑻)

𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

Findings:

The trend of ROA is also fluctuating; it rises in the year 2067/2068. The

highest ROA was 2.20 % in the fiscal year 2067/2068 and lowest was 1.70 % in

the fiscal year 2066/2067. The above table shows that the ROA is satisfactory.

However the management of NIBL must keep their eyes towards the situation

and mobilize their working assets more to earn more profit. The average ROA is 1.91

%.

2.1.3 Price Earnings Ratio (PE Ratio) :

In the fiscal year 2065/2066 , the PE ratio was 42.34 and further

decreased up to 37.09 in the FY 2066/2067 likewise it continuously

decreases in the year 2067/2068 and 2068/2069. The PE ratio is 10.54

2.1.4 Ratio of Net Profit to Gross Income

In the fiscal year 2066/2067 the ratio of Net Profit to Gross Income is

16.71% but increases up to 20.26 % in the year 2067/2068. In current year

2068/2069 its ratio is 23.99

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Findings:

In the fiscal year 2067/2068 the ratio of Net profit to Gross Income is

20.26 which are greater than last year and this year ratio was 23.99 which is

more than last year.

2.1.5 Exchange Gain to Total Income Ratio

In the FY 2065/2066 the ratio of Exchange Gain to Total Income is 8.80 but it

increases up to 9.63 in the year 2066/2067, after 2066/2067 it was decreasing

continuously.

Findings:

In the FY 2066/2067 the ratio was 9.63 which were higher than previous

year and this year 2068/2069 i.e. 8.60

2.1.6 Net Profit to Loan and Advances Ratio

In the FY 2064/2065 the ratio of net profit to loan and advances is 2.10 %

but it decreases by 0.13 and became 1.975 in the fiscal year and that it

continuously increases up to 2068/2069 i.e. 2.66 %

2.1.7 Cash and Bank balance to Current Deposit Ratio

In the FY 2067/2068 the ratio was 84.68 % which is less than previous

year and in FY 2064/2065 the ratio was the lowest during 5 year. Thus, the bank

has less liquidity in FY 2064/2065. Cash and Bank balance include cash in hand

and total bank balance.

Findings:

In the FY 2067/2068 the ratio was 84.68 which is less than previous year

84.78% and the FY 2068/2069 it is 136.92 which is higher than last year . The

average ratio is 88.83%.

2.1.8 Cash and Bank balance to Total Deposit Ratio (CRR) Cash Reserve

Ratio

In the FY 2064/2065 the cash reserve ratio is 8.12 % and later become

11.70 % in FY 2065/2066. The trend line is fluctuating it goes up and down.

However cash reserve ratio should be minimum. In current year CRR is 12.33%

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Findings:

In the FY 2065/2066 the cash reserve ratio is 11.70% that were higher

than previous year i.e. 12.33 %. The average cash reserve ratio is 10.63 %.

2.1.9 Saving Deposit to Total Deposit Ratio

Saving deposit is sorts of short term liquidity, which can be withdrawn by

the depositors. Lower the ratio of saving deposit to total deposit higher the

liquidity ratio.

Findings:

The ratio of Saving Deposit to Total Deposit are 30.83% , 30.72 %, 42.40

%, 47.03% and 42.70 % in FY 2064/2065, 2065/2066, 2066/2067, 2067/2068

and 2068/2069 resp. In the FY 2066/2067 ratio is 42.40% which is greater than

FY 2065/2066 and this year’s ratio is 42.70 % which is lesser than previous

year which indicates liquidity has increased this year.

2.1.10 Fixed Deposit to Total Deposit Ratio

The ratio of Fixed Deposit to Total Deposit are 22.65%, 21.11%, 19.92

%, 22.53% and 28.60% in the FY 2064/2065, 2065/2066, 2066/2067,

2067/2068 and 2068/2069 resp. The highest ratio for the five year is 28.60 % in

the FY 2068/2069 and the lowest ratio is 19.92% in 2066/2067.

Findings:

In the FY 2067/2068 the ratio is 22.53 which is greater than previous

year. This year ratio 28.60% which is greater than previous year , which means

liquidity is higher than previous year.

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Chapter -3

Summary , Conclusion & Recommendations

3.1 Summary This fieldwork is prepared under the format prescribed by Faculty of

Management (FOM) of TU in a partial fulfillment of the requirements for the

degree of BBS. This study analyzes the financial position of the Nepal Investment

Bank Ltd. (NIBL) in terms of accounting ratios. A brief summary of the result of

fieldwork so carried out is presented as follows:

Table 3.1

Ratios FY 2067/68 FY 2068/69

1. EPS (Rs) 52.55 48.44

2. ROA 2.2% 2.02%

3. Price Earning Ratio 13.42% 10.54%

4. Net Profit to Loans & Advances Ratio 2.49% 2.66%

5. Cash & Bank balance to Current Deposit

Ratio

84.68% 136.92%

6. Cash Reserve Ratio 7.68% 12.33%

7. Saving Deposit to Total Deposit Ratio 47.03% 42.70%

8. Fixed Deposit to Total Deposit Ratio 22.53 % 28.60%

In table 3.1 & Appendices, the EPS trend is fluctuating, but it is clear that the

EPs of EPS of NIBL is substantially high than other competitors. The average EPS

of NIBL is Rs 51.77. The highest and lowest EPS of NIBL are Rs 62.57 and Rs

37.42 resp. in the FY 2064/2065 and 2066/2067. Therefore, from above analysis

we can say that the earning power of NIBL is in good condition.

The trend of ROA is also fluctuating; it rises in the year 2067/68. The highest

ROA was 2.20 % in the fiscal year 2067/2068 and lowest was 1.70 % in the fiscal

year 2066/2067 . The above table shows that the ROA is satisfactory. However of

NIBL must keep their eyes towards the situation and mobilize their working assets

more to earn more profit. The average ROA is 1.91 %.

In the FY 2064/2065 the ratio of net profit to loan and advances is 2.4 % but it

decreases by 0.13 and became 1.975 in the fiscal year and that it continuously

increases up to 2068/2069 i.e. 2.66 %

In the FY 2067/2068 the ratio of cash & bank balance to current deposit was

84.68 which is less than previous year 84.78% and the FY 2068/2069 it is 136.92

which is higher than last year . The average ratio is 88.83%. Thus , a bank has

highest liquidity in last five years.

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In the FY 2067/2068 the cash reserve ratio is 7.68 % that were lower than

current year i.e. 12.33 %. The average cash reserve ratio is 10.63 %.

The ratio of Saving Deposit to Total Deposit are 30.83% , 30.72 %, 42.40 %,

47.03% and 42.70 % in FY 2064/2065, 2065/2066, 2066/2067, 2067/2068 and

2068/2069 resp. In the FY 2066/2067 ratio is 42.40% which is greater than FY

2065/2066 and this year’s ratio is 42.70 % which is lesser than previous year which

indicates liquidity has increased this year.

In the FY 2067/2068 the ratio is 22.53 which is greater than previous year. This

year ratio 28.60% which is greater than previous year , which means liquidity is

higher than previous year.

3.2 Conclusion Ever since the establishment of NIBL is playing a pivotal role to foster in the

economy of Nepal. Strong financial position of the organization is a must to

survive, grow and succeed in this world passing through tumultuous changes. The

crux of this fieldwork report is to analyze the financial status of NIBL with the help

of Ratio Analysis. For this purpose the liquidity ratio, leverage ratio and

profitability ratio were ascertained.

The liquidity ratio of the concern shows calculation of leverage ratio portrays

that the financial status of the enterprise is in somewhat good condition. The

profitability ratio of the organization doesn’t depict a favourable condition. There

has been significant diminution in its net profit from FY 2067/68 to FY 2068/69.

Summing up, the bank still needs to make hard efforts to achieve better outcome.

3.3 Recommendations On the basis of the study following recommendations are forwarded to the

organization:

It needs to endeavor to bear low risk by increasing the proportion of

financing by the owners.

It has to increase its profit to more satisfactory point by proper utilization of share

members’ fund and other available resources.

It needs to endeavor to bear low risk by increasing the proportion of

financing by the owners.

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Chapter -4

APPENDICES

Appendix I

Shareholding pattern of NIBL

S.N Name Percentage Capital in NPR 1.1 “Ka” Licensed Institutions 15% 361,364,600

1.2 Insurance Company 15% 361,364,600 1.3 Organized Institutions 50% 1,204,549,100

1.4 General Public 20% 481,819,400

TOTAL 100% 2,409,097,700

Fig:1 Shareholding pattern of NIBL (Source : NIBL Annual Report 2068-69)

Appendix II

Earnings per share

FY NPAT in NPR No. of Common

Share (in No.)

EPS in NPR

2064-65 501,398,852 8,013,406 62.57

2065-66 696,731,516 12,039,154 57.87

2066-67 900,619,072 24,090,977 37.42

2067-68 1,265,949,588 24,090,977 52.55

2068-69 1,176,641,031 24,090,977 48.44

Average 51.77

Fig 2: Earning per Share (Source : NIBL Annual Report 2064/2065-2068/2069)

Shareholding pattern of NIBL"Ka" Licensed InstitutionsInsurance CompanyOrganized InstitutionsGeneral Public

Diagram 1 : Shareholding Pattern of NIBL Source : Appendix I

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Appendix III

Return on Asset (ROA)

FY NPAT in NPR Total Asset in NPR ROA 2064-65 501,398,852 27,590,844,761 1.82%

2065-66 696,731,516 38,873,306,084 1.79%

2066-67 900,619,072 53,010,803,126 1.70%

2067-68 1,265,949,588 57,305,413,482 2.2%

2068-69 1,176,641,031 58,356,827,501 2.02%

Average 1.91%

Fig 3: Return on Asset (Source: NIBL Annual Report 2064/2065-2068/2069)

Appendix IV

Price Earning Ratio

Fig 4: Price Earning Ratio (Source: NIBL Annual Report 2064/2065-2068/2069)

0

10

20

30

40

50

60

70

FY 2064-65 FY 2065-66 FY 2066-67 FY 2067-68 FY 2068-69

AM

OU

NT

Trend Analysis of EPS,ROA & PE Ratio

EPS

ROA

PE Ratio

FY MVPS in NPR EPS PE Ratio 2064-65 1729 62.57 27.63

2065-66 2450 57.87 42.34

2066-67 1388 37.42 37.09

2067-68 705 52.55 13.42

2068-69 515 48.44 10.54

Average 26.20

Diagram 2 :Trend Analysis of EPS, ROA & PE Ratio (Source: Appendices II , II & IV)

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Appendix V

Valuation Highlights

Particulars 2064-65 2065-66 2066-67 2067-68 2068-69

Ratio of Net profit to Gross Income 11.36% 14.23% 16.71% 20.26% 23.99%

Exchange Gain to Total Income Ratio 7.5 % 8.8 % 9.63% 8.2% 8.6%

Net Profit to Loans & Advances Ratio 2.10% 1.97% 2.25% 2.49?% 2.66%

Cash & Bank balance to Current Deposit Ratio 43.14% 94.63% 84.78% 84.68% 136.92%

Cash Reserve Ratio (CRR) 8.12% 11.70% 13.32% 7.68% 12.33%

Saving Deposit to Total Deposit Ratio 30.83% 30.72% 42.40% 47.03% 42.70%

Fixed Deposit to Total Deposit Ratio 22.65% 21.11% 19.92% 22.53% 28.60%

Fig 5 : Valuation Highlights (Source: NIBL Annual Report 2064/2065-2068/2069)

0

50

100

150

200

250

300

FY 2064-65

FY 2065-66

FY 2066-67

FY 2067-68

FY 2068-69

Fixed Deposit to Total Deposit Ratio

Saving Deposit to Total Deposit Ratio

Cash Reserve Ratio (CRR)

Cash & Bank balance to Current Deposit Ratio

Net Profit to Loans & Advances Ratio

Exchange Gain to Total Income Ratio

Diagram 3: Bargraph of Valauation Highlights (Source : Appendix V)

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Bibliography

Ale, Kamal 2009, Institution Analysis, Fieldwork Assignment, Nepal

Commerce Campus (NCC).

Agrawal, Govinda Ram 2011, Project Management in Nepal.

Kathmandu: M.K Publishers.

Bajracharya , BC 2009, Business Statistics & Mathematics.

Kathmandu : M.K Publishers.

Dangol, Ratna Man 2009, Accounting For Financial Analysis &

Planning . Kathmandu : Taleju Prakashan.

Shrees, Kishan 2010, Management Accounting, KFA Business

School.

www.nibl.com.np

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