12

CHAPTER -II

RESULTS AND ANALYSIS

Data Presentation and Analysis

Data Presentation and Analysis is an important stage of the research study. The main purpose of
analyzing data is to change it from unprocessed form in an understandable presentation. The
analysis of data consists of organizing data by tabulating and then placing that data in a
presentable form by using figures and tables. The main objective of the study is to evaluate the
financial performance and solvency position of the bank. This chapter will analyze the various
aspects of financial performance using the secondary data.

Debt Asset Ratio

Debt asset ratio is the percentage of bank’s total assets that were financed by creditors. It is an
indicator of a bank’s financial leverage. The higher the ratio, the higher the degree of leverage
(DOL) and, consequently, financial risk. The total debt to total assets is a broad ratio that
analyzes a bank’s balance sheet by including long-term and short-term debt (borrowings
maturing within one year), as well as all assets—both tangible and intangible, such as goodwill.

Table 1

Debt Asset Ratio

Year Total liabilities Total Assets Debt Asset Ratio

2070/71 55,547,173,685 61,082,972,355 0.90 times
2071/72 52,631,375,932 59,277,290,453 0.88 times
2072/73 70,594,882,833 78,515,345,284 0.89 times
2073/74 87,152,078,625 99,751,765,474 0.87 times
2074/75 89,737,566,102 102,538,669,895 0.87 times
Source: Annual Report of Nepal SBI from 2070/71 to 2074/75

In the above table, the Ratio is less than one (<1) throughout the years. It means the bank owns
more assets than liabilities and can meet its obligations by selling its assets if needed. The lower
the debt to asset ratio indicates less risk to bank.
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0.91

0.9 0.9

0.9

0.89 0.89

0.89
D/A Ratio

0.88 0.88

0.88

0.87 0.87 0.87

0.87

0.86

0.86
2070/71 2071/72 2072/73 2073/74 2074/75

Year

Figure 1: Debt Assets Ratio

The above trend line indicates the decreasing and increasing trend of the debt asset ratio. High
ratio is not preferable for a bank. The trend line shows that the ratio has decreased from 0.90 to
0.88 from year 2070/71 to 2071/72 whereas, the ratio increased slightly in next year. The ratio is
constant in the next two years. All the ratio is under one. Banks with high debt-to-asset ratios
may be at risk, especially in an increasing interest rate market. Creditors might get concerned if
the bank carries a large percentage of debt. They may demand that the bank pay some of it back
before taking on any more debt.
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Debt Equity Ratio

The debt to equity ratio shows the proportion of equity and debt of a bank. The objective of
computing this ratio is to measure the relative proportion on debt and equity in financing the
assets of a bank. A higher D/E ratio means that more of a bank’s financing is from debt versus
issuing shares of equity. Banks tend to have higher D/E ratios because they borrow capital in
order to lend to customers. 

Table 2

Debt Equity Ratio

Year Total Liabilities Total Equity Debt Equity Ratio

2070/71 55,547,173,685 5.535,798,670 10.03 times
2071/72 52,631,375,932 6,645,914,521 7.91 times
2072/73 70,594,882,833 7,920,462,451 8.91 times
2073/74 87,152,078,625 12,599,686,849 6.91 times
2074/75 89,737,566,102 12,801,103,702 7.01 times
Source: Annual Reports of Nepal SBI Bank from 2070/71 to 2074/75

The above table consists of debt equity ratio which indicates the margin of safety to long -term
creditors. The debt equity ratio is lower in other four years comparatively in 2070/71. A low debt
equity ratio implies the use of more equity than debt which means larger safety margin for
creditors since shareholder’s equity is considered as a margin of safety by creditors and vice
versa.

15
 12

10 10.03

8.91
8 7.91
Debt Equity Ratio

6.91 7.01
6

0
2070/71 2071/72 2072/73 2073/74 2074/75
Years

Figure 2: Debt Equity Ratio

The above trend line shows the increasing and decreasing trend of debt equity ratio throughout
the five years. The D/E Ratio has decreased from 2070/71 to 2071/72 and has increased in
following year and again has decreased in next years. In the time period of five years, the D/E
Ratio shows a lot of fluctuations. A low debt-to-equity ratio indicates a lower amount of
financing by debt via lenders, versus funding through equity via shareholders. A higher ratio
indicates that the bank is getting more of its financing by borrowing money, which subjects the
bank to potential risk if debt levels are too high.

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Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It shows the relationship between current assets and
current liabilities. The main objective of computing this ratio is to measure the ability of the bank
to meet its short-term obligations and to provide information about financial strength/ solvency
of a bank

Table 3

Current Ratio

Year Current Assets Current Liabilities Current Ratio

2070/71 36,806,612,122 55,361,030,931 0.67:1
2071/72 41,733,085,335 52,631,375,932 0.79:1
2072/73 48,774,911,956 70,594,882,833 0.69:1
2073/74 65,009,368,812 87,152,078,625 0.75:1
2074/75 83,063,383,654 86,021,163,757 0.97:1
Source: Annual Reports of Nepal SBI Bank from 2070/71 to 2074/7

1.2

1
0.97

0.8 0.79
Current Ratio

0.75
0.67 0.69
0.6

0.4

0.2

0
2070/71 2071/72 2072/73 2073/74 2074/75

years

Figure 3: Current Ratio

17
The above table and trend line show that the current ratio of all the five fiscal years were under
one. A ratio under 1 indicates that the bank’s debts due in a year or less are greater than its assets
(cash or other short-term assets expected to be converted to cash within a year or less.)

Cash Reserve Ratio (CRR)

The Cash Reserve Ratio refers to a certain percentage of total deposits the banks are required to
maintain in the form of cash reserve with the central bank. The objective of maintaining the cash
reserve is to prevent the shortage of funds in meeting the demand by the depositor.

Table 4
Cash Reserve Ratio
Year Cash Total Deposit CRR
2070/71 1,527,028,783 54,492,993,606 0.028
2071/72 1,753,912,290 51,628,221,954 0.033
2072/73 1,799,377,843 65,213,519,724 0.027
2073/74 1,984,553,390 81,664,548,665 0.030
2074/75 8,803,465,489 84,227,327,384 0.104
Source: Annual Reports of Nepal SBI Bank from 2070/71 to2074/75

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 0.12

0.1
0.1

0.08
Cash Reserve Ratio

0.06

0.04
0.03 0.03
0.03 0.03
0.02

0
2070/71 2071/72 2072/73 2073/74 2074/75
Years

Figure 4: Cash Reserve Ratio

The above table and trend line represent Cash Reserve Ratio of year 2070/71 to 2074/75. In the
table it is seen that in year 2074/75 the amount of cash is much higher than in other years and
this leads to higher Cash Reserve ratio. There was a significant change in the ratio from year
2073/74 to 2074/75. The Cash Reserve Ratio rises from 0.03 to 0.104.
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Return on Total Assets
Return on assets is a profitability ratio that provides how much profit a bank is able to generate
from its assets. In other words, Return on Assets measures how efficient a bank's management
is in generating earnings from their economic resources or assets on their balance sheet. ROA is
shown as a percentage, and the higher the number, the more efficient a bank's management is at
managing its balance sheet to generate profits.  The objective of computing this ratio is to find
out how efficiency the total assets have been used by the management.

Table 5

Return on Total Assets

Year Net Income Total Assets ROA

2070/71 922,984,007 61,082,972,355 0.015%
2071/72 1,165,437,141 59,277,290,453 0.019%
2072/73 1,431,981,801 78,515,345,284 0.018%
2073/74 1,638,950,328 99,751,765,474 0.016%
2074/75 1,764,888,746 102,538,669,895 0.017%
Source: Annual Reports of Nepal SBI Bank from 2070/71 to2074/ 2075

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 0.02
0.02
0.02 0.02
0.02
0.02 0.02
0.02
0.01
Return on Total Assets

0.01

0.01

0.01

0.01

0
2070/71 2071/72 2072/73 2073/74 2074/75

Years

Figure 5: Return on Total Assets

In the above table and trend line the return on total assets has increased from 2070/71 to 2071/72
and from 2071/72 to 2074/75 the return on total assets was in decreasing trend. The ratio was
higher in year 2071/72 and 2072/73 compare to other three fiscal years. Higher the ratio, the
more efficient the management and utilization of total assets and vice-versa.
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Return on Equity

The Return on Equity ratio essentially measures the rate of return that the owners of common
stock of a bank receive on their shareholdings. Return on equity signifies how good the bank is
in generating returns on the investment it received from its shareholders.  Return on Equity
measures a relationship between earning available to equity shareholder and equity shareholder’s
funds. The main objective of computing this ratio is to find out how efficiently the fund supplied
by the equity shareholder’s been used.

Table 6

Return on Equity

Year Net Income Total Equity Return on Equity

2070/71 922,984,007 5,535,798,670 0.17%
2071/72 1,165,437,141 6,645,914,521 0.18%
2072/73 1,431,981,801 7,920,462,451 0.18%
2073/74 1,638,950,328 12,599,686,849 0.13%
2074/75 1,764,888,746 12,801,103,792 0.14%
Source: Annual Reports of Nepal SBI Bank from 2070/71to 2074/2075
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0.2

0.18 0.18 0.18

0.17
0.16

0.14 0.14
0.13
Return on equity

0.12

0.1

0.08

0.06

0.04

0.02

0
2070/71 2071/72 2072/73 2073/74 2074/75

Years

Figure 6: Return on equity

In the above table and trend line, the highest return on equity was highest in year 2072/73.Higher
ratio indicates more efficiency of utilization of shareholder’s funds.
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Loan to Deposit Ratio

The loan-to-deposit ratio (LDR) is used to assess a bank's liquidity by comparing a bank's total
loans to its total deposits for the same period. The LDR is expressed as a percentage. If the ratio
is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund
requirements. Conversely, if the ratio is too low, the bank may not be earning as much as it could
be.

Table 6

Loan to Deposit Ratio

Year Total Loan Total Deposit Loan to Deposit

2070/71 34,633,070,539 54,492,993,606 0.63
2071/72 39,182,085,316 51,628,221,954 0.76
2072/73 46,378,991,308 65,213,519,724 0.71
2073/74 63,752,341,581 81,664,548,665 0.78
2074/75 72,363,660,048 84,227,327,384 0.86
Source: Annual Reports of Nepal SBI Bank from 2070/71 to 2074/75

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 1

0.9
0.86
0.8 0.78
0.76
0.7 0.71
0.63
0.6

0.5

0.4

0.3

0.2

0.1

0
2070/71 2071/72 2072/73 2073/74 2074/75
Years

Figure 7: loan to deposit ratio

The above table and trend line show the loan to deposit ratio of the bank. In the year 2074/75 the
ratio was higher than other years. A high loan to deposit ratio means the bank was issuing out
more of its deposits in the form of interest – bearing loans, which in turn, means it’ll generate
more income.
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Findings
Findings are the principal outcomes of a research project; what the project suggested, revealed or
indicated. This usually refers to the totality of outcomes, rather than the conclusions or
recommendations drawn from them. Followings are the findings of this study:

 The debt asset ratio was less than one throughout the five years of time period. This
means Nepal SBI Bank owns more assets than liabilities and can meet its obligations by
selling its assets if needed.
 The debt equity ratio was much higher in year 2070/71 (10.03) comparatively in other
years. A high debt/equity ratio is often associated with high risk. This means that bank
was aggressive in financing its growth with debt in year 2070/71.
 The return on total assets was highest in year 2071/72. It indicates that bank was more
productive and efficient managing economic resources in year 2071/72 than in other
years.
 Throughout the five years of time period, there was a slight change in return on equity of
the bank. The return on equity has been in a decreasing trend, this indicates that the bank
has not utilize the shareholder’s fund fully.
 The ideal current ratio is considered to be 2:1. The bank has current ratio less than 2:1 so
it is not considered to be satisfactory.
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CHAPTER-III

SUMMARY AND CONCLUSION

Summary

A bank is a financial institution licensed to receive deposits and make loans. Banks may also
provide financial services, such as wealth management, currency exchange, and safe deposit
boxes. There are two types of banks: commercial/retail banks and investment banks. In most
countries, banks are regulated by the national government or central bank. Commercial banks are
typically concerned with managing withdrawals and receiving deposits as well as supplying
short-term loans to individuals and small businesses. Central banks are chiefly responsible for
currency stability, controlling inflation and monetary policy, and overseeing money supply . The
main purpose of this study was to evaluate the solvency and financial position of the bank.

 The solvency ratio is a key metric used to measure a bank’s ability to meet its debt obligations.
The solvency ratio indicates whether a bank’s cash flow is sufficient to meet its short-and long-
term liabilities. The lower a bank's solvency ratio, the greater the probability that it will default
on its debt obligation. Financial evaluation is used to analyze whether the bank is stable, solvent,
liquid or profitable enough to warrant a monetary investment. When looking at the bank, a
financial analyst conducts analysis by focusing on the income statement, balance sheet, and cash
flow statement.

Conclusion
The purpose of this study is to evaluate solvency and financial position of the bank. During the
study, we came to following conclusions:

 The Net Profit has been in increasing state. It means the bank was able to effectively
control its costs.

 The bank has a less satisfactory current ratio, so the bank can increase it’s current ratio
by using sweep accounts, cutting overhead expenses, and paying off liabilities.

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 The bank has decreasing return on equity, so to stabilize and increase it the bank should
have control over asset turnover, financial leverage and profit margin.

 The bank has a satisfactory debt assets ratio.

BIBLIOGRAPHY

Bastola, R.M (2017). A Study on Financial Analysis of Nepal SBI Bank.

Agrawal, N.P (1983). Analysis of Financial Statements, National Publishing House, New Delhi

Chaudhary, Anil B. Roy (1978). Analysis and Interpretation of Financial Statements

through Financial Ratios. Calcutta: Eastern law House

Chaudhary S.B (1964).: Analysis of Company Financial Statements, Bombay :Asia

Publishing House
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APPENDICES

Ratio Formula Measure of

Debt Asset Ratio Total liabilities Amount of total assets
Total Assets
financed by creditors
Debt Equity Ratio Total liabilities Relative proportion of equity
Total Equity
and debt used for financing
Current Ratio Current Assets Ability to pay short-term
Current Liabilities
liabilities with current assets
Cash Reserve Ratio Total cash Ability to cover short-term
Total Deposit
obligations with only cash
and cash equivalent
Return on Total Assets Net Income EBIT relative to total net
Total Assets
assets
Return on Equity Net Income Profit generation with
Total Equity
investment from equity
shareholder’s
Loan to Deposit Ratio Total loan Bank’s liquidity, which in
Total Deposit
 turn influences the
profitability of the banks.