CHAPTERI : INTRODUCTION

1.1 Background of the Study

Financial performance analysis is the process of determining the operating and financial
characteristics of a firm from accounting and financial statements. The goal of such
analysis is to determine the efficiency and performance of firm’s management, as
reflected in the financial records and reports. The analyst attempts to measure the firm’s
liquidity, profitability and other indicators that the business is conducted in a rational and
normal way; ensuring enough returns to the shareholders to maintain at least its market
value.

Though economic development of a particular country is dependent on a number of

factors such as industrial growth and development, modernization of agriculture,
expansion of domestic and foreign trade, political stability, its dependence to largest
extent on the banking sector is undeniable and/or banks play a key role in improving
economic efficiency by channeling funds from resource surplus unit to those with limited
access and/or the needy. Misra & Aspal (2013).

When analyzing financial fitness, corporate accountants and investors alike closely
examine a company’s financial statements and balance sheets to get a comprehensive
picture of profitability. The study used to solve the problem explained such as financial
statements in their raw format do not reveal the information as per required by its users.
There are a number of metrics and corresponding financial ratios that are used to measure
profitability.

The study employs the ratio analysis to compare the financial performance for NCC
Bank. Most of the studies on bank profitability have categorized the determinants of
profitability into endogenous and exogenous factors. The endogenous factors are those
firm specific factors that result from the decision and policies of management. Hence,
operating efficiency, profitability, liquidity and solvency ratios are among the endogenous
factors. On the other hand, market concentration, ownership, and other macroeconomic
factors such as economic growth and inflation are classified as exogenous factors.

 Financial performance analysis involves the use of financial statements. A financial

statement is a collection of data that is organized according to logical and consistent
accounting procedures. Its purpose is to convey an understanding of some financial
aspects of a business firm. It may show a position of a period of time as in the case of a
Balance Sheet, or may reveal a series of activities over a given period of time, as in the
case of an Income Statement. Thus, the term ‘financial statements’ generally refers to two
basic statement: the Balance Sheet and the Income Statement. The Balance Sheet shows
the financial position of the firm at a given point of time. It provides a snapshot that may
be regarded as a static picture. “Balance sheet is a summary of a firm’s financial position
on a given date that shows Total assets = Total liabilities + Owner’s equity.” The Income
Statement reflects the performance of the firm over a period of time. “Income statement is
a summary of a firm’s business revenues and expenses over a specified period, ending
with net income or loss for the period.”

Financial performance is an overview of the company's success in the form of results that
have been achieved thanks to various activities. Financial performance is an analysis to
assess the extent to which a company has carried out activities in accordance with the
Rules of financial According to Rudianto (2013:189) Financial performance is the result
or achievement that has been achieved by the management of the company in managing
the company's assets effectively during a certain period. Financial performance is
required by the company to know and evaluate the company's success rate based on the
financial activities that have been implemented.

Banking system occupies an important role in the economic development of a country. A

banking institution is indispensable in a modern society. It plays a pivotal role in the
economic development of a country and focus the core of the money market in an
advance country. The basic function of the bank is to collect deposits as much as possible
from customers and mobilize it into the most preferable and profitable sector like
industry, commerce, agriculture, entertainment etc. Like other countries, Goldsmiths,
merchants and moneylenders were the ancient bankers of Nepal. Tejarath Adda
established during the tenure of the Prime Minister Ranoddip Singh (B.S. 1993) was the
first step towards the institutional development of banking in Nepal. Tejarath Adda did
not collect deposits from the public but gave loans to employees and public against the
bullion. But the concept of modern banking institution in Nepal was introduced when the
first commercial bank, Nepal Bank Limited (NBL) was established in 1994 B.S. under
Nepal Bank act 1993 B.S. Being a commercial bank, it was natural that NBL paid more
attention to profit generating business implementation (Fahmi 2012:2).

Nepal Rastra Bank (NRB) was set up in 2013 B.S. as a central bank under NRB act 2012
B.S. Since then it has been fluctuating as the government„s bank and has contributed to
the growth of financial sector. After this, government set up Rastriya Banijya Bank
(RBB) in B.S. 2022 as a fully government owned commercial bank. As the name
suggests, commercial banks are to carry out commercial transaction only. But commercial
banks had to carry out the function of all type of financials institutions.

In case of the history of bank, an institutional banking system came in to existence in

Nepal only in the 19th century. Nepal Bank Limited was the first financial institutional of
Nepal established on the 30th of Kartik 1994 B.S. Being a commercial bank, it focuses on
income generating and profit maximization. As it was only one commercial bank has to
look the economic condition of the country. Only one Nepal bank Limited was not
sufficient to look all the sector of country. So in 2013 BS another bank names “Nepal
Rastra Bank” was established as the central bank of Nepal to regulate and control banking
management system of country. Then in 2022 B.S. “Rastriya Banijya Bank” was
established under Rastrya Banijya Bank Act 2021. This act is now revised as commercial
bank act 2031B.S. For the development of industry, commerce and trade, Nepal Industrial
Development Corporation was established under Industrial Development Corporation act
2016. For the development of agricultural sector, Agricultural Development Bank was
established on Magh 7th 2024 B.S., under Agricultural Bank Act 2024.

The joint venture bank was introduced in Nepal (2041 B.S.) with the establishment of
Nabil Bank Ltd. Nepalese government kept on liberalizing the economic policies and
improving the infrastructure. As a result, Nepal Indosuez Bank Limited and Nepal
Grindlays Bank Limited were established in 6th Magh 2042 B.S. and 16th Marga
2043B.S. respectively. Nepal Grindlays bank Limited is now being operated with new
ownership and name, Standard Chartered Bank Nepal Limited. After restoration of
democracy in Nepal in 2046B.S government adopted liberalized and market oriented
economic policies that created conductive environment for the development of banking
sector. As a result various joint venture commercial banks are established one after
another.

A Brief Introduction to NCC Bank

Nepal Credit & Commerce Bank Ltd. (NCC Bank) formally registered as Nepal - Bank of
Ceylon Ltd. (NBOC), commenced its operation on October 14, 1996 as a Joint Venture
with Bank of Ceylon, Sri Lanka. It was then the first private sector Bank with the largest
authorized capital of NRS. 1,000 million. The Head Office of the Bank is located at 
Bagbazar, Kathmandu. The name of the Bank was changed to Nepal Credit & Commerce
Bank Ltd., (NCC Bank) on 10th September, 2002, due to transfer of shares and
management of the Bank from Bank of Ceylon, to Nepalese Promoters.
NCC Bank completed its 24 years of banking services on October 14, 2020 and recently, 
entered into a historic merger with four Development Banks – Infrastructure
Development Bank Ltd., Apex Development Bank Ltd., Supreme Development Bank
Ltd. and International Development Bank Ltd. The Bank started its joint transaction from
January 01, 2017 has now become one of the largest private sector commercial bank. At
present NCC provides banking services and facilities to rural and urban areas of the
country through its 120 branches, 85 ATMs and 4 Extension Counters scattered all over
the country from Far West to Far East.  The Bank has developed corresponding agency
relationship with more than 150 International Banks having worldwide network.

CAPITAL STRUCTURE
Authorized Capital - Rs. 10 Billion
Issued Capital - Rs. 8.1338 Billion
Paid up Capital - Rs. 8.1338 Billion

Mission
We at NCC Bank, our goal is to provide a wide range of banking services and products in
the emerging socio-economic environment within and outside the country maintaining
high standards of integrity and efficiency with excellence.

Vision
Bankers with the quality service strive for expansion with profitability professionalism
and personalized banking services.

The Bank is using Pumori Plus, the most commonly used software by Nepalese Banks.
The Bank offers Any Branch Banking Service (ABBS) in all 120 branches. Telex and
SWIFT are other modes of communication for efficient and effective transmission of
information. In order to facilitate the customers with state of art technology, Bank is
providing Visa Debit Card facilities. NCC VISA Debit Card can be used in any of the
ATMs and POS machines displaying VISA LOGO for cash withdrawal, balance enquiry
or purchase of goods & services from various merchants like departmental stores,
hospitals, retail shops etc throughout Nepal and India only. In addition, NCC VISA Debit
Card enables wider access to VISA Card acceptable more than 4,00,000 ATMs and 2.5
Million Point of Sales(POS) terminals in Nepal and India. With NCC VISA Debit Card
one can access one's account 24-hours a day, 7 days a week and enjoy greater
convenience to facilitate one's banking and financial needs.
 
NCC Bank has strategic alliance with ICICI Bank, which facilitates to customers to remit
their money to more than 670 locations of India through ICICI Bank branches and their
correspondent Banks in India. NCC’s customers can affect their money transfer to India
either through Speed Transfer Arrangement or through Demand Draft Arrangement.
Under Speed Transfer Arrangement, money can be credited on-line to the beneficiary's
account at more than 400 branches of ICICI Bank, India. Under Demand Draft
Arrangement, the Bank can issue draft payable at more than 670 locations in India. NCC
bank is globally connected through various prominent Banks in Asia, Europe and North
America like Mashreq Bank, Standard Chartered Bank, Bank of Ceylon etc. Our services
across the globe include remittance, draft arrangement, import and export business,
guarantee etc.

In the previous reports various ratios were analyzed. According to the result of analysis
there are some positive signals for the bank. In the NCC bank there is higher risk as well
as return.It means profit is growing trend in NCC bank. In overall financial condition of
NCC bank is good. This research is prepared to meet the requirement of the Tribhuvan
University for the completion of the course of study of MBS. This study is comprise of
the financial performance analysis of NCC Bank Ltd. There are various researches
conducted on financial ratio analysis. Some of the researcher have compared the financial
performance analysis between two banks and some of the researcher have made analysis
the on the basis of financial performance of commercial banks in Nepal. Some of the
researcher have analyzed of financial performance one of the bank only. But this research
is about financial performance analysis of NCC bank. In the previous research, there is
no clear-cut accounting and financial performance of bank. But this analysis is about
liquidity ratios, solvency ratios, profitability ratios, operating efficiency ratios and
growth rate of NCC Bank Limited.

Mainly two methods of data collection are used to conduct the this research report . They
are primary and secondary data collection method. Primary data is taken from interview
with the concern authorities, field observation and indirect oral interview. Primary data
are use in analytical part of the study. Secondary data are taken from various related
books, booklets magazine, journals and articles, brochure, government reports, websites,
computer data base, newspaper and thesis made in this field. The researches are use
financial tools, tables and charts and statistical tools for analysis of data. The main
purpose of this study is to get overall idea about the financial performance of NCC Bank
Ltd. Analysis of financial data itself is very critical topic. The actual position of a
financial institution is only known through a good financial analysis. In this way this
research work is useful for so many parties.The report pepared can be referred by the
students in the future, and also can be used by the organization itself for monitoring and
self evaluation. It will also offer suggestion and recommendation for further
improvement.

1.2 Problem Statement

Various numbers of commercial banks are increasing in Nepal day by day. There is high
flow of money in the market but less viable and investable projects. In the current
situation there is mismatch of deposit and investable funds of banks. Therefore, the
introduction of a new bank is just sharing a cake rather than pumping new capital or new
technology, as Nepalese market is almost felt safeguarded. Few commercial banks are
continuously making profit and satisfying their shareholders and returning them adequate
profit. This has attracted the potential customers to power their money into banks, as there
are very few sectors to make profitable investment and the investors are always reluctant
to risk. They do not take initiation to invest in other sectors. Therefore, commercial banks
have a lot of deposits but a very little investment opportunity.

Statement of the problem shows the research questions. It interpret the cause of the
research of study. It helps to find out the research gap and prepare the research questions.
In the NCC bank there are many problems such as lack of adequate and skilled
manpower, difficulties in rural access, problems to deposit mobilization, liquidity
management, solvency positions etc. There is higher return as well higher risk. The net
operating cost of NCC is decreasing trend in previous year and the profit of is
satisfactory. However overall financial condition of NCC Bank is good.
Statement of problem of this study are given below:

(i) What percentage profitability generate in NCC Bank?

(ii) What is the liquidity position of NCC Bank?

(iii) What is the solvency position of NCC Bank?

(iv) What is the operating efficiency of NCC Bank?

(v) Does profitability trend of NCC bank is increased?

1.3 Objectives of the Study

The basic objective of this research is to make analyze financial performance of NCC by
using financial tools and to recommend the suitable suggestion for improvement of those
banks to the management team owners. Analysis of financial performance helps to
examine the efficiency and performance of an organization. Financial statements show
the financial strength and weakness of the firm. Other specific objective of the study are
mentioned follows:

(i) To evaluate efficiency of the profitability of NCC Bank.

(ii) To measure the liquidity of NCC Bank.

(iii) To examine the solvency of NCC Bank.

(iv) To measure the operating efficiency of NCC Bank.

(v) To find out the profitability trend of NCC Bank.

1.4 Rationale of the Study

Financial performance analysis is the process of identifying the financial strengths and
weaknesses of the firm by properly establishing the relationship between the item of
balance sheet and profit and loss account. It also helps in short-term and long term
forecasting and growth can be identified with the help of financial performance analysis.
The directory meaning of analysis is to resolve or separate a thing in to its element or
components parts for tracing their relation to the things as whole and to each other. The
analysis of financial statement is a process of evaluating the relationship between the
components parts of financial statement to obtain a better understanding of the firms
position and performance.

This study is believe to portray the differences in the performance of bank in NCC which
is expected to help management, regulators, policy makers, share holders and other
stakeholders in evaluating the soundness of the banking industry in the country.
Furthermore, the study can be expected to include academicians to make further research.
This study assists investors in understanding the current situation (strength &
weaknesses) of NCC bank which in turn will help investors to make information  based
decisions. The outputs of the study may expected to have the following importance: 

(i) Profit is the symbol of an organization’s success. Investors and creditors are interested
those organization which are generate higher profitability. So ratio analysis is important
for identify the organization’s profitability.

(ii) An organization’s success and goodwill depend on the short term liquidity and long
term liquidity. From the current and quick ratio we determine the condition of short
term liquidity. Similarly, from the debt management ratio we measure the total capital
in ratio of loan and success and unsuccess in pay loan and interest. So, ratio analysis is
importance for identifying the an organization’s liquidity position.

(iii) Researcher know about organization’s assets are uses as effective or not and
expected return generate or not. So ratio analysis is important for to know about
operating efficiency of bank.

(iv) It assists the government body to rank the NCC bank based on results.

(v) It helps for decision making of new investors in the NCC Bank.

(vi) To be use as a spring board for other advance researchers.

(vii) Students can have clear view of establishment and working of the concerned bank by
broadening the banking knowledge.

1.5 Limitations of the Study

Financial analysis is comprehensively beneficial in ascertaining the financial weaknesses

and strengths of an enterprise, it is grounded on the data that is obtainable in financial
statement. The financial analysis also goes through several limitations of financial
statements. Therefore, the analyst must be aware of the effect of the cost price level
changes, changes in accounting policies of an organization, window dressing of financial
statements, personal judgment, accounting concepts, and conventions, etc.

This study is focused on one bank, namely NCC Bank. There are different types of
financial analysis methods like fund flow analysis, common size analysis, cost-volume
analysis, profitability of capital and leverage analysis. But this study is focused only on
the financial ratio analysis and presents the trend changes on the different ratios. Even
though there is number of important variables which has significant influence on the
financial performance of any company like political affairs, inflation and economy is not
considered in this study. This study is grounded on data derived from the published
annual financial reports. This study is limited to a period of five years.
Following are the limitations of the study:

(i) The analysis is come to the descriptive rather than analytical.

(ii) There is using only ratio analysis for analyze the financial performance of bank.

(iii) The study is mainly focus on only NCC bank rather than over all commercial bank of
Nepal.

(iv) Limited variables are selected.

(v) There are simple techniques has used in analysis.

(vi) Financial analysis is a study of reports of the bank.

CHAPTER II : LITERATURE REVIEW

Literature is about any topic, subject meter, cases or event related past articles and
journals. Literature review refers to the collection of the results of the various researchers.
It takes into consideration the research of the previous researchers which are related to the
present research in any way. While reviewing the past literature it was found that there
are numerous projects and thesis prepared in the various topics of banking sectors. But
there are few works done in the topic of analyzing the financial ratios of commercial
bank. That too only few works have done taken NCC bank. As the major spot but all of
those works resemble positive result.

In this part, focus has been made on the introduction, theoritical review and empirical
review of literature that is relevant to the financial performance of commercial banks.
This chapter is basically concerned with review of literature relevant to the study of
financial performance of NCC Bank. So, every possible effort has been made to grasp
knowledge and information that is available from libraries, document collection centers,
magazines and bank. Reviewing and studying process has helped to take adequate
feedback to broaden the information bases and inputs to this study. Here mainly two parts
theoritical review and & empirical review are included for the bases and to make the
study more purposive.

(i) Introduction

(ii) Theoritical Review

(iii) Empirical Review

2.1 Introduction

Financial performance is a subjective measure of how well a firm can use assets from its primary
mode of business and generate revenues. The term is also used as a general measure of a firm's
overall financial health over a given period. Analysts and investors use financial performance to
compare similar firms across the same industry or to compare industries or sectors in
aggregate.Financial Performance in broader sense refers to the degree to which financial
objectives being or has been accomplished and is an important aspect of finance risk
management. It is the process of measuring the results of a firm's policies and operations
in monetary terms. It is used to measure firm's overall financial health over a given period
of time and can also be used to compare similar firms across the same industry or to
compare industries or sectors in aggregation..

2.2 Theoritical Review

The modern financial evaluation has greatly affected the role and importance of financial
performance. Nowadays, finance is best characterized as ever changing with new ideas
and techniques. Only efficient manager of the company can achieve the set up goals. If a
bank does not maintain adequate equity capital, it makes the bank more risky. If a bank
has inadequate equity capital, it must be used more debt that has high fixed cost. So any
firm must have adequate equity capital in their capital structure.

2.2.1 Bank

Banking, transactions carried on by any individual or firm engaged in providing financial

services to consumers, businesses, or government enterprises. In the broadest sense,
banking consists of safeguarding and transfer of funds, lending or facilitating loans,
guaranteeing creditworthiness, and exchange of money. These services are provided by
such institutions as commercial banks, savings banks, trust companies, finance
companies, and merchant banks or other institutions engaged in investment banking. A
narrower and more common definition of banking is the acceptance, transfer, and, most
important, creation of deposits. This includes such depository institutions as commercial
banks, savings and loan associations, building societies, and mutual savings banks. All
countries subject banking to government regulation and supervision, normally
implemented by central banking authorities.

2.2.2 Concept of Commercial Bank

Commercial banks are the heart of the financial system. They hold the deposits of many
persons, government establishment and business units. They make fund available through
their lending and investing activities to borrowers, individual business firms and services
from the producers to customers and the financial activities of the government. They
provide a large portion of the medium of exchange and they are media through monetary
policy is affected. These facts show that the commercial banking system of the nations is
important for the functioning of the economy. For bankers, the raw materials are money.
Evaluation of financial performance is a study of overall financial position of any
organization. It is closely related to the decision making. In the modern context, it gives
vital support for the investment decisions, financing decisions and dividend decisions.
Financial performance analysis is undergone with the help of periodically made financial
statements of the firm.

The main objectives of the bank are to collect deposits as much as possible from the
customers and to mobilize into the most profitable sector. If a bank fails to utilize it’s
collected resources than it can not generate revenue. Resource mobilization management
of bank includes resource collection, investment portfolio, loans and advances, working
capital, fixed assets management etc. It measures the extent to which bank is successful to
utilize its resources. To measure the bank performance in many aspects, we should
analyze its financial indicator with the help of financial statements.

The understanding of financial performance is work of various parts in a bank that can be
see in the bank’s financial condition at a certain period related to the gathering aspect and
the distribution of funds that are based on capital adequacy indicators, liquidity, and bank
profitability.

Financial performance analysis is a study of overall financial position of any

organization. It is closely related to the decision making. In the modern context, it gives
vital support for the investment decisions, financing decisions and dividend decisions.
Financial performance analysis is undergone with the help of periodically made financial
statements of the firm.

2.2.3Financial Statements

The Financial Statements are the means of presentation of a firm's financial condition and
basically consist of two types of statements - The Balance Sheet & Income Statement.
These are prepared to report the overall business activities as well as financial status of
the firm for specified period to its stakeholders. These contain summary of information
regarding financial affairs that is organized systematically. The top management is
responsible for preparing these statements.

The basic objective of financial statements is to assist in decision making. The analysis
and interpretation of financial statements depend on the nature and type of information
available.

Hence financial statement refers to any formal and original statement that discloses the
financial information related to any business concern during a period. The income
statements and balance sheet usually prepared at the end of each financial year show the
firm’s position.

(i) Balance Sheet

Balance sheet is one of the basic financial statements of an enterprise. The balance sheet
provide information about financial standing or a position of a firm at a particular point of
time usually end of the financial year. It can be visualized as a snapshot of the financial
status of a company. Balance sheet summarizes the assets, liabilities and owner’s equity
of a business at a moment of time, usually at the end of the financial year. Balance sheet
is a financial statement, which contains information regarding different capital
expenditures made on purchase of assets on particular date and information regarding
various sources of funds acquired by the business concern to finance these assets and also
the different sources of capital and liabilities at that particular point of time.
(ii) Income Statement

Income statement is designed to portray the performance of the business firm for specific
period of time i.e. for a year or month or quarter. The business revenues and expenses
resulting from the accomplishment of the firms operation are shown in the income
statements. It shows the summary of revenues, expenses and net income or loss of a firm
for a particular period of time. Income statement also serves as a true measure of the
firm’s profitability.

2.2.4 Financial Performance Analysis

Financial Analysis is the process of determining financial strengths and weaknesses of a

company by establishing strategic relationship between the components of a balance sheet
and profit and loss statement and other operative data. Financial Statement Analysis
involves the use of various financial statements. These statements perform several things.
First, the balance sheet summarizes the assets, liabilities and owner’s equity of a business
at a moment in time, usually the end of a year or a quarter. Next, the income statement
summarizes the revenues and expenses of the firm over a particular period of time, again
usually a year or quarter. While the balance sheet represents a snapshot of the firm’s
financial position at a moment in time, the income statement depicts a summary of the
firm’s profitability over time. From these two statements certain derivate statements can
be produced, such as statement of retained earnings, a sources and uses of funds
statements and a statement of cash flows.

“Financial Analysis is the process of identifying the financial strengths and weaknesses of
the firm by properly establishing relationship between the items of the balance sheet and
profit and loss account" (Pandey; 2004:560).

"Analyzing financial statements is a process of evaluating relationship between

component parts of financial statements to obtain a better understanding of a firm's
position and performance” (Metcalf; 1976:157). “Financial Statement Analysis allows
managers, investors and creditors as well as potential investors and creditors to teach
conclusion about the recent and current status of a corporation. The checking of financial
performance in a business deserves much attention in carrying out the financial position.
It also requires to retrospective analysis for the purpose of evaluating the wisdom and
efficiency of financial planning. Analyzing of what has happened should be of great value
in improving the standards, techniques and procedures of financial control involved in
carrying out finance function” (Kuchhal; 1982).

The four basic statements contained in the annual report are the balance sheet, the
income statement the statement of the retained earnings and the statement of cash flows.
Investors use the information contained in these statements to form expectations about the
future levels of earnings and dividends and about the risks of these expected values.
Financial statement analysis generally begins with the calculation of a set of a financial
ratios designed to reveal the relative strength and weakness of a company as compared to
other companies in the same industry, and to show whether the firm's position has been
improving or deteriorating over time.

Financial analysis is that sort of calculation, which is done with the help of annual report
and the annual report would contain the essentials for such analysis. So the data retrieved
from the annual report is indispensable for the financial analysis. It is both an analytical
and judgmental process that helps answer questions that have been properly posed. A part
from the specific analytical answer, the solutions to financial problems and issues depend
significantly on the views of the parties involved, the related importance of the issue and
on the nature and reliability of the information available.

A complete financial analysis and interpretation of financial statement involves the

assessment of past business performance, an evaluation of the present condition of the
business and the predictions about the future potential for achieving expected or desired
results. Generally, the analysis is used to determine the firm's financial position in order
to identify its current strengths and weakness and to suggest actions that might enable the
firm to take advantage of the strengths and correct its weaknesses” (Weston and Fred;
1996:78). Financial Performance Analysis is used primarily to gain insight into operating
and financial problems confronting the firms with respect to these problems. We must be
careful to distinguish between the cause of problem and symptom of it. It is thus an
attempt to direct the financial statements into their components on the basis of purpose in
the one hand and establish relationships between these components and between
individual components and totals of these items on the other. Along with this, a study of
various important factors over the past several years is also undertaken to have clear
understanding of changing profitability and financial condition of the business
organization. Much can be learnt about business performance and financial position
through appraisal of financial statements, the appraisal or analysis of financial statements
spotlights the significant facts and relationship concerning managerial performance,
corporate efficiency, financial strength and weakness and credit worthiness that would
have otherwise been buried in a maze of details.

2.2.5 Types of Financial Performance Analysis

The nature of financial analysis differs according to the purpose of the analyst. a
distinction may be drawn between various types of financial analysis either on the basis
of material used for the same or according to the modus operandi of the analysis.

(i) According to material used

(a) External Analysis

It is made by those who do not have access to the detailed records of the company. This
group, which has to depend almost entirely on published financial statements, includes
investors, credit agencies and governmental agencies regulating a business in a nominal
way.
(b) Internal Analysis

The internal analysis is accomplished by those who have access to the books of accounts
and all other information related to the business. While conducting this analysis, the
analyst is a part of the enterprise he/she is analyzing. Analysis for managerial purpose is
the internal type of analysis and is conducted by executives and employee of the
enterprise as well as governmental and court agencies which may have major regulatory
and other jurisdiction over the business.

(ii) According to Modus Operandi Analysis

(a) Horizontal Analysis

When Financial Statements for a number of years are reviewed and analyzed, the analysis
is called horizontal analysis. As it is based on data from year to year, rather than on one
date or period of times as a whole, this is also known as dynamic analysis.

(b) Vertical Analysis

It is frequently used for referring to ratios developed for one date or for one accounting
period. It is also called static analysis.

(iii)According to Objective

(a) Long Term Analysis

This is made in order to study the long term financial stability, solvency and liquidity as
well as profitability and earning capacity of a business concern. For the long run success
of a business concern, this analysis helps in the long term financial planning.

(b) Short Term-Analysis

This is made to determine the short-term solvency, stability and liquidity as well as
earning capacity of the business. This analysis is helpful for short term financial planning.

2.2.6  Users of financial analysis

Financial analysis can be undertaken by management of the firm, or by parties outside the
firm, owners, creditors, investors and others the natures of analysis will differ depending
on the purpose of analyst. The main users of financial analysis are:

(a) Trade creditors are interested in firm's ability to meet their claims over every short
period of time. Their analysis will, therefore, confined to the evaluation of the firm's
liquidity position.

(b) Suppliers of long term, debt are concerned with the firm's long term solvency and
survival. They analyses the firm's profitability overtime, its ability to generate cash to be
able to pay interest and repay principal and the relationship between various sources of
funds. Long term creditors do analyses the historical financial statement, but they place
more emphasis on the firm's projected financial statements to make analysis about its
future solvency and profitability.

(c ) Investors, who have invested their money in the firm's shares, are most concerned
about the firm's earnings. As such, they concentrate on the analysis of the firm's present
and future profitability. They are also interested in the firm's financial structure to the
extent it influences the firm's earnings ability and risk.

(c)  Management of the firm would be interested in every aspect of the financial analysis.
It is there overall responsibility to see that the resources of the firm are used most
effectively and efficiently, and that the firm's financial condition is sound.

2.2.7 Ratio Analysis

There are various methods of the financial performance analysis, ratio analysis is the
most widely used method. Ratio analysis is a major device of measuring the financial
activities of an organization. A ratio analysis is a significant way by which financial
stability of a business concern can be judged. It also helps to draw future plans and
forecasting. The processes of determine and interpreting numerical relationship are based
on financial statement. The relationship between two accounting figures, expressed
mathematically is known as financial ratio. This relationship can be expressed as
percentage or as quotient. In other words, ratio may be expressed in percentage, time or as
proportion. Thus, it is very valuable tool of management control. Ratio analysis is widely
used tool for financial analysis.

"Ratio analysis is defined as the systematic use of ratio to interpreter the financial
statements so that the strengths and weaknesses of affirm as well as its historical
performance and current financial condition can be determined. The term ratio refers to
the numerical or quantities relationship between two variables".

A ratio is defined as, "The indicated quotient of two mathematical expressions" and as
"the relationship between two or more things". 

In financial analysis, the relationship between two accounting figures, expressed

mathematically, is known as financial ratio. Ratio helps to summarize the large quantities
of financial data and to make qualitative judgment about the bank's financial
performance.

From the view point of this study, ratios have been classified in to four groups;

(a) Liquidity Ratio

Liquidity refers to the ability of organization’s to pay its current liabilities. Liquidity
implies the utilization of such funds of the firm which are idle or in very little amount. A
proper balance between the two contradictory requirements i.e. liquidity and profitability
are required for the efficient financial management. The more current assets associated
with high liquidity and low profitability and vice versa. The less current Ratio and quick
Ratio are the most widely used ratios for the general purpose to measure the liquidity
position of an organization.

(b) Solvency Ratio

A solvency ratio is a key metric used to measure an organization’s ability to meet its
long-term debt obligations and is used often by prospective business lenders. A solvency
ratio indicates whether a organization’s cash flow is sufficient to meet its’s long term
liabilities and thus is a measure of its financial health. It can indicate the likelihood that a
company will default on its debt obligations.

The main solvency ratios are the debt-to-assets ratio, the interest coverage ratio, the
equity ratio, and the debt-to-equity ratio.

(c ) Profitability Ratio

Profitability is very important aspect of management of any enterprise. It shows the

overall performance of an enterprise. The Profitability Ratios are calculated to measure
the operative effectiveness of an enterprise. Besides management of the company,
creditors and owners are interested in the Profitability Ratios of the firm. Profitability
Ratios can be calculated on the basis of either sales or investment. The important
Profitability Ratios, calculated in relation to sales are Net Profit Margin, Gross Profit
Margin, and Operating Expenses Ratio etc. Similarly, the important Profitability Ratios,
calculated in relation to investment are Return on Shareholders' Equity, Return on Capital
Employed, and Return on Fixed Assets etc.

(d)Operating Efficiency Ratio

The operating ratio shows the efficiency of an organization’s management by comparing

the total operating expenses of an organization to net sales. The operating ratio shows
how efficient an organization's management is at keeping costs low while generating
revenue or sales.

2.2.8 Utilities of Ratio Analysis

The ratio is analysis is most powerful tool of financial analysis. Many diverse groups of
people are interested in analyzing the financial information to indicate the operating and
financial efficiency, and the firm. These people use ratios to determine those financial
characteristics of the firm in which they are interested.

 Performance analysis: A short-term creditor will be interested in the current financial

position of the firm, while a long-term creditor will pay more attention to the solvency of
the firm. The long-term creditor will also be interested in the profitability of the firm. The
equity shareholders are generally concerned with their return and may bother about the
firm's financial condition only when their earning is depressed. If a short- term creditor
analyses only the current position and finds it satisfactory, he/she cannot be certain about
the safety of his /her claim if the firm's long term financials position or profitability is
unfavorable. The satisfactory current position would become adverse in future if the
current recourses are consumed by the unfavorable long term financial condition.
Similarly, the good long term is no guarantee for the long term creditor's claim if the
current position or the profitability of the firm is 'bad'.

 Credit analysis: in credit analysis, the analyst will usually select a few important ratios.
He she may use the current ratio or quick – assets ratio to judge the firms liquidity or debt
paying ability; debt –equity ratio is to determine the stake of owners in the business and
the firm's capacity to determine the firm's earning prospects. If the profitability is high,
the current ratio is high, the current ratio is low and the debt equity ratio is high, the
extinction of credit may be approved to the firm, because a profitable company will grow
and will have improvement in its current ratio and other ratio.

 Security analysis: the ratio analysis is also useful in security analysis. The major focus
in security analysis is on the long term profitability. Profitability is depend on a number
of factors and, therefore, the security analyst also analysis other ratios. He would certainly
be concerned with the efficiency with which the firm utilizes its assets and the financial
risk to which the firm is exposed. Therefore, besides analyzing profitability ratio
meticulously, he will also analysis activity ratio and leverage ratios. The detailed analysis
of the earning power is important for security analysis.

 Competitive analysis: The of a firm by themselves do not revival anything. For a

meaningful interpretation, the ratio of a firm should be compared with the ratio of similar
firm and industry. This comparison will reveal whether the firm is significantly out of line
with its competitors. If it is significantly out of line, the firm should undertake a detailed
analysis spot out troubled areas.

2.2.9 Du Point System of Financial Statement Analysis

“The Du Pont system is designed to show how the profit margin on sales, the assets
turnover ratio and the use of debt interact to determine the rate of return on equity”
(Weston;1996-307). The Du Point system of financial statement analysis is developed by
the financial experts of the Du Point Company by putting together the effects of
profitability, investment and the equity ratios. The approach is based on the relationship
among the three basic areas of the firm such as (i) cost controlling area (ii) Assets
management area and (iii) Financial leverage area. The directed to address the concern of
the shareholders; hence its main focus is on the return on equity (ROE). The ROE is
analyzed in terms of the factors that directly affect the ROE. The factors such as costs,
assets utilization and leverage ratio are the grounds on which several test are made to see
how the ROE is affected by such factors. The following modified Du Pont Chart presents
the relationship among these factors and ROE.

ROE = Net Income/ Sales × Sales/Total Assets × Total Assets/ Average shareholder
Equity

DuPont Analysis=Net Profit Margin × Assets Turnover × Equity Multiplier

where: ROE = Return on Equity

Net Profit Margin=Revenue/Net Income

Asset Turnover=Average Total Assets/Sales

Equity Multiplier=Average Shareholders equity/AverageTotal Assets

2.3 Empirical Review

The researcher has referred books, past studies to get an idea about the related topic of
study. The literatures drawn from past studies and books are as under:
2.3.1 Review of Previous Work

A healthy and vibrant economy requires a financial system that moves funds from people
who save to people who have productive investment opportunities. The financial system
is complex in both structure and function throughout the world. It includes many different
types of institutions, banks, insurance companies, mutual funds, stock and bond markets,
etc.

2.3.2 Review of Articles in the Journal

According to Malini and Banu (2019) “Finance is considered to be the life blood of every
business organization.”

Pramono, Wahyono and Qadri (2020) states “Financial performance is an overview of the
company’s success in the form of results that have been achieved thanks to various
activities.”

Ramachandran, Kandhakumar and Kannadas (2019) state “Financial performance

analysis is the process of identifying the financial strengths and weaknesses of the firm by
properly establishing the relationship between the items of balance sheet and profit and
loss account.” Further Ramachandran et al. (2019) said that financial performance
analysis also helps in short-term and long-term forecasting and growth.

2.3.3 Review of Previous Thesis

A common features of all the areas of financial performance analysis researchers are
similar. This provides a critical review of particular areas of financial performance
analysis. The thesis applies performance evaluation of NCC Bank of some financial ratio
analysis.

Prior to this study, the several researchers have found various studies regarding financial
performance of bank. In this study, various subject maters are reviewed which are as
follows: -

Bhatt Pashupati (2075) has been conducted a research on financial position of NCC Bank.
The prime objectives of the study was to know about profitability of the bank and
conclusion is growth in profitability of the bank from 2070 to 2074 and conclusion was
growth in last two years.

Sarada Devi (2019) has been conduct a research on financial performance analysis of
commercial banks. The prime objective of the study was to analyze the performance of
the commercial bank by calculating various ratios and conclusion is decrease in
profitability compared with industry average, therefore the bank should work on it and
move towards good return  because this is the means to assure its survival in the market.  
Shrestha Lesh Kumar (2010) has been conducted a thesis report intitled “A study on
financial performance of agriculture development bank limited” main objective of this
study is the evaluation of the financial performance of ADBL and conclusion is liquidity
position of ADBL is satisfactory and profit is increasing trend.

Tamang Suraj Kumar (2017) has been conducted a thesis report intitled profitability ratio
analysis of Nabil Bank Ltd. The main objective of the study is to analyze financial
performance of and solvency position of Nabil bank and conclusion is satisfactory in
profitability and solvency position and it should give continuity to this growth trend in
future.

2.3.4 Research Gap

In this study, the major areas is to disclose the financial performance relates to Nepalese
commercial banks. This study shows that the unique feature of findings. There are
various researcher conduct on financial ratio analysis. Some of the researcher have
compared the financial performance analysis between two banks and some of the
researcher has analysis the on the basis of financial performance of commercial banks in
Nepal, some of the researcher has analysis of financial performance one of the bank only
analyze about liquidity ratio. But this research is about financial performance analysis of
NCC bank with sample of NCC bank Limited. In the previous research, there is no clear-
cut accounting and financial performance of banks. The research can help the people who
wanted to know about the overall financial standard and accounting procedure of NCC
bank in Nepal. Therefore, in this report analysis about liquidity ratios, solvency ratios,
profitability ratios, operating efficiency ratios and growth rate of NCC Bank Limited.

Research gap is the difference between previous work done and the present work. Earlier
workers conducted by the previous researchers are very useful and appreciated by
personnel by various related fields. Although there is long gap in the continuation on the
same topic, that help us to know the very recent situation. In this study is centralized to
highlight the deposit and loan of NCC Bank. Presented up-to date data’s for as possible to
make good research of NCC Bank. Mostly previous researchers have given detail
information about two banks and little of my thesis itself more significant and specific. So
this study will be useful for those interested persons, parties, professors, students,
businessman, government for academically as well as policy perspective. Hope this study
will help to others in future in the related field.

CHAPTER 3: Research Methodology

Research methodology is a way to solve the research problem systematically and to fulfill
the research objectives accordingly. Research methodology describes the method and
process applied in the entire aspect of study and helps to resolve and systematic problems.
Research methodology is used to collect information and data set out over all plan
associated with study. The methodology include publications research, interviews, survey
and other research techniques and include both present and historical information. It
provides a basic framework on which the study is based.
This chapter focuses on the research design, population and sample of the study, nature
and sources of primary and secondary data. It also discusses sampling techniques and data
collection method and procedure along with time frame. Further this chapter specifies the
major tools models used to examine the relationship between variables of interest. The
method employed for data analysis and measurement include the instruments, data
analysis technique and detail on overall analysis plan have also been dealt. This study
plans the following methodological aspects.

3.1 Research Design

A research design is the logical and systematic planning that specifies the procedures for
collecting and analyzing data and information. To attain the specified purpose of this
study, descriptive research design will be considered an appropriate one. On the other
hand, causal comparative research method has also been followed. Accordingly, the
overall study plan will be based on the qualitative as well as quantitative approach of
research.

Research design have to be shows the activities of research beginning to until the
formulation of report. It is a planning of research. It is a systematic plan structure and
strategy of investigation. It helps to the formulation of report. It is a pre-plan of research
and it shows opinion answers to research question and control variance.

The project work report is a descriptive of one bank i.e. NCC Bank. Therefore the entire
study undertaken for project work report is descriptive nature. However comprehensive
analysis is also has made for this purpose. Different types of statistical and financial tools
are used to analyze the collected data. Microsoft word and excel are used for editing,
coding, classifying and tabulation of the collected data. Similarly percentage and ratio are
use to analyze the raw data. “Research design is the arrangement of conditions for the
collection and analysis of data that aim to combine to the research proposal with scientific
procedures.” The tasks of sample design is fulfill by collecting the suitable, acceptable
and the reliable primary and secondary data from the NCC bank. All required data are
collected from the NCC bank, annual report, financial report and the website of NCC
bank limited.

A research design is the set of methods and procedures use in collecting and analyzing
measures of the variables. A research design is typically includes how data is collected?,
what instrument are employed ? , how the instruments are used ? and the intended for
analyzing data collected. Research design is shows how to construct an experiment or
study.

3.2 Population and Sample and Sampling Design

Population included the same features and behavior of the subject matter’s study of
research area which are related with all persons, product, numbers, activities and cases. It
is the combination of many units but one unit’s features similar to another units feature.
For example : A study of an organization’s employees satisfaction that organization’s all
employees included in the population. In this way to some employees are included in
population. In this way to some employees are taken for the model and measure the
satisfaction, by this measurement it show all population’s features. There would be use
finite method of population. Population is taken from all commercial bank of Nepal. All
banks perform the functions of commercial banks under rules, regulations and directives
of Nepal Rastra Bank.

Sample is the small part of population. In this study there is sample taken from NCC
Bank.

3.3 Nature and Sources of Data, and the Instrument of Data Collection

This study is designed to financial performance analysis of NCC Bank by analyzing

financial ratios of NCC Bank. Data obtained from the, various sources does not directly
used in there original form further they need to be verified and simplified for the purpose
of analysis. Data information, figure and facts so obtained need to checked, rechecked
edited and tabulated for computation. According to the nature of data, they has been
inserted in meaningful tables, which has been shown in annexes. Homogenous data has
been sorted in one table and similarly various tables has been prepared in understandable
manner odd data excluded form the table. Using financial and statistical tools data hass
been analyzed and interpreted.

Ratio analysis analyze the bank’s strength and weakness. It is a information and
verification of the thesis. Data are uses for achieve of goal of the study. Data are
collected by record, observation and measurement of any subject meter. It is also called
raw material of research to complete it. In data collection, it includes qualitative and
quantitative data. Primary data are used in the analytical (qualitative) part of the study and
secondary data are used in the quantitative part of the study. It introduce the real case of
study.In this study data are collectd from different sources. They are website of NCC,
annual report of NCC,financial report of NCC,book application, articles from newspaper
and internet, direct interview, field observation etc.

Meanly two methods of data collection are used to prepare the project report. They are
primary and secondary data collection method.

(i) Primary Data

Primary data are taken from interview with the concern authorities, field observation,
indirect oral interview. Primary data are use in analytical part of the study.

(ii) Secondary Data

The data, which are not originally collected but obtain from published and unpublished
sources, are called secondary data. These data are not original in character. Secondary
data refers to the information or facts already collected such data are collected with the
objectives of understanding the past status of any variable or the data collected and
reported by some source is accessed and used for the objective of a study.
For the purpose of the study, secondary data are taken from various related books,
booklets magazine, journals and articles, brochure, government reports, websites,
computer data base, newspaper and thesis made in this field have been referred. Besides
necessary suggestions are taken from various experts both inside and outside the bank
whenever required.

3.4 Methods of Analysis

There are many well-developed methods available for data analysis. In this report there
are used qualitative and quantitative methods of data analysis. This thesis presentation
summarizes qualitative as well as quantitative data analysis method in a brief manner
understanding bank’s ratios. Ratio analysis involve the analyzing the financial position of
an organization based on some calculation. Ratio analysis is a technique of financial
performance analysis. Ratio helps to the managers to understand their bank’s performance
relative to that of competitors and are often used to trance performance over the time
period. It can reveal much about firm and it’s operations.

3.4.1 Financial Tools

Financial tools are those, which are used for the analysis and interpretation of financial
data. These tools can be used to get the precise knowledge of a business, winch in turn,
are fruitful in exploring the strengths and weaknesses of the financial policies and
strategies. For the sake of analysis following various financial tools have been used in
order to meet the purpose of the study. Ratio Analysis Ratio analysis helps to summarize
the large quantities of financial data and to make quantitative judgments about the firm's
financial performance. Ratio is the expression of one figure in terms of another. It is the
expression of relationship between the mutually independent figures, in financial
analysis; ratio is use to as an index of yardstick for evaluating the financial position and
performance of firm. Ratio analysis is very much powerful & widely used tool of
financial analysis. It is define as the systematic use of ratio to interpret the financial
statements so that the strength and weakness of a firm as well as its historical
performance and current financial condition can be determined. It helps the analysis to
make qualitative judgment in about the financial position and performance of the firm.
Therefore, it is helps to establish relationship among various ratios and interpret there on
specially, based on comparison between two or more firms or inters firm comparison and
comparison between present and past ratios for the same firm give enormous and fruitful
results to examine the financial performance. The obsolete accounting figure reported in
the financial statement does not provide a meaningful understanding of the performance
and financial position of the firm. An accounting figure conveys meaning when it is
related to some other relevant information. Therefore, the ratio is the relationship between
two accounting figures expressed mathematically. It helps to summarize large
quantitative relationship helps to form a quality judgment.We used the model for
performance analysis of NCC bank. In this work by using the data from financial report
such as balance sheet and income statement of the NCC bank, and use ratio analysis
method we investigate the performance of NCC bank.
In this study many techniques used to analysis of data. They are financial tools, tables and
charts etc. These graph and table are used through excel program and other tools. The
financial tools are given below:

(i) Liquidity Ratio

(ii) Solvency Ratio
(iii) Profitability Ratio
(iv) Operating Efficiency Ratio

(i) Liquidity Ratio

Liquidity refers to the ability of organization’s to pay its current liabilities. Liquidity
implies the utilization of such funds of the firm which are idle or in very little amount. A
proper balance between the two contradictory requirements i.e. liquidity and profitability
are required for the efficient financial management. The more current assets associated
with high liquidity and low profitability and vice versa. The less current Ratio and quick
Ratio are the most widely used ratios for the general purpose to measure the liquidity
position of an organization.

(a)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 tells investors and analysts how a company
can maximize the current assets on its balance sheet to satisfy its current debt and other
payables.

Current Ratio = Current Assets/Current Liabilities

(b)Liquid Assets to Total Assets Ratio

Liquid assets to total assets ratio reveals the position of liquid assets and total assets.

Liquid Assets to Total Assets Ratio = Total liquid Assets/Total Assets

In the present study liquid assets include cash balance, Nepal Rastra bank deposit, deposit
with other banks, investment in marketable securities and money at call etc.

(c ) Liquid Assets to Total Deposit Ratio

This ratio measures the percentage of liquid fund with the bank to make immediate
payment to the depositors.

Liquid Assets to Total Deposit Ratio =total liquid Assets/ Total Deposit
(d)Credit to deposit Ratio

To calculate the credit to deposit ratio, divide a bank's total amount of loans by the total
amount of deposits for the same period.Credit to total deposit ratio measure the bank’s
successful to mobilize their total deposit on loan and advances.

Credit to deposit Ratio = Total Loan/ Total Deposit

(ii) Solvency Ratio

A solvency ratio is a key metric used to measure an organization’s ability to meet its
long-term debt obligations and is used often by prospective business lenders. A solvency
ratio indicates whether a organization’s cash flow is sufficient to meet its’s long term
liabilities and thus is a measure of its financial health. It can indicate the likelihood that a
company will default on its debt obligations.

The main solvency ratios are the debt to equity ratio, debt-to-assets ratio, equity ratio, and
the interest coverage ratio.

(a) Debe Equity Ratio

The ratio is used to evaluate an organization’s financial leverage. The D/E ratio is an

important metric used in corporate finance. It is a measure of the degree to which a
company is financing its operations through debt versus wholly-owned funds. More
specifically, it reflects the ability of shareholder equity to cover all outstanding debts in
the event of a business downturn.

Debe Equity Ratio = Total Debt/Total Equity

(b) Debt Assets Raio

The debt to total assets ratio is an indicator of a company's financial leverage. It tells you

the percentage of a company's total assets that were financed by creditors. In other words,
it is the total amount of a company's liabilities divided by the total amount of the
company's assets.

Debt Assets Ratio = Total Debt/Total Assets

(c ) Equity Ratio
The equity ratio is a financial metric that measures the amount of leverage used by an
organization. It uses investments in assets and the amount of equity to determine how
well an organization manages it’s debts and funds it’s asset requirements. Equity ratio
uses an organization’s total assets (current and non-current) and total equity to help
indicate how leveraged the organization : is how effectively they fund asset requirements
without using debt.

Equity Ratio = Total equity / Total assets

(d)Interest Coverage Ratio

The interest coverage ratio is a debt ratio and profitability ratio used to determine how
easily a company can pay interest on its outstanding debt. The interest coverage ratio may
be calculated by dividing a organization’s earning before interest and tax (EBIT) by its
interest expense during a given period by the company's interest payments due within the
same period.

The Interest coverage ratio is also called “times interest earned.” Lenders, investors, and
creditors often use this formula to determine a company's riskiness relative to its current
debt or for future borrowing.

Interest Coverage Rati = Earnings Before Interest and Taxes (EBIT) / Interest Expenses

(iii) Profitability ratio

Profitability is very important aspect of management of any enterprise. It shows the

overall performance of an enterprise. The Profitability Ratios are calculated to measure
the operative effectiveness of an enterprise. Besides management of the company,
creditors and owners are interested in the Profitability Ratios of the firm. Profitability
Ratios can be calculated on the basis of either sales or investment. The important
Profitability Ratios, calculated in relation to sales are Net Profit Margin, and Gross Profit
Margin. Similarly, the important Profitability Ratios, calculated in relation to investment
are Return on Shareholders' Equity, Return on Capital Employed, and Return on Assets
etc.

(a) Return on Assets

Return on assets (ROA) is an indicator of how profitable a company is relative to its total
assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's
management is at using it’s assets to generate earnings. Return on assets is displayed as a
percentage.

Return on Assets = Net Income/ Total Assets

(b)Return on Equity

Return on equity (ROE) is a measure of financial performance calculated by dividing net

income by shareholders equity. Because shareholders' equity is equal to a company’s
assets minus its debt, ROE is considered the return on assets. ROE is considered a
measure of the profitability of a corporation in relation to stockholders’ equity.

Return on Equity = Net Income / Total Equity

(c ) Net Interest Margin = Interest income - Interest Expenses/ Interest Earning Assets

(iv) Operating efficiency ratio

The operating ratio shows the efficiency of an organization’s management by comparing

the total operating expenses of an organization to net sales. The operating ratio shows
how efficient an organization's management is at keeping costs low while generating
revenue or sales.

(a) Spread = Total Interest Inome/ Earning Assets - Total Interest Expenses/ Interest
Paying Liabilities

(b) Interest Expenses to total Operating Expenses Ratio = Total Interest expenses/
Total Operating Expenses

(c ) Interest Income to Total Operating Income Ratio = Total Interest Earning/ Total
OPerating Income

The statistical tools of analysis are :

(a) Table
(b) Bar diagram
(c) Graph

3.4.2 Trend Analysis

The least square method to trend analysis has been used in measuring the trend analysis.
This method is widely used in practice. The straight line trend of a seires of data is
represented by the following formula.

Y= a + bx

Here,
Y is the dependent variable, a is y intercept or value of y when x=0, b is the slope of the
trend line or amount of change that comes in y for a unit change in x.

Where, y= Dependent variable

x = Independent variable

a = Y – intercept

b = Slope of the trend line

3.5 Research Framework and Defination of Variables

A conceptual framework is a tool researchers use to guide their inquiry, it may a
set of ideas use to structure the research, a short of map. The conceptual
framework for Financial performance of NCC Bank will be developed based on
the objective of the study and previous literature review on this area. It is the
researcher’s own position on the problem and gives direction to the study. It may
be an adaption of a model used in a previous study, with modifications to suit the
inquiry.

Financial performance analysis is not a new concept. It is one of the widely preferred
research works for those who are interested in this sector. In this study we would be
analyze financial performance by using different ratios. Ratio analysis is related to a
number of key financial concepts in the corporate world.

The fundamental of the analytical technique is to simplify or reduce the data under review
to the understandable terms. There are various tools and techniques of financial statement
analysis, each of which is used according to the purpose for which the analysis is carried
out. The widely used techniques are as follows:

(i) Balance Sheet

Balance sheet is one of the basic financial statements of an enterprise. The balance sheet
provide information about financial standing or a position of a firm at a particular point of
time usually end of the financial year. It can be visualized as a snapshot of the financial
status of a company. Balance sheet summarizes the assets, liabilities and owner’s equity
of a business at a moment of time, usually at the end of the financial year. Balance sheet
is a financial statement, which contains information regarding different capital
expenditures made on purchase of assets on particular date and information regarding
various sources of funds acquired by the business concern to finance these assets and also
the different sources of capital and liabilities at that particular point of time.

(ii) Income Statement

Income statement is designed to portray the performance of the business firm for specific
period of time i.e. for a year or month or quarter. The business revenues and expenses
resulting from the accomplishment of the firms operation are shown in the income
statements. It shows the summary of revenues, expenses and net income or loss of a firm
for a particular period of time. Income statement also serves as a true measure of the
firm’s profitability.

(iii) Ratio Analysis

Ratio Analysis has been used as a major tool in the interpretation and evaluation of
financial analysis. The term ratio refers to the numerical quantitative relationship
between the two items/variables. A ratio is calculated by dividing one item of the
relationship with the other base.

The financial performance measurement variables are:

(a) Net profit margin 

Net profit margin is a profitability ratio that measures what percentage of revenue and
other Income is left after subtracting all costs for the business, including costs of goods
sold, operating expenses, interest, and taxes. Net profit margin differs from gross profit
margin as a measure of profitability for the business in general, taking into account not
only the cost of goods sold, but all other related expenses.

Net Profit Margin = Net Profit / Revenue

(b) Working Capital

Working capital is a measure of the business’s available operating liquidity, which can
be used to fund day-to-day operations.

Working Capital = Current Assets - Current Liabilities

(C ) Current Ratio
 Current ratio is a liquidity ratio that helps you understand whether the business can pay
its short-term obligations—that is, obligations due within one year— with its current
assets and liabilities.

Current Ratio = Current Assets / Current Liabilities

(d) Leverage

Financial leverage, also known as the equity multiplier, refers to the use of debt to buy
assets. If all the assets are financed by equity, the multiplier is one. As debt increases,
the multiplier increases from one, demonstrating the leverage impact of the debt and,
ultimately, increasing the risk of the business.

Leverage = Total Assets / Total Equity

(e )Debt-to-Equity Ratio

The debt-to-equity ratio is a solvency ratio that measures how much a company

finances itself using equity versus debt. This ratio provides insight into the solvency of
the business by reflecting the ability of shareholder equity to cover all debt in the event
of a business downturn.

Debt to Equity Ratio = Total Debt / Total Equity

(f) Return on Equity

Return on equity, more commonly displayed as ROE, is a profitability ratio measured

by dividing net profit over shareholders’ equity. It indicates how well the business can
utilize equity investments to earn profit for investors.

ROE = Net Profit / (Beginning Equity + Ending Equity) / 2

(g) Return on Assets

Return on assets, or ROA, is another profitability ratio, similar to ROE, which is

measured by dividing net profit by the company’s average assets. It’s an indicator of
how well the company is managing its available resources and assets to net higher
profits.

ROA = Net Profit / (Beginning Total Assets + Ending Total Assets) / 2

CHAPTER IV : Result and Discussion

4.1 Result
This chapter deals with the analysis and interpretation of data following the researcher
methodology dealt in the chapter. In the course of analysis, data gathered from the various
sources have been inserted in the tabular form according to 'heir' homogenous nature. The
various tables prepared for the analysis purpose. Using financial tools for the data have
been analyzed the result of the analysis has been interpreted keeping in mind the
conventional standard with respect to ratio analysis, directives of NRB and other factors
while using other tools.

4.2 Financial Statement Analysis

Financial analysis is done by applying various financial tools in order to clear picture on
the viability of the project. The financial analysis is done to ascertain the liquidity,
solvency, profitability and operating efficiency of the firm. The concept of financial
statement analysis has been already discussed in previous chapter. Here, we study and
analyze the data by using accounting tools.

4.2.1 Liquidity Ratio

Liquidity ratio measures the ability of the firm to meet its current obligations. A
commercial bank must maintain its satisfactory liquidity position to meet the credit need
of the community. Liquidity provides honor strength health and prosperity to an
organization. It is extremely essential for an organization to meet its obligations as they
become due. A firm should ensure that it has not lack of liquidity and also that it is not
too much highly liquid.

The following ratios are evaluated and interpreted under liquidity ratios:

(i) Current Ratio

Current ratio indicates whether the concern has instant ability to payout the current
liabilities as they mature. The ratio is the yardstick to judge the soundness of the short
term financial position of the business unit or industry. High ratio indicates sound
liquidity position of the bank and vice-versa. But too high ratio is not good for bank since
it reveals the under utilization of fund. Standard of current ratio is 2:1.

In the following table, we can see the data relating to Current Ratio of NCC.

Table No. : 4.1 Current Ratio of NCC Bank

 Year Current Assets Current Liabilities Ratio(in times)

2072/73 33271549035 30679875877 1.0844

2073/74 65056268773 59574324973 1.0920

2074/75 7 0555999212 64115453466 1.1004

2075/76 84764660368 74691931504 1.1348

2076/77 92743054790 80820491875 1.1475

Source: NCC Bank

In above table shows that the current ratio ie current asset to current liability of NCC
Bank is in Increasing trend. The ratios are 1.0844, 1.0920, 1.1004, 1.1348 and 1.1475
respectively. The highest ratio is 1.1475 times in year 2076/77 and the lowest ratio 1.0844
times in year 2072/73. These all ratio shows that the bank is maintain the acceptable
liquidity position of the bank. The liquidity position of the bank is satisfactory because
the current ratios of the different years are about to meet to the standard. Higher current
ratio means the better liquidity position. 2:1 considered to be an adequate ratio. Current
assets and current liabilities manage the current ratio. It is necessary that every business
entity must manage the good liquidity position.

Current Assets to Current Liabilities Ratio is represented in figure as follow.

Figure No.:4.1 Current Assets to Current Liabilities Ratio

 1.15

1.1

1.05
Ratio in times

Ratio

0.95

0.9
2072/73 2073/74 2074/75 2075/76

Year

(ii)Liquid Assets to Total Assets Ratio

Liquid assets to total assets ratio reveals the position of liquid assets and total assets.
Liquid assets include cash balance, Nepal Rastra bank deposit, deposit with other banks,
investment in marketable securities and money at call etc.

Liquid Assets to Total Assets Ratio = Total liquid Assets/Total Assets

In the following table, we can see the data relating to liquid assets to total assets ratio of
NCC.

Table No. : 4.2 Liquid Assets to Total assets Ratio of NCC Bank

Year Total Liquid Assets Total Assets Ratio(in times)

s2072/73 33271549035 34348783402 0.9686

2073/74 65056268773 67673945207 0.9613

2074/75 7 0555999212 74037482604 0.9529

2075/76 84764660368 88718843809 0.9554

2076/77 92743054790 97071039944 0.9554

Source : NCC Bank

In above table shows the liquid assets to total assets rato of NCC Bank is fluctuating
trend. The ratio are 0.9686, 0.9613, 0.9529,0.9554 and 0.9554 respectively. The highest
ratio is 0.9686 times in year 2072/73 and lowest ratio is 0.9629 in year 2074/75.

Figure No.: 4.3 Liquid Assets to Total Assets Ratio

0.97

0.97

0.96
Ratio in times

0.96

0.95

0.95
2072/73 2073/74 2074/2075 2075/2076

Year
Ratio in time

(iii)Liquid Assets to Total Deposit Ratio

Table No.: 4.3 Liquid Assets to Total Deposit Ratio of NCC Bank

Year Total Liquid Assets Total Deposit Ratio( in times)

2072/73 33271549035 30363555060 1.0957

2073/74 65056268773 54377550406 1.1963

2074/75 7 0555999212 57260544477 1.2321

2075/76 84764660368 67035624323 1.2644

2076/77 92743054790 73982579573 1.2535

Source : NCC Bank

In above table shows the total liquid assets to total deposit ratio of NCC bank is in
fluactuing trend. The ratios are 1.0957,1.1963,1.2321,1.2644 and 1.2535 respectively.
The highest ratio is 1.2644 in year 2075/76 and lowest ratio is 1.0957 in year 2072/73.

Figure No.: 4.3 Liquid Assets to Total Deposit Ratio

100

95

90
Ratio in times

85
Percentage

80

75

70
2072/73 2073/74 2074/75 2075/76

Year

(iv) Credit to Deposit Ratio

The credit to deposit ratio is used to assess a bank's liquidity by comparing a bank's total
loans to its total deposits for the same period. The credit to deposit ratio 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. The ideal loan-to-deposit ratio is 80% to 90%.
The following table shows credit to deposit ratio.
Table No.: 4.4 Credit to Deposit Ratio

Year Total Loan Total Deposit Ratio (inPercentage)

2072/73 24429639415 30363555060 80.45

2073/74 45180029922 54377550406 83.08

2074/75 53313197195 57260544471 93.10

2075/76 63233501076 67035624323 94.33

2076/77 68107149600 73982579573 92.06

Source : NCC Bank

In above table shows the total loan to total deposit ratio of NCC Bank in fluctuating trend.
The ratio are 80.45%, 83.08%, 93.10%, 94.33% and 92.06% in year 2072/73, 2073/74,
2074/75, 2075/76 and 2076/77 respectively. The highest ratio is 94.33% in year 2075/76
and the lowest ratio is 80.45% in year 2072/73. This means the bank is able to proper
mobilization of collected deposit. According to NRB directives above 80% to 90% of
Credit to total deposit ratio is able to better mobilization of collected deposit. So all of the
year the bank has tries to meet the NRB requirement or it has utilized its deposit to
provide loan. This means that credit management is in good position of the bank. Credit
and total deposit are presented in the line diagram.

Figure No.:4.4 Credit to Deposit Ratio

6
Ratio in Percentage

Ratio
4

0
2072/73 2073/74 2074/75 2075/76

Year
4.2.2 Solvency Ratio

A solvency ratio is a key metric used to measure an enterprise’s ability to meet its long-
term debt obligations and is used often by prospective business lenders. A solvency ratio
indicates whether an organization’s cash flow is sufficient to meet its long-term
liabilities and thus is a measure of its financial health. It can indicate the likelihood that a
organization will default on its debt obligations.

(i) Debt Equity Ratio

Total debt is the liability of the firm and it is payable toward its creditors. Debt includes
the value of deposits from customers, loan & advances payable, Bills payable and other
liabilities. Equity is the share capital and reserves of the firm. This ratio shows the
comparison in between total debt and equity.

Total debt = Debentures & Bonds + Borrowings + Deposits + Bills Payable + Proposed &

Undistributed Dividends + Income Tax Liabilities

Total Equity = share capital + Reserve and surplus + Retained Earning + Share Premium

Debt Equity Ratio = Total Debt / Total Equity

Table No.: 4.5 Debt Equity Ratio

Year Total Debt Total Equity Ratio (in times)

2072/73 303832251115 3668907525 8.2812

2073/74 5437755046 7137443024 7.6186

2074/75 57260544471 8486492525 6.7472

2075/76 67035624323 12008054730 5.5874

2076/77 73982959791 13231730605 5.5913

Source : NCC Bank

Above table shows the debt to equity ratio of NCC Bank. The ratio is fluctuating over the
study period. The ratio are 8.2812, 7.6186, 6.7472, 5.5874, and 5.5913 in the year
2072/73, 2073/74, 2074/75, 2075/76 and 2076/77 respectively. Excess amount of debt
capital structure results heavy burden in payment of interest. Risk of liquidation increase
if the debt cannot be repay in the time. High gearing ratio may provide high return to the
equity shareholders if the bank makes profit. Ratio is represented in figure as follow.
Figure No.: 4.5 Debt Equity Ratio

6
Ratio in times

0
2072/73 2073/74 2074/75 2075/76

Year

Ratio (in times)

(ii) Debt Assets Ratio

A metric used to measure a company’s financial risk by determining how much of the
company’s assets have been financed by debt. Calculated by adding short term and long-
term debt and then dividing by the company’s total assets. In general creditors prefer a
low debt ratio & owner prefer a high debt ratio in order to magnify their earning on one
hand and to maintain their concerned control over the firm on the other hand.

Table No.: 4.6 Debt Assets Ratio

Year Total Debt Total Assets Ratio (in times)

2072/73 303832251115 34348783402 0.8845

2073/74 5437755046 67673945207 0.8035

2074/75 57260544471 74037482604 0.7794

2075/76 67035624323 88718843809 0.7562

 2076/77 73982959791 97071039944 0.7623

Source : NCC Bank

Above table shows the debt assets ratio of NCC Bank is fluctuating trend. The ratio of
NCC Bank are o.8845, 0.8035, 0.7794, 0.7562 and 0.7623 times in year 2072/73,
2073/74, 2074/75, 2075/76 and 2076/77 respectively. The highest ratio is 0.8845 times in
year 2072/73 and lowest ratio is 0.7562 in year 2075/76. The portion of total debt is
continuously decreasing condition its means NCC Bank minimizing cost and doing better
performance. Debt to total asset ratio is represented in figure as follow.

Figure No.: 4.6 Debt Assets Ratio

0.9

0.85

0.8
Ratio in times

Ratio

0.75

0.7

0.65
2072/73 2073/74 2074/75 2075/76

Year

(iii) Equity ratio

The equity ratio is a financial metric that measures the amount of leverage used by a
company. It uses investments in assets and the amount of equity to determine how well a
company manages its debts and funds its asset requirements. A low equity ratio means
that the company primarily used debt to acquire assets, which is widely viewed as an
indication of greater financial risk. Equity ratios with higher value generally indicate that
a company’s effectively funded its asset requirements with a minimal amount of debt.
Equity ratios that are .50 or below are considered leveraged companies; those with ratios
of .50 and above are considered conservative, as they own more funding from equity than
debt.

Table No.: 4.7 Equity Ratio

year Total equity Total Assets Ratio (in times)

2072/73 36689075250 34348783402 0.1068

2073/74 7137443024 67673945207 0.1054

2074/75 8486492525 73461467355 0.1155

2075/76 12008054730 88718843809 0.1353

2076/77 13231730605 97071039944 0.1363

Source : NCC Bank

In above table shows the equity ratio of NCC Bank is fluctuating trend in the study
period. The ratio are 0.1068, 0.1054, 0.1155, 0.1353 and 0.1363 respectively. The highest
ratio is 0.1363 in year 2076/77 and lowest ratio is 0.1054 in year 2073/74.

Figure No.: 4.7 Equity Ratio

0.16

0.14

0.12

0.1
Ratio in times

0.08

0.06

0.04

0.02

0
2072/73 2073/74 2074/75 2075/76

Year

Ratio in times

(iv) Interest Coverage Ratio

The interest coverage ratio is a debt ratio and profitability ratio used to determine how
easily a company can pay interest on its outstanding debt. The Interest coverage ratio
 is also called “times interest earned.” Lenders, investors, and creditors often use this
formula to determine a company's riskiness relative to its current debt or for future
borrowing. The ratio is calculated by dividing a company's earnings before interest
and taxes (EBIT) by the company's interest expenses for the same period. The lower
the ratio, the more the company is burdened by debt expense. When a company's
interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may
be questionable. A higher coverage ratio is better, although the ideal ratio may vary
by industry.

Table No.: 4.8 Interest Coverage Ratio

Year EBIT Interest Expenses Ratio (in times)
2072/73 191143478 1125111225 0.1698

2073/74 642739970 2690493522 0.2388

2074/75 1789416806 5119960245 0.3494

2075/76 1968743663 492027171 4.0012

2076/77 100336664 1276436222 0.0786

Source : NCC Bank

Above table shows the interest coverage ratio of NCC Bank is fluctuating trend. The
ratio of NCC Bank are 0.1698, 0.2388, 0.3494, 4.0012 and 0.0786 in year 2072/73,
2073/74, 2074/75, 2075/76 and 2076/77 respectively. Th highest ratio of NCC Bank
over the study period is 4.0012 in year 2075/76 and the lowest ratio is 0.1698 in year
2072/73.

Figure no.: 4.8 interest Coverage Ratio

 4.5

3.5

3
Ratio in times

2.5

1.5

0.5

0
2072/73 2073/74 2074/75 2075/76

Year

Ratio (in times)

4.2.3 Profitability Ratio

Profitability ratios are a class of financial metrics that are used to assess a business's
ability to generate earnings relative to its revenue, operating costs, balance sheet assets,
or shareholders' equity over time, using data from a specific point in time. For most
profitability ratios, having a higher value relative to a competitor's ratio or relative to the
same ratio from a previous period indicates that the company is doing well. Profitability
ratios are most useful when compared to similar companies, the company's own history,
or average ratios for the company's industry.

(i) Return on Assets

Return on assets (ROA) is an indicator of how profitable a company is relative to its total
assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's
management is at using its assets to generate earnings. Higher ROA indicates more asset
efficiency. Return on assets is displayed as a percentage. ROA is calculated by dividing a
company’s net income by total assets. As a formula, it would be expressed as:

ROA = Net income/ Total Assets

Table No.: 4.9 Return on Assets

Year Net income Total Assets Ratio (Percentage)

2072/73 707840700 34348783402 2.06

2073/74 505867992 67673945207 0.7475

 2074/75 1341516334 73461467355 1.826

2075/76 1021232240 88718843809 1.1510

2076/77 24649508 97071039944 0.025

Source : NCC Bank

In above table shows that the Net income to total assets ratio of NCC Bank is in
fluctuating trend. The ratios are 2.06%, 0.7475%, 1.826%, 1.1510% and 0.025% in year
2072/73, 2073/74, 2074/75, 2075/76 and 2076/77 respectively. The highest ratio is 2.06
in year 2072/73 and lowest ratio is 0.025 in the year 2076/77. This shows the low earning
capacity through asset utilization. In above the five-year research period net profit and
total assets both are fluctuating trend.

Figure No.: 4.9 Return on Assets

2.5

2
Ratio in Percentage

1.5

0.5

0
2072/73 2073/74 2074/75 2075/76

Year

Ratio (Percentage)
(ii) Return on Equity

Return on equity (ROE) is a measure of financial performance calculated by dividing net

income by shareholders' equity. Because shareholders' equity is equal to a company’s
assets minus its debt, ROE is considered the return on net assets. ROE is considered a
measure of the profitability of a corporation in relation to stockholders’ equity. ROE is
expressed as a percentage.

ROE = Net income / Total Equity

Table No.: 4.10 Return on Equity

Year Net income Total Equity Ratio(in percentage)

2072/73 707840700 3668907525 19.21

2073/74 505867992 7137443024 7.0875

2074/75 1341516334 8486492525 15.81

2075/76 1021232240 12008054730 8.5045

2076/77 24649508 13231730605 0.1862

Source : NCC Bank

Above table shows thae return on equity of NCC Bank is fluctuating trend. The ratios are
19.21%, 7.0875%, 15.81%, 8.5045% and 0.1862% in year 2072/73, 2073/74, 2074/75,
2075/76 and 2076/77 respectvely. The highest ratio is 19.21% in year 2072/73 and lowest
ratio is 0.1862% in year 2076/77.

Figure No.: 4.10 Return on Equity

 Chart Title
25

20
Ratio in percentage

15

10

0
2072/73 2073/74 2074/75 2075/76

Year

Ratio(in percentage)

(iii) Net Interest Margin

Net interest margin is a measurement comparing the net interest income a financial firm
generates from credit products like loans and mortgages, with the outgoing interest it pays
holders of savings accounts and certificates of deposit (CDs). Expressed as a percentage,
the net interest margin is a profitability indicator that approximates the likelihood of a
bank or investment firm thriving over the long haul. This metric helps prospective
investors determine whether or not to invest in a given financial services firm by
providing visibility into the profitability of their interest income versus their interest
expenses. A positive net interest margin suggests that an entity operates profitably, while
a negative figure implies investment inefficiency. In the latter scenario, a firm may take
corrective action by applying funds toward outstanding debt or shifting those assets
towards more profitable investments.

Net Interest Margin = Interest Income - Interest Expenses / Interest Earning Assets

Table No.: 4.11 Net Interest Margin

 Year Interest income Interest Expenses Interest Earning Ratio(in
Assets percentage)

2072/73 2314551971 1125111225 5906804510 20.13

2073/74 4497463773 2690493522 52279548220 3.456

2074/75 6732653002 5119960245 62542933832 2.58

2075/76 7899645699 492027171 72745782069 10.18

2076/77 1991203937 1276436222 75635445598 0.945

Source : NCC Bank

Above table shows the net interest margin of NCC Bank is fluctuating trend. The ratios
are 20.13, 3.456, 2.58, 10.18 and 0.945% in year 2072/73 to 2076/77 respectively. The
highest ratio is 20.13% in year 2072/73 and lowest ratio is 0.945% in year 2076/77.

Figure No.: 4.11 Net Interest Margin

25

20
Ratio in percentage

15

10

0
2072/73 2073/74 2074/75 2075/76

Year

4.2.4 Operating Efficiency Ratio

The operating ratio shows the efficiency of a company's management by comparing the
total operating expense (OPEX) of a company to net sales. The operating ratio shows how
efficient a company's management is at keeping costs low while generating revenue or
sales. The smaller the ratio, the more efficient the company is at generating revenue vs.
total expenses.
(i) Interest Expenses to total Operating expenses Ratio

The ratio measures the percentage of total interest expenses against total operating
expenses. Following table shows the interest expenses to total operating expenses ratio.

Table N0.: 4.12 Interest Expenses to total Operating expenses Ratio

Year TotalInterest Expenses Total Operating Expenses Ratio(in times)

2072/73 1125111225 544079812 2.0679

2073/74 2690493522 948302950 2.8371

2074/75 5119960245 1559813758 3.2824

2075/76 492027171 1897467481 0.2593

2076/77 1276436222 583930467 2.1859

Source : NCC Bank

Above table shows the total interest expenses to total operating expenses ratio of NCC
Bank is fluctuating trend. Ratios are 2.0679, 2.8371, 3.2824, 0.2593 nd 2.1859 times in
year 2072/72 to 2076/77 respectively. The highest ratio is 2.1859 in year 2076/77 and
lowest ratio is 0.2593 times in year 2075/76.

Figure No.: 4.12 Interest Expenses to total Operating expenses Ratio

 3.5

2.5
Ratio in times

1.5

0.5

0
2072/73 2073/74 2074/75 2075/76

Year

Ratio(in times)

(ii) Interest Income to Total Operating Income Ratio

Table No.: 4.13 Interest Income to Total Operating Income Ratio

Year Total Interest Income Total Operating Income Ratio (in Times)

2072/73 2314551971 1492682777 1.5505

2073/74 4497463773 2254854332 1.9945

2074/75 6732653002 1783713165 3.7745

2075/76 7899645699 3860197697 2.0464

2076/77 1991203937 970456676 2.0518

Source : NCC Bank

Above table shows the total interest income to total operating income ratio of NCC Bank
for five year study period is fluctuating trend. Ratios are 1.5505, 1.9945, 3.7745, 2.0464
and 2.0518 times in year 2072/73 to 2076/77 respectively. The highest ratio is 2.0518 in
year 2076/77 and lowest ratio is 1.5505 in year 2072/73.The higher ratio, it indicates the
high contribution in operating income made by lending and investing activities (core
banking activity). But NCC Bank is increasing so it indicates that high contribution in
operating income made by lending and investing activities (core banking activity).
Interest income to total operating Income Ratio is represented in figure as follow.

Figure No.: 4.13 Interest Income to Total Operating Income Ratio

3.5

2.5
Ratio in times

1.5

0.5

0
2072/73 2073/74 2074/75 2075/76

Year

Ratio (in Times)

4.3 Trend Analysis

Here, trend analysis of total profit is projected for the five years. The measure of trend
analysis shows the behavior of given variables in series of time. This trend analysis is
carried out to see average performance of the banks for next five years. Trend analysis is
based on some assumptions, they are :

(i) All the other things will remain unchanged.

(ii) The bank will run in present condition.

(iii) The economy will remain in present stage.

(iv) NRB will not change its guidelines to commercial banks.

4.3.1 Trend Line of Net profit

Profit is the important part in banking sector hence its trend for next five years will be
forecasted for future analysis. Here, the trend value of Net profit of NCC Bank has been
calculated for further five year. The following Table shows the actual and trend values of
NCC Bank.
Let trend line be

Y = a + b x……………………. (I)

Where,

Y = dependent variable

a =Y- intercept

b = slope of trend line or annual growth rate

X = deviation from some convenient time period