Professional Documents
Culture Documents
Ratio Analysis HBL
Ratio Analysis HBL
Chapter I
Introduction
This study is conducted for the partial fulfillment of the requirements of "Banking and
Insurance." The final year students of BBS program of colleges affiliated with the
Tribhuvan University are required to prepare a report in their concerned field in an
organization as part of the regular course work.
Being a final year student in commercial field, I have conducted a brief study on the
Himalayan Bank Limited. I have concentrated my study on the Financial Analysis of
"The Himalayan Bank Limited-A Joint Venture with Habib Bank Limited, Pakistan." The
chosen title of my study lies under the course offered by the Tribhuvan University, Nepal.
Finance plays an important role in the economy. As banks, credit unions, and other
financial institutions provide credit, they help expand the economy by directing funds
from savers to borrowers. A wide variety of financial institutions such as a bank has
different roles in finance and the economy as it link lenders and borrowers. These
institutions act as an intermediary among consumers, businesses, and governments by
lending out deposits and help to boost up the national economy. So, the smooth operation
of a bank mainly depends upon effective management of its financial resources and
effective management is possible upon effective analysis.
Commercial banks are the most significant of the financial intermediaries, accounting for
some 60 percent of the nation's deposits and loans. A commercial bank is a bank, which
pools together savings of community and arrange for their productive use, accepting
deposit on the condition that they are available on demand or on a short-term notice.
According to Nepal Commercial Act 2031, a commercial bank is a bank which operates
currency exchanges transactions, accepts deposits, provides loans, and performs dealings
relating to commerce except the banks which have been specified for the co-operative,
agriculture and industry of similar specific objective.
1
Financial Analysis of Himalayan Bank Limited
Acceptance of Deposits in
Advancing Loans in
Agency Service
Credit Creation
General Utility Services
Safekeeping of valuables
Assist in foreign trade
Making venture capital loans
Financial advising
Offers security brokerage services
Offers investment banking and merchant banking services
The history of commercial banking in Nepal started after the establishment of Nepal
Bank Limited in the year B.S. with a paid-up capital of Rs 8, 45,000. Later Nepal Rastra
Bank was established as the central bank in 2013 followed by the establishment of
Rastriya Banijya Bank.
After Nepal practiced Liberalization Policies, Nepal had access to many joint venture
banks and other financial institution. Today, Nepal can take legitimate pride in the
remarkable growth and progress in the banking and financial industry. Nepal has opened
its door to foreign commercial banks to operate in the kingdom. Since then there are 17
commercial and development banks till date.
2
Financial Analysis of Himalayan Bank Limited
Himalayan Bank's policy is to extend quality and personalized service to its customers as
promptly as possible. All customers are treated with utmost courtesy as valued clients.
The Bank, as far as possible, offers tailor made facilities to its clients, based on the
unique needs and requirements. To extend more efficient services to its customers,
Himalayan Bank has been adopting innovative and latest banking technology. This has
not only helped the Bank to constantly improve its service level but has also kept it
prepared for future adaptation of new technology. Though Himalayan Bank Limited is
young in terms of tenure of its operation, at present the bank is serving its valued
customers with the following facilities besides the general banking services.
Credit Card:
Himalayan Bank Limited has been a pioneer in introducing a Nepalese domestic Credit
Card. The bank has introduced 'Himalayan Bank Gold Card' which has eased the banking
operation. Likewise, the bank is also the member of VISA and MASTER Card. The bank
issues all range of VISA card and has a plan to issue MASTER card.
Tele-Banking:
To provide more prompt and efficient service to its customers, the bank has been
pioneering on instituting Tele-banking service. Dialing a pre-specified telephone number,
its clients will be able to:
• Make balance and statement inquires
• Order statement and cheque books
• Request instant faxing of statement
• Get information on foreign exchange etc.
3
Financial Analysis of Himalayan Bank Limited
Switching software to enable all the ATMs of the bank to allow Any Branch and
International transactions of the customers.
Subscription % Holding
Promoter Share Holders 51 %
Habib Bank Limited, Pakistan 20%
Financial Institution (Employees Provident Fund) 14%
Nepalese Public Share Holders 15%
Total 100%
Table B
Beneficiaries:
The overall objectives of this study are to give a brief insight about the financial strength
and weakness of the organization. However, the specific objectives of this analysis are as
follows:
• To evaluate the organization's financial status
• To evaluate the organization's operating efficiency
• To measure the comparative ratios of the bank
• To measure the organization's short-term solvency
• To measure the organization's long-term solvency
• To evaluate the organization's efficiency in managing and utilizing its assets
• To help us work on the practical scenario of day-to-day operation in an
organizational environment.
• To help in enhancing and developing managerial behavior and skills.
Limitations:
This study was done during the busy office hours. So it was somehow difficult to cope
along with the office personnel and the entire analysis is based on the secondary data.
The data provided then is limited to the research and the report. Detailed information
4
Financial Analysis of Himalayan Bank Limited
about the financial resources of the bank could not be provided due to security reasons of
the bank's operation technology and software.
The main objective of this fieldwork is to study the financial position of Himalayan Bank
Limited. The study is purely based on the exploratory design finding access to the
requisites of the study. The analysis is diagnosed through limited resources from the bank
due to different reasons.
In the beginning, required secondary data was obtained through the bank's website which
was reviewed and presented in a systematic and tabular form along with charts to make
the study more precise. The data collected were the bank's operating statements and
balance sheets etc.
Data can be collected from different sources. Generally, there are two sources of data.
Primary Data:
Primary data are the first data obtained by the researchers during the field visit. These are
the first data obtained for different kinds of study related to the research. It can be
collected through interviews, interactions and questionnaires etc. Although primary data
plays an important role by making the research person familiar with the field, work,
people and the environment, in this analysis, however, primary data could not be obtained
for different reasons.
Secondary Data:
Secondary data are second data that has already been published before in the form of
records, annual reports, pamphlets, statistic gather, directories, publications, computer
data banks etc. This entire report is based on the secondary data.
Since the report is concerned with the financial analysis of the organization, balance
sheets of five years from the fiscal year 2055/56 - 2059/60 were collected from different
sources. The balance sheet and other required documents and information were obtained
from the Eleventh Annual Report of Himalayan Bank Limited. Likewise other
required information were collected from libraries, the bank's website and review of the
previous studies done by former third year students.
5
Financial Analysis of Himalayan Bank Limited
Chapter II
Presentation and Analysis of Data
This chapter is incorporated with different tools for the analysis of the financial status of
Himalayan Bank Limited. Different ratios are used for the purpose of analysis. The first
presentation of the analysis is the comparative balance sheet.
2. Liabilities
Borrowings 232653 128646 79527 534013 645840
Deposit Liabilities 9772736 14043097 17532404 18619375 21007379
Total current Liabilities 10005389 14171743 17611931 19153388 21653219
Table C
6
Financial Analysis of Himalayan Bank Limited
PL Appropriation
Liquidity ratio is defined as the test for solvency position for the payment of short-term
liabilities, solvency position or liquidity denotes ability for the payment of short-term
7
Financial Analysis of Himalayan Bank Limited
liabilities. It is extremely essential for a firm to be able to meet its obligation as they
become due. Liquidity ratio measures the ability of a firm to meet its current obligation.
In fact, analysis of liquidity need preparation of cash budget and cash and funds flow
statement; but liquidity ratio by establishing cash and other current assets to current
obligations, provide a quick measure of liquidity. A firm should ensure that it does not
suffer from lack of liquidity and that it does not have excess liquidity. The failure of a
company to meet its obligation due to lack of sufficient liquidity will result in a poor
credit worthiness, loss of creditors’ confidence or even legal tangles resulting closure of
the company. A very high degree of liquidity is also bad; idle assets earn nothing. The
firm’s fund will be unnecessarily tied up in current assets. Therefore, it is necessary to
strike a proper balance between high liquidity and lack of liquidity.
While considering liquid assets, it includes cash and those assets, which can be converted
into cash within a year, such as sundry debtors, short-term investments, bank deposits;
stock advances and accrued income etc. current; liabilities includes those obligation
which mature within one year such as creditors, bills payable, outstanding expenses, bank
drafts, income tax payable etc.
1. Current Ratio:
Current Ratio is the ratio between the current assets and the current Liabities of a firm.
The current ratio is a measure of a firm’s short-term solvency. It indicates the availability
of current assets in rupees for every one rupee of current liability. This ratio helps the
company to determine the desirable liquidity position to meet its maturing obligations so;
the company may neither suffer from lack of liquidity nor too much high liquidity.
Mathematically,
Current ratio = Current assets
Current liabilities
Where,
Current assets = cash and bank balance + receivables + advances and deposits
Current liabilities = sundry creditors + payables and provisions
Calculation of Current Ratios
Amount Rs. in "000"
Fiscal Year Current Assets Current Liabilities Current Ratios
2055/56 10642982 10005389 1.064
2056/57 15025812 14171743 1.060
2057/58 18591336 17611931 1.056
2058/59 20331266 19162388 1.061
2059/60 23149343 21653219 1.069
Table 1
8
Financial Analysis of Himalayan Bank Limited
25000000 1.07
20000000 1.065
Current Ratios
Amt in Rs.
5000000 1.05
0 1.045
2055/56 2056/57 2057/58 2058/59 2059/60
Fiscal Year
Chart 1
The table 1.1 above shows different level of Current Ratios at varying level of Current
Assets and Current Liabilities during the five year of observation. The highest and the
lowest Current Ratios are 1.069 and 1.064 in the F.Y 2055/56 and 2059/60 respectively.
Generally, Current Ratio of 2:1 is considered satisfactory. In case of the Himalayan Bank
Limited, the current ratio is below the standard. However, the current ratio trend is
increasing slowly which is a good sign of good liquidity management and satisfactory
performance done by the bank.
2. Cash Ratio
Since cash is the most liquid asset, a financial analysis may examine cash ratio and its
equivalent current liabilities. Trade investments or marketable securities are equivalent of
cash; therefore, they may be included in the computation of cash ratio.
Mathematically,
Cash Ratio = Cash + Marketable securities (investment)
Current Liabilities
9
Financial Analysis of Himalayan Bank Limited
C o m p a ra tiv e C a s h R a tio s
25000000 0 .6 0 0
20000000 0 .5 0 0
0 .4 0 0 C a s h In ve s tm e n t
15000000
Cash Ratios
Amt in Rs.
0 .3 0 0 C u rre n t L ia b ilitie s
10000000
0 .2 0 0 C a s h R a tio
5000000 0 .1 0 0
0 0 .0 0 0
2 0 5 5 /5 62 0 5 6 / 5 72 0 5 7 /5 82 0 5 8 / 5 92 0 5 9 / 6 0
F isc a l Y e a r
Chart 2
The above table shows the highest and the lowest cash ratio of Himalayan Bank Limited
as 0.561 and 0.127 times in the FY 2055/56 and 2059/60 respectively. The cash ratio
trend of The Himalayan Bank is not satisfactory which means that the cash and the
investments of this bank have very low liquidity to meet its current obligation. However
the Cash Ratio trend is increasing which shows that the banks performances in meeting
its current obligation are increasing.
The difference between the current asset and the current liabilities excluding the short-
term bank borrowings is called the net working capital of net current assets. Net working
capital is some time used as the measure of firm’s liquidity. It is considered that, between
two firms, the one having the larger working capital has larger ability to meet its current
obligations. This is not necessarily so, the measure of liquidity is a relationship, rather
than the difference between the current assets and the current liabilities. Net working
capital however measures the firms’ potential reservoir of funds.
Mathematically,
Net Working Capital Ratio = Net working Capital
Net Assets
Where Net Assets = total current assets - total current liabilities-short - term bank
borrowings
Calculation of Net Working Capital Ratio
Amt Rs in '000'
Fiscal Year Current Assets Current Liabilities - Net Working Net Assets Net Working Capital Ratio
Short Term Bank Capital
Borrowings
2055/56 10642982 9772736 870246 695103 1.252
2056/57 15025812 14043097 982715 870535 1.129
2057/58 18591336 17532404 1058932 119827 0.884
2
2058/59 20331266 18619375 1711891 150152 1.140
9
10
Financial Analysis of Himalayan Bank Limited
2500000 1.4
1.2
2000000
1.0
Amt in Rs.
NWCR
0.8
Net Assets
1000000 0.6
NWCR
0.4
500000
0.2
0 0.0
2055/56 2056/57 2057/58 2058/59 2059/60
Fiscal Year
Chart 3
During the study of period, net working capital ratio of the Himalayan Bank Limited is
satisfactory. It has recorded the highest ratio of 1.252 and the lowest of 0.884 times in the
fiscal year 2055/2056 and 2057/58 respectively. However, the ratio after the F.Y.
2057/58 is increasing towards satisfactory which shows the Bank has been maintaining
sound liquidity position to meet its current obligations.
Leverage Ratio:
Leverage ratio is defined as the ratio of relationship between the total debt and total
assets organization’s long-term solvency. The short-term creditors, like bankers and
supplies of raw materials, are most concerned with the firms’ current debt paying ability.
On the other hand, long-term creditors like debenture holders and financial institution etc
are more concerned with the firms’ long-term financial strength. To judge the long-term
financial position of a firm, financial leverage and structure ratio are calculated. These
financial positions indicate mix of funds provided by owners and lenders. Generally,
there should be an appropriate mix of debt and owner’s equity in financing the firm’s
assets.
Debt Ratio:
Several Debt ratio s may be used to analyze long-term solvency of a firm. The firm may
be interested in knowing the proportion of the interest bearing debt in the capital
structure. We may therefore compute debt ratio by dividing total debt by total asset. Total
debt will include long-term and short- term from financial institutions, debenture, bonds,
11
Financial Analysis of Himalayan Bank Limited
and different payments arrangements for buying capital equipments, bank borrowings,
public deposits and any other interest-bearing loan.
Mathematically,
3 0000000 0. 950
0. 945
2 5000000
0. 940
2 0000000 0. 935 Tota l A s s ets
Debt Ratios
Amt in Rs.
0. 930
1 5000000 Tota l Debt
0. 925
1 0000000 0. 920 Debt R atio s
0. 915
5000000
0. 910
0 0. 905
2055/56 2056/57 20 57/5 8 2058 /59 2059/ 60
F isca l Ye a r
Chart 4
From the above study, the highest and the lowest debt ratio of Himalayan Bank Limited
are 0.945 and 0.921 times in the F.Y. 2056/57 and 2059/60 respectively. Normally debt
financing is costly and riskier in the long run. In this context, HBL has been reducing its
debt financing since the F.Y. 2057/58 which is a good sign of financing. The current
year's debt ratio is 0.921, which indicate that the bank has financed 92.10% of debt from
total assets.
12
Financial Analysis of Himalayan Bank Limited
This ratio reflects the relation between the shareholder’s fund and the outsider’s fund.
The relationship describing the lenders’ contribution for each rupee of the owners’
contribution is called Debt-Equity Ratio. It is relationship between debt and equity, i.e.
debt-equity ratio indicates to what extent the firm depends upon the outsiders for its
existence.
Mathematically,
Debt-Equity Ratio = Long Term Debt
Shareholders Equity
25000000 20
Debt-Equity Ratio
20000000 15
Amt in Rs.
Total Debt
15000000
10 Shareholders equity
10000000
Debt-Equity Ratio
5000000 5
0 0
0
6
9
/5
/5
/5
/5
/6
55
56
57
58
59
20
20
20
20
20
Fiscal Year
Chart 5
From the above study, the highest and the lowest debt-equity ratio of Himalayan Bank
Limited are 17.223% and 11.696% in the F.Y. 2056/57 and 2059/60 respectively. It
indicates that the firm does not need to depend more on the outsiders for its financing. It
has different other reliable sources for its financing.
Profitability Ratio:
A company should earn profit to survive and grow over a long period of time. Profit is
essential but it would be wrong to assume that every action initiated by management
13
Financial Analysis of Himalayan Bank Limited
Common or ordinary shareholders are entitled to the residual profit. The rate of dividend
is not fixed; the earnings may be distributed to the shareholders or retained in the
business. A return on shareholders equity is calculated to see the profitability of the
owners’ investments. ROSE indicates how a firm has used the resources of the owners. In
fact this ratio is on of the most important relationships in financial analysis. Generally,
higher ratio shows the efficient utilization of owner’s fund.
Mathematically,
ROSE = Net Profit after Tax x 100
Shareholders Equity
C a lc u la tio n o f R e tu rn o n S h a re h o ld e rs E q u ity
2500000 25
2000000 20
1500000 15 N e t P ro fit a ft e r T a x
Amt in Rs.
S h a re h o ld e rs e q u ity
ROSE
1000000 10 RO S E
500000 5
0 0
2 055 /56 20 56/57 20 57/58 205 8/59 205 9/60
F isc a l Y e a r
14
Financial Analysis of Himalayan Bank Limited
Chart 6
In the above table, the highest and the lowest return on shareholders’ equity is 23.773%
and 11.13% in the fiscal year 2055/56 and 2059/60 respectively. The return on
shareholders equity of HBL is in decreasing trend. It may be due to decreasing profit after
tax and increasing shareholders equity over the few years. The lowest percentage in
return on shareholders’ equity in the current year may indicate inefficient management of
incomes and expenses.
Return on total assets is defined as the ratio of relationship between net profits after tax to
total assets. It evaluates the efficiency of a firm in utilizing and mobilizing its assets.
Mathematically,
Return on total Asset = Net Profit after Tax
Total Assets
30000000 1 .6
25000000 1 .4
1 .2
20000000 Net P rofit A fter Tax
1 .0
Amt in Rs.
ROA
10000000 0 .6 RO A
0 .4
5000000
0 .2
0 0 .0
2055/56 2056/57 2057/58 2058/59 2059/60
F isca l Ye a r
15
Financial Analysis of Himalayan Bank Limited
Chart 7
In the above table, the highest and the lowest return on total assets is 1.47 and .877 in the
fiscal year 2055/56 and 2059/60. It shows that the management has utilized its assets to
earn profit at it full capacity. The lowest ratio does not mean that the firm's profit is in a
decreasing trend. It is due to the increasing trend in fixed assets. The profit after tax and
the return on total assets of the company is satisfactory.
Earning per share expresses the amount the shareholders get on every share held by them.
It also helps to determine the market price of the equity share of the company and also
helps in estimating the company's capacity to pay dividend to its shareholders.
Mathematically,
EPS = Net profit after tax available to equity shareholders
No. of equity shares outstanding
16
Financial Analysis of Himalayan Bank Limited
E a r n in g P e r S h a r e
100
80
60
E a rn ing P e r S ha re
EPs
40
20
0
2 0 5 5 /5 62 0 5 6 /5 72 0 5 7 /5 82 0 5 8 /5 92 0 5 9 /6 0
F is c a l Y e a r
Chart 8
The above table shows the highest and the lowest earning per share at 92.346% and
49.447% in the FY 2057/58 and 2059/60 respectively. During the five years analysis,
although the EPS of HBL is good, it has gradually decreased. However, it does not mean
that the EPS in the decreasing trend. It is due to bonus share of 107250 provided in the
year 2059/60. It shows that profit of Himalayan Bank Limited is highly satisfactory.
The net profit after tax belongs to the shareholders. But the income, which they really
received, is the amount of earnings distributed as cash dividends. Therefore, a large
number of present and potential investors may be interested in DPS, rather than EPS.
DPS is the total dividends divided by the total numbers of equity shares outstanding.
Mathematically,
DPS = Total Dividends
No. of Equity Shares Outstanding
17
Financial Analysis of Himalayan Bank Limited
D iv idend P er S hare
60
40
DPS
D PS
20
0
20 5 5/5 6 2 0 56 /57 2 0 57 /58 20 5 8/5 9 2 0 59 /60
F isc a l Ye ar
Chart 9
The above table shows that the highest and the lowest dividend per share as 50 in the
F.Y. 2059/60 and 1.316 in the FY 2055/56 to 2056/57 respectively. The DPS of HBL has
gradually decreased since the F.Y.2056/57 which is not a good sign to the shareholders.
Other Ratios:
The liquidity ratio, profitability ratio and the leverage ratio are mostly used for the
manufacturing houses and firms. It does not mean that these financial indicators are not
useful for analyzing banking sectors. However, for proper analysis of any ban\k, we have
to use other ratios and other financial indicators. Different other ratios used are as
follows:
Also known as Payout ratio, dividend payout ratio is defined as the ratio that measures
the relationship of earnings belonging to the ordinary shareholders and the dividend paid
to them. It can be found out by dividing the DPS by EPS. Alternatively, it can be
calculated by dividing the total dividend paid to the owners by the total no. of earnings
available to them.
D/P Ratio = Total Dividend to Equity Holders
Total Net Profit Belonging to Equity Holders
Or,
D/P Ratio = DPS
EPS
18
Financial Analysis of Himalayan Bank Limited
Table 10
C om p a ris io n B e tw e en E P S an d D P S
100 70
90
60
80
70 50
E arning P er S h are
60 D ividend P er S ha re
40
EPS / DPS
DP Ratio
50
40 30
30 20
20
10
10
0 0
205 5/56 2056/57 2057/58 20 58/59 2059/60
F isca l Ye a r
Chart 10
In the above table, the highest and the lowest D/P ratio are 60.187% and 2.661% % in the
F.Y 2056/57 and 2059/60 respectively. In the current year, the D/P ratio has decreased
sharply due to very low dividend compared to the earnings.
The ROLA is defined as the relationship between net profit after tax and loans and
advances. It shows the percentage of return on loans and advances provided by the firm.
Mathematically,
ROLA = Net Profit after Tax
Loans and Advances
19
Financial Analysis of Himalayan Bank Limited
Comparision Between Loans & Advances and Net Profit Afrer Tax
12000000 3.5
10000000 3.0
2.5
8000000
Amt in Rs.
ROLA
6000000 Loans & Advances
ROLA
1.5
4000000
1.0
2000000 0.5
0 0.0
2055/56 2056/57 2057/58 2058/59 2059/60
Fiscal Year
Chart 11
In the above table, the highest and the lowest return on loans and advances are 3.15% and
1.956% in the FY 2055/56 and 2059/60 respectively. For a firm whose main income is
the return on loans and advances, the decreasing trend of ROLA is not good. The rate of
ROLA is inefficient for the bank. It shows that HBL has defaulted in collecting its return
on the loans and advances.
Return on Net Fixed Assets is defined as the relationship between net profit and net fixed
assets. It shows the quantity of return on fixed assets.
Mathematically,
RONFA = Net Profit after Tax
Net Fixed Assets
20
Financial Analysis of Himalayan Bank Limited
350000 160
300000 140
250000 120
100
Amt in Rs.
200000
RONFA
80 Net P rofit After Tax
150000 NetFixed A s sets
60 RONFA
100000 40
50000 20
0 0
2055/56 2056/57 2057/58 2058/59 2059/60
Fisca l Ye a r
Chart 12
The above table presents the ratio between net profit and net fixed assets. The highest and
the lowest RONFA are 137.366% and 73.711% in the F.Y. 2057/58 and 2058/59
respectively. The percentage of return in net fixed assets is tending towards satisfactory.
Total interest earnings to external assets is the ratio of relationship between interest
earnings and external assets. It is the ratio of interest earnings from its assets such as
loans, advances, investments, placements etc. It shows how much a bank has earned from
its external assets.
Mathematically,
TIEEA = Total Interest Income
Total External Assets
Where,
Total external assets = investments + money at call and short notice + loans,
advances and bills purchased and discounted
21
Financial Analysis of Himalayan Bank Limited
C o m p a ra tiv e E x te rn a l As s e ts a n d T o tal In te re s t E a rn in g s
2 50000 00 10
2 00000 00 8
TIEEA
To tal Int eres t E arn ings
TIE E A
1 00000 00 4
50000 00 2
0 0
2055 /562056/ 572057/ 582 058/5 920 59/60
F i sca l Ye a r
Chart 13
The above table presents the highest and the lowest percentage of total interest earnings
to external assets as 8.76% and 5.674% in the FY 2055/56 and 2059/60 respectively. The
return or the income not satisfactory. The management should use effective policy to
increase its interest income from external assets.
Exchange earning to Gross Income is the relationship between earnings from foreign
income and gross income excluding gross expenses. It shows the income from foreign
currency exchange.
Mathematically,
EEGI = Foreign Exchange Income
Gross Income
22
Financial Analysis of Himalayan Bank Limited
1000000 14.5
900000
14.0
800000
700000 13.5 Foreign Exc hange Inc ome
Amt in Rs
EEGI
500000 Exc hange Earnings To Gross
400000 12.5 Inc ome
300000 12.0
200000
11.5
100000
0 11.0
2055/56 2056/57 2057/58 2058/59 2059/60
Fiscal Year
Chart 14
The above table shows the highest and the lowest EEGI as 17.54% in the FY 2054/55 and
6.16% in the FY 2053/54 respectively. The percentage of EEGI in gross income is
satisfactory but not highly satisfactory.
Commission to gross income is the ratio that shows the percentage of commission and
discount in total income or gross income. A financial manager should know the
percentage of commission to make effective policy in the near future.
Mathematically,
CGI = Commission and Discount
Gross Income
23
Financial Analysis of Himalayan Bank Limited
1000000 25.0
900000
800000 20.0
700000
600000 15.0 Gros s Inc ome
Amt in Rs.
CGI
CGI
400000 10.0
300000
200000 5.0
100000
0 0.0
2055/56 2056/57 2057/58 2058/59 2059/60
Fisca l Ye a r
Chart 15
The above table shows the highest and the lowest CGI ratios as 20.352% and 11.393% in
the FY 2055/56 and 11.393% respectively. The percentage of commission in total income
is not so satisfactory and it should be noted that the decreasing trend of CGI is not a good
symptom of effective management.
The ratio of total external assets to total deposit refers to the relationship between
external assets i.e. out gone assets or investments with deposit collection. It shows in
which ratio the bank has utilized its deposit in external assets.
Mathematically,
TEATD = Total External Assets
Total Deposit
Where,
Total external assets = investments + placement + loans, advances, bills
purchased and discounted.
24
Financial Analysis of Himalayan Bank Limited
25000000 103
102
20000000
101
100
Amt in Rs.
15000000
TEATD
Total External Assets
99 Total Deposit
TEATD
10000000 98
97
5000000
96
0 95
2055/56 2056/57 2057/58 2058/59 2059/60
Fiscal Year
Chart 16
The above table shows the highest and the lowest TEATD ratio in percentage as
102.402% and 97.854% in the FY 20584/59 and 2057/58 respectively. It means that the
external assets have been invested properly from total deposit, which is a symptom of
effective management policy.
Total shareholders equity to total risk ratio defines the risk for the shareholders in their
share of profit. It shows that risk in shareholders equity from loans, advances and bills
purchased that is provided by the bank. It can be calculated by dividing shareholders
equity by total risk.
Mathematically,
TSETR = Shareholders
Total Risk
Where Total Risk = Loans, advances and bills purchased
25
Financial Analysis of Himalayan Bank Limited
12000000 20
18
10000000
16
14
8000000
12
Amt in Rs.
Shareholders Equity
TSETR
6000000 10 Total Risk
TSETR
8
4000000
6
4
2000000
2
0 0
2055/56 2056/57 2057/58 2058/59 2059/60
Fisca l Ye a r
Chart 17
In the above table the highest and the lowest TSETR ratios are 17.574% and 12.049% in
the F.Y. 2059/60 and 2056/57 respectively. It is considered that this ratio is to be lowered
much as possible. The increasing trend of this ratio in case of HBL indicates that HBL's
risk is also increasing simultaneously.
26
Financial Analysis of Himalayan Bank Limited
Study Result:
Financial performance concerns with the measurement and analysis of financial operation
of a firm through liquidity, leverage, profitability, turnover and other useful ratios. By
using ratio analysis as an analytical tool, some of the results found through this study are
as follows:
• Current ratio of Himalayan Bank Limited shows that the higher ratio is 1.069 and
the lowest ratio is 1.056 times. Generally, the current ratio is concerned
satisfactory when 2:1. In this sense, the current ratio of this bank is not much
satisfactory.
• Cash ratio of Himalayan Bank Limited shows highest and lowest ratios as 0.561
and 0.127 respectively. The cash ratio trend of Himalayan Bank Limited is not
satisfactory and has very low liquidity to meet its current obligation.
• Net Working Capital Ratio of Himalayan Bank Limited has recorded highest and
the lowest as 1.252 and 0.889 times. It shows that Himalayan Bank Limited has
maintained a sound liquidity position to meet its current obligation.
• The highest and lowest debt ratio of Himalayan Bank Limited is 0.9456 and 0.921
times respectively. HBL has been reducing its debt financing since the F.Y.
2057/58 which is a good sign of financing. The current year's debt ratio is 0.921,
which indicate that the bank has financed 92.10% of debt from total assets.
• Earning per share helps in estimating the organization's capacity to pay dividends.
In this respect, the highest and the lowest ratios of Himalayan Bank Limited are
92.346% and 49.447%. During the five years analysis, although the EPS of HBL
is good, it has gradually decreased. However, it does not mean that the EPS in the
decreasing trend. It is due to bonus share provided in the year 2059/60. It shows
that profit of Himalayan Bank Limited is highly satisfactory.
• A large number of present and potential investors may be interested in DPS. The
highest and the lowest DPS recorded are 50% and 1.316. The DPS of HBL has
27
Financial Analysis of Himalayan Bank Limited
gradually decreased since the F.Y.2056/57 which is not a good sign to the
shareholders.
• The dividend payout ratio measure the earnings belonging to the ordinary
shareholders and dividend paid to them. In the previous table, the highest and the
lowest D/P ratio is 60.187% and 2.661%. In the current year, the D/P ratio has
decreased sharply due to very low dividend compared to the earnings.
• Higher return on loan and advances are preferable. Here, the highest and the
lowest ROLA are 3.15% and 1.956. The rate of ROLA is inefficient for the bank.
It shows that HBL has defaulted in collecting its return on the loans and advances.
• Return on net fixed asset is the total profit returned in total investment in fixed
assets. Higher return is considered the best. In the above table, the highest and the
lowest RONFA is 137.366% and 92.281%. The percentage of return in net fixed
assets is tending towards satisfactory.
• Total interest to external asset means the profit earned from investments. Here,
the highest ratio is 8.76% and the lowest ratio is 3.674%. The return or the income
not satisfactory. The management should use effective policy to increase its
interest income from external assets.
• The highest and the lowest exchange earnings to gross income ratio of Himalayan
Bank Limited are 114.186% and 12.175%. The percentage of EEGI in gross
income is satisfactory but not highly satisfactory.
• The external assets to total deposit mean the ratio of relationship between
investments with deposit. In case of HBL, the highest and the lowest ratio
recorded are 102.402% and 97.854% respectively. It means that the external
assets have been invested properly from total deposit, which is a symptom of
effective management policy.
• Lowest ratio in shareholders equity to total risk is preferred best. In the above-
mentioned table, the highest and the lowest ratios recorded are 17.574% and
12.049% respectively. It is considered that this ratio is to be lowered much as
possible. The increasing trend of this ratio in case of HBL indicates that HBL's
risk is also increasing simultaneously. It can be highly satisfactory if the ratio go
down further.
28
Financial Analysis of Himalayan Bank Limited
Chapter III
Summary and Conclusion
Summary:
Nepal being a development country has not been able to reach the peak of development
due to the lack of finance. It has many sectors to develop, which can be done by the
government or the private sectors. For this development, a bank has played a vital role. It
has been providing loans to the government and private sectors for development as well
as for business purpose to the public and the private sectors. A bank provides money to
the government by purchasing treasury bills and providing loans to the public for
agriculture, small as well as cottage industries by keeping reasonable securities. A bank is
a financial institution that deals with financial securities. It also works as a financial
intermediary for the public.
There are many banks involved in this field, amongst which Himalayan Bank Limited is
one.
The objective of this study is to investigate whether Himalayan Bank Limited is sound or
not. To fulfill this objective, financial data are collected from Himalayan Bank Limited
for a period of five years, from the fiscal year 2055/56 to 2059/2060.
After they have organized in a suitable table and charts, financial position and
performances of Himalayan Bank Limited is determined using the financial tools such as
Ratio Analysis.
Conclusion:
The following conclusion referring to the ratio calculated and interpreted has been drawn
regarding the financial situation of the organization.
∗ Himalayan Bank Limited has properly balanced the leverage ratio. It seems
that the bank has properly balanced the debt from the total assets. The ratio is
satisfactory which implies that management has been utilizing its assets and
capital efficiently and optimally.
29
Financial Analysis of Himalayan Bank Limited
∗ Other ratios such as D/P ratio, return on loans and advances, return on net
fixed assets, exchange earnings to gross income, commission to gross income,
external assets to total deposits and total shareholder equity risk ratios are
satisfactory however the firm should try to minimize risk much as possible.
∗ Last but not the least, this analysis is based only on the availability of an
annual report. Other necessary documents required for the total analysis could
not be obtained due to various reasons. Likewise, an analysis based only in
terms of ratios may not be sufficient for the overall analysis of a bank. Hence,
due to these limitations this report can not be concluded as the overall and the
actual analysis of Himalayan Bank Limited. This analysis report may only be
used as reference concerning the Financial Analysis of Himalayan Bank
Limited. In addition, since the bank is run by highly competent personnel,
they may have utilized the bank's assets and loans to its optimum capacity.
30
Financial Analysis of Himalayan Bank Limited
Recommendation
The current ratio shows the minimum position, which is not satisfactory
and the cash ratio trend is not much satisfactory either to meet its current
obligations. Management should be concerned about it and they should try
to maintain a good cash ratio in the coming future.
The profitability ratio of Himalayan Bank Limited is not highly
satisfactory. The financial manager should make more effective policies to
make high profit.
The trend of return on loans and advances is not much satisfactory. The
bank has a high percentage of public deposits and to pay interest to them
the ratio of returns on loans and advances are not much enough. The
management should investigate and make effective policies to increase the
ratio of return on loans and advances.
The ratio of percentage of return on net fixed assets is highly satisfactory.
However, after the FY. 2052/53, the percentage of return on net fixed
assets is slightly in a decreasing trend, which is not a good indication in
this cut- throat competition. The management of the bank should
investigate the reasons for the decreasing tend and should increase the
ratio in the coming year.
The highest ratio of earnings to external assets is satisfactory but not
much. The management should use effective policies to increase its
interest income trend from external assets.
Exchange earnings to gross income ratio are satisfactory but it would have
been more precise if the trend were higher.
The ratio of commission to gross income is satisfactory but the trend is
slowly decreasing which is not a good symptom for the bank. So the
management should investigate about this and use different policies to
increase its commission income.
Total shareholders equity to total risk rate trend clarifies that the risk in
shareholders equity is not high. This ratio must be lowered, as the owners
are concerned their equity of profit. Therefore, management should
decrease the ratio mush as possible.
31