1.

1 Background of the study

Profitability is the end result of number of corporate policies and decision. It measures how
effectively the firm is being operated and managed. It is related to profit of the business. Profit is
essential for the survival of business so that it is considers as the engine that mobilizes the business
and indicates economic progress. It measures the overall efficiency of the business. Banks are
established with the objective of earning profit in different between revenues and expenses over a
period of time. Profit is the ultimate output of a company and it will have no future if it falls, to
make sufficient profit (M. K, Shrestha, &D.B. Bhandari, 2008).

In reality, firms do have profits targets, and sometimes they pay managers for reaching them, but
the goals of firms are broader than profits alone. Proceeding with other determinants of profits,
rising prices of competitors, better sales conditions and skills, a higher overall price level allow
for higher prices of the considered firm's products, thus increase nominal profits to the extent that
costs are inelastic, i.e., they rise less than proportionally to revenues. Maximizing profits is said to
be the objective of all firms. Indeed, it's not always easy for the management to find out which are
the right decisions that would maximize them. For instance, short-run profits can be easily pumped
up by avoiding maintenance, discretionary costs, investments, that however are necessary of on-
going competitiveness, as you can experiment with this free business game (K. Thapa)

1.2 Profile of the Organization

NIC ASIA Bank has its antecedents in NIC Bank which was established on 21st July 1998. The
Bank was rechristened as NIC ASIA Bank after the merger of NIC Bank with Bank of Asia Nepal
on 30th June 2013. This was a historic merger in the annals of the Nepalese financial landscape as
the first of its kind merger between two successful commercial banks in the country. Today, NIC
ASIA has established itself as one of the most successful commercial banks in Nepal. NIC ASIA
Bank is now, one of the largest private-sector commercial banks in the country in terms of capital
base, balance-sheet size, number of branches, ATM network and customer base. The Bank has
323 branches, 101 extension counters, 61 branchless banking and 466 ATMs across Nepal with a
network covering all major financial centers of the country. The Bank strongly believes in
Meritocracy, Transparency, Professionalism, Team spirit and Service Excellence. These core values
are internalized by all functions within the Bank and are reflected in all actions the Bank takes
during itsbusiness. (www.nicasiabank.com).

1
1.3 Statement of the Problems
Basically, commercial banks in Nepal have been facing the problems in profitability growth. If the
bank is not able to collect sufficient deposits, how would it be successful to achieve overall
organizational objective. Moreover, how would it be able to maintain the profitability position? If
the bank is not able to maintain the position, then there will be a great question mark of its
survival as a feasible institution in this competitive environment of commercial banking sector.
Liquidity, political situation, NRB policy affect the profitability. This study deals with the
profitability made by the bank in recent years and is the firm profitability ratio satisfied the
investors.

• What are the trend of profitability position of NIC of NIC Asia Bank?
• What are the EPS, DPS, and MVPS of NIC Asia Bank?

1.4 Objectives of the Study

Commercial banks are providing a large contribution to different sectors through trade, industry,
commerce, agriculture, tourism etc. They have now become the base for the development of Nepal.
So, activities of such sector should be studied and evaluated time to time and this field work is also
based on the same objective. Moreover, the other main objectives of the present study are: -

• To examine the trend of profitability position of NIC Asia Bank.

• What are the EPS, DPS, and MVPS of NIC Asia Bank?

1.5 Significance of the study

Analyzing of the profits which is basically the money remaining from the capital after subtracting
all the overhead costs, will help you keep a track of the business’ performance. Profitability analysis
allows companies to maximise their profit. Thus, resulting in maximizing the opportunities that
business can take advantage of, in order to continue growing in an extremely dynamic, competitive,
and vibrant market. Profitability analysis helps businesses identify growth opportunities, fast/slow-
moving stock items, market trends, etc., It ultimately helping decision-makers see a more concrete
picture of the company as a whole.

1.6 Review of Literature

Review of literature means reviewing research studies to know their conclusions and deficiencies
and to conduct further research. A company should earn profit to survive and grow over a long
period of time. Profits are essentials, but it would be wrong to assume every action in initiated by
management of a company should be aimed at maximizing profit. Profitability ratio indicates the
2
degree of succeed in achieving desired profits. Under this section of the study the conceptual review
related to the profitability analysis, the review of journals, articles and the review of the thesis have
been presented Prior to this study, the several researchers have found various studies regarding the
profitability performance of different commercial banks. In this study, only relevant subject matters
are reviewed which are as follows: Profit is essential for the survival and growth of a firm over a
long period of time, so it is regarded as the engine that drives the business and indicates economic
progress. Profit can also be defined as ultimate outputs that owners are interested in the profitability
of the firm as creditors want to get interest and repayment of principles regularly while owners want
to get a reasonable return on their investment. (Shrestha,2008)

Management of capital market, financial services and institutions by the study of this topics we can
find out capital formation, inflation and credit to the private sector have significant positive
relationship, and income and net remittance have negative relationship with stock market. Moreover,
there is a co-integrating relationship stock Malaysian stock market index with changes in money
supply, interest rate, exchange rate, reserves and industrial production index. In case of India
macroeconomic variables like GDP, savings, capital formation, gold price, industrial output, money
supply, exchange rate, WPL and interest rate have concurrence with the The word profitability is
composed of two words, namely, profit and ability. The term profit has been explained above and
the term ability indicates the power of a business entity to earn profits. The ability of a concern also
denotes its earning power or operating performance. The profitability may be defined as the ability
of a given investment to earn a return from its use. Profitability is a relative concept whereas profit
is an absolute connotation. Despite being closely related to and mutually interdependent, profit and
profitability are two different concepts. In other words, in spite of their generic nature, each one of
them has a distinct role in business. (Bhadra &Batra, 2001)

As an absolute term, profit has no relevance to compare the efficiency of a business organization.
A very high profit does not always indicate sound organizational efficiency and low profitability is
not always a sign of organizational sickness. Therefore, it can be said that profit is not the prime
variable on the basis of which the operational efficiency and financial efficiency of an organization
can be compared. To measure the productivity of capital employed and to measure operational
efficiency, profitability analysis is considered as one of the best techniques, (Tulsian, 2014).

1.7 Research Methodology

Research methodology describes the methods and process applied in the entire study. In other words,
research mythology is a systematic process to approach any research problem and explore it
objectively. It is careful investigation especially through search for new fact in any branch of
3
knowledge the appropriate research methodology. It is followed to achieve the study the following
methodology has been adopted, which includes research design, population and sample, nature and
source of data, methods of analysis tools and so on. (Kothari,2009)

1.7.1 Research Design

This report is primarily prepared to explore and find in detail about the profitability analysis of NIC
ASIA bank and to get to know about the aspects that explain the prospects and possibilities of the
profitability in the near future.
This study further tries to find out profitability analysis of the bank. Hence to find in details about
these aspects and to meet the objectives of this report, the study has basically been analyzed through
the primary data collection and is typically descriptive in nature and the different data collection
procedure, instruments were used to prove the content validity and the reliability of the data
collection. In addition to this some secondary data are also included which were collected from
books, articles, websites and magazines.
This report is prepared in reference to the study that has been conducted in the Kathmandu valley
by NIC ASIA bank. The prime focus of this study was to know about profitability analysis of the
bank. Hence, to gather the data, the survey was conducted by using questionnaire method.
The data collected were quantitative in nature. Data were collected directly from the respondents
by distributing self-designed, structured questionnaire in their day-to-day life. Convenience, non-
probability sampling was mainly used in this research purpose.

1.7.2. Nature and sources of data

At present twenty 21 Commercial banks are operating in Nepal. All the commercial banks are
considered as the population of this study. It is not possible the study all the data related with all
banks because of the limited time period. In this scenario, one commercial banks, NIC Asia Bank
Ltd have been selected as sample for the present study. Similarly, financial statements of banks for
five years from 2016/17 to 2021/22 have been taken as sample for the purpose. There are two types
of sampling: Probability and Non- Probability.

1.7.3 Data Collection Method

The research will be mainly based on application portfolio theory in financial institution of Nepal.
To attain the objective of the study secondary data have been used the necessary data will be
collected from the various sources covering a period 2016/17 to 2021/22. This data collection
sources will be websites on Nepal stock exchange ltd, the profit and loss account and balance sheet
of the banks, annual reports and others related books and booklets.
4
1.7.4 Tools Used
Basically, financial tools are used to analyze the data. While processing data in tables and figures
both mathematical and financial tools were applied. The tools used are shown as follows:
a) Return on Total Assets (ROA): It measures the return on all the firm’s assets after interest and
taxes. It is calculated by dividing net income by total assets.
b) Return on Total Equity (ROE): The ratio is tested to see the profitability of the owner’s
investment “reflects the extent to which the objectives of business are accomplishes.
c) Earnings Per Share (EPS): It is an important financial measure, which indicates the profitability
of a company. It is calculated by dividing the company’s net income with its total number of
outstanding shares.
d) Interest Income to Loan and Advances:

This ratio shows the relationship between interest income and total loans and advances.
e) Return on Average Equity (ROAE): It is a financial ratio that measures the profitability of a
company in relation to the average shareholders’ equity.
Descriptive Statistical tools:
Statistical tools include mean, correlation, trend analysis and regression analysis. 1. Arithmetic
Mean: It is the most common and widely used average. It can be defined as the sum of observations
divided by the number of the observations (Baskota, 2004).
Correlation coefficient:
Correlation analysis is primarily concerned with measuring the direction and strength of linear
relation among the variables and this strength of relationship between variables are carried out by
simple correlation coefficient, denoted by 'r'.
1.8 Limitation of the Study
Although this research has reached its aim, there were some unavoidable limitations.
i. Owing to the time limitation, only a few numbers of journals were considered. This may
have left some other prominent empirical studies out.
ii. One way mirror: since this project was solely based on the facts and information that were
extracted online, the information provided may lack credibility and authenticity.
iii. Because of the geographical barrier, studies had to be based on secondary resources.
iv. Subject matter expert’s interviews and reviews couldn’t be cited in this study.
v. To forecast of the liquidity requirement, daily and monthly data is needed. But due to time
and cost constraints, only the annual data is used for analysis.
vi. This study is to only fulfill the requirement for the degree of bachelor in business studies,
so it can not cover all the dimension of the all-subjects matter and resource.
5
 1.9 Chapter Plan

This whole report has been divided into three parts or chapters.

• Chapter I - Introduction:
In the first chapter introduction along with background, Profile of organization, objectives
of the study, rationale of study, literature review, and limitation etc.

• Chapter II - Result and Analysis

The second chapter is main portion of the study. It will deal with analysis and presentation
data collected from different sources. The research will analyze the data to reach closer to
the result by using various necessary financial and techniques.
• Chapter III - Summary and Conclusion
The final chapter will provide the result of discussion and conclude the overall study. At the
end an extensive references and annexes will also inclu

6
7