CHAPTER I

INTRODUCTION
1.1 Background of the Study

A Bank is a financial institution where customers can save money or take loans. Banks also
invest money to build up their reserve of money. What they do is regulated by laws which
differs from country to country. 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 vital 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

The history of banking in Nepal is believed to be started from the time of prime minister
Ranoddip singh in 1987 A.D. he introduces many financial and economic reforms. The
Tejrath Adda was established at that time and its basic purpose was to provide credit
facilities to the general public at a very concessional interest rate. 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 and preferred opening branches at urban areas.

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 financial institutions. The commercial bank has been
established gradually after the commercial bank act 2013 B.S. with the passage of time so
many

1
commercial banks have been established gradually because of the liberal and market
friendly economic policy of Nepal government. There are currently 27 A class commercial
banks in Nepal. And I’m very curious to know about how the financial analysis is done by
using various sample technique and statistical tools to compare those analysis. So out of
many commercial banks in Nepal, I chose Everest bank limited (EBL) for their financial
performance analysis.

A company’s financial performance tells investors about its general well being. It’s a
snapshot of its economic health and the job its management is doing- providing insight into
the future: whether its operations and profit are on track to grow, and the outlook for its
stock. Financial statements used in evaluating overall financial performance include the
balance sheet, the income statement, and the statement of cash flows. Financial
performance indicators are quantifiable metrics used to measure how well a company is
doing. The indicators also known as key performance indicator (KPIS), are act as tools for
both corporate insiders (like management and board members) and outsiders (like research
analyst and investors) to analyze how well the company is doing, especially in regard
competitors and identify where strength and weakness life.

1.2 introduction to Everest bank limited

Everest bank limited is the commercial bank of Nepal which is joint venture of Punjab
National Bank, India. Punjab National Bank holds 20 % equity share of the Everest bank
limited. This is the first Nepalese bank which have representative office in India. Everest
bank limited has been established in 1994. The bank has been one of the leading bank of
the country and has been catering its services to various segments of the society. With
client from all walks of life, the bank has helped the nation to develop corporately,
agriculturally & industrially. The head quarter of Everest Bank Limited is located in
Lazimpat, Kathmandu, Nepal.
The bank has 105 branches, 138 ATM counters, 31 revenue collection counters and 3
extension counters across the country making it a very efficient and accessible bank for its

2
 customers, anytime, anywhere. EBL is one of the first bank to introduce any branch
banking system (ABBS) in Nepal. This bank introduced mobile vehicle banking system to
serve the segment deprived of proper banking facilities through its Birtamod Branch, which
was the first of its kind. EBL introduce online payment of mobile/PSTN/ADSL/NCELL
bill or from the counter as well. EBL is the first bank to introduce missed call alert service
for balance inquiry through phone no: 01-4443374.

Table no 1.2
Board of Directors
MR. B.K SHRESTHA Promotor/Chairman

MR. ARUN MAN SHERCHAN Promotor/Director

DR. GOPAL BAIDYA Promotor/Director

MR. ANIL BANSAL PNB Nominee Director

MR. NABIN BHAKTA SHRESTHA Public Director

DR. NIRMAL KUMAR BISTA Independent Director

MRS. URMILA SHRESTHA Public Director

1.3 Objective of the Study

The basic objective of this study is to analyze the financial performance of EVEREST bank
limited through the use of different ratios.
The specific objectives of this study are as follows:

• To analyze the financial ratios to calculate profitability.

• To analyze the liquidity.
• To analyze the valuation of a company.

3
 1.4 Rationale of the Study

Commercial banks are not one of the major core components of modern economy. They
give greater contribution to GDP too. The production of finance and real – estate sub sector
is increasingly comparatively. However various financial sector liberalization
programmers such as SAP and ESAP has been initiated with the loan and assistance of
World Bank, IMF and ADB, the banking sector continued to be in though in this situation
too. The study tells the shareholders about the financial performance of the bank. The study
assists other researchers who are choosing the similar topic and provide the necessary
condition.

1.5 Review of Literature

Review of literature comprises upon the existing literature and research related to the
present study with a view to find out what had already been studied. According to Wolf &
Pant “The purpose of the reviewing the literature is to develop some expertise in One's
area, to see what new contribution can be made and to review some idea for Developing
research design”. (Pant and Wolf; 1996:31-44). This portion has been divided into three
parts: -

• Conceptual Review
• Review of Related Studies

1.5.1. Conceptual 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. 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 its collected resources then it cannot generate

4
 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.
Financial analysis is the process of identifying the financial strength and weakness of the
concerned bank. It is the process of finding strength and weakness of the concerned bank.
It is the process of finding details accounting information given in the financial statement.
It is performed to determine the liquidity, solvency, efficiency and profitability position of
an organization. The function or the performance of finance can be broken down into three
major decisions i.e. the investment decision, the financing decision, and the dividend
decisions. An optional combination of the three decisions will maximize the value of the
firm.

1.5.2. Review of Related Studies

Shrestha Bal Krishna (2016). "An Evaluation of Financial performance of Nepal Bank
Limited: Unpublished master's Degree Thesis, TU 2016. Main objective

• To study the capital and leverage ratio of bank

• To analyze the liquidity position of bank
• To analyze the profitability of the bank

Major findings of the research study are

• The liquidity analysis present better position of NBL in respect to the cash and bank
balance to deposit ,and in regard to the investment on government securities to current
assets NBL ratio was in increasing trend and also loan and advances to current assets of
NBL reveals that it has satisfactory liquidity position.
• . There is wide gap between demand and supply of loan.
• The regression analysis show negative relationship between profit and investment

5
 Joshi, Archana (2008) conducted a study on “A Comparative Study on Financial
Performance of Nepal SBI bank ltd & Nepal Bangladesh bank Ltd.” with the following
objectives.

• To analyze liquidity
• To analyze profitability
• To analyze risk ratio

Major findings are:

• The liquidity position of both SBI bank and NBBL seems satisfactory but comparatively
SBI bank is better. NBBL has highest cash and company balance to deposit ratio and loan
and advances to current assets ratio than SBI. But SBI bank has higher ratio on investing
position of current assets as govt. securities.
• The profitability position of SBI is better than NBBL. SBI bank has highest return on loan
and advances ratio, total interest earned to total deposit asset ratio and return on equity than
NBBL. The risk ratios present NBBL has higher degree of liquidity risk and credit risk
than SBI bank

Erich A. H. (2005). Technique of Financial Analysis. Seventh Revised Edition. Jaico

Publishing House. Commercial Bank Act 2033.
Main objective
• To study the different technique of financial analysis.

Findings
• There are several techniques commonly used as part of financial statement analysis.
Analyst apply several methods in judging the financial stability of a company to decide its
valuation in the stock market.

6
 1.6 Research Methodology

1.6.1. Research Design

Research design is the conceptual structure within which research is conducted. In order to
achieve the objective, both descriptive and analytical research design has been followed.
The study has focus on the relationship between those variables that influence financial
decision of the sampled banks.

1.6.2. Population and Sample

As there are 27 commercial banks in Nepal which can be taken as population, the study of
all those banks is a difficult task. So, among them, only one of them are considered as a
sample of the study i.e. Everest bank limited. I have use purposive sampling method for
this study.

1.6.3. Nature and Sources of Data

The research is mainly based on the secondary data. The various data required for the study
is collected from the concerned Annual Report, book and booklets, magazines journals,
newspapers, published balance sheet etc.

1.6.4. data analysis tools

Presentation and analysis of the collected data is the core part of the research work. The
collected raw data are first presented in a systematic manner in tabular form and are then
analyzed by applying different financial and statistical tools to achieve the research
objectives. Besides, some graph charts and tables have been presented to analyze and
interpret the findings of the study.
The tools applied are;
1. financial tools: financial tool basically help analyze the financial strength and weakness of
a firm. Ratio analysis is a part of whole process of analysis of financial statements of any
business or industrial concerned specially to take output financial decision. Ratio analysis
is used to compare firm’s financial performance and status that of the other firms or to eat
over time. Even though there are many ratios to analyze to interpret the financial statement,
7
 those ratios that are related to the financial operation of the bank are covered in this
research. This study will use following financial ratio for evaluation

• Net profit to total income ratio

• Net profit to loan and advance ratio
• Net profit to total assets ratio
• Current ratio
• Cash and bank balance to total deposit ratio
• Tier 1 capital to total risk weighted assets ratio
• Total capital to total risk weighted assets ratio
• P/E ratio
2. statistical tools: there are many statistical tools to achieve the objective of the study.
In this study I am using “Arithmetic mean” and trend analysis.
Arithmetic Mean of a given set off observation is their sum divided by the number of
observations. In general, x1, x2 ….. xn are the given number of observations, their
arithmetic mean can be derived in this way;

𝑥̅ = ∑𝑁𝑥̅

Where ,

𝑥̅ = Arithmetic mean

∑𝑥̅ = sum of observation

N = number of observations
The arithmetic mean is a single value selection, which represents them in average. Out of
the various central tendencies a mean is one of the most useful tools to find out the average
value of the given data. Furthermore, it is very much useful with respect of financial
analysis and it is also easy to calculate.

8
 1.7 Limitation of the Study

Following are the Limitations of this research:

• Due to limited data and resources, this research only covers financial performance of single
bank that is “Everest bank limited”.
• This study is only based on secondary data. Estimation based on work order based on
available data.

• The study covers a five year’s analyzed data and report from 2073/74 to 2077/78 hence it
may not represent the condition of the bank.
• The study carried out based on the published documents such as balance sheet, related
journals, magazines and books. These published documents have their own limitations.
• The consistency of the result is strictly based on the information based on the information
provided.
• This research is only partial fulfillment of bachelor of business studies.

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 CHAPTER II

RESULT AND FINDING

2.1 Presentation and Analysis of Data

Subject matter and objectives of this study have been introduced in the first chapter. In
order to achieve those objectives necessary analytical tools and techniques have been
discussed in unit “Research Methodology”. In this unit relevant data have been presented
and analyzed with reference to financial performance of selected commercial bank

Financial Analysis:

Financial analysis is a process of evaluating relationships between component parts of

financial statements, i.e., balance sheet and profit and loss account to obtain a better
understanding of the banks position and performance. Various financial tools are used in
this research for analysis. Although there are more than 200 ratios, only some selected
ratios are used in this 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 defined 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
10
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. However, " A
single ratio itself does not is indicate favorable or unfavorable conditions. It should be
compared with some standard.
A ratio is simply a number expressed in terms of another number and it expresses the
quantitative relation between any two variables. Ratio can be calculated between any two
items of financial statements. It means there may be as many ratios as there are the numbers
of items. However, under the ratio analysis technique, it is not practical to work out all the
ratios. Hence, only the required ratios have been worked out.
There are numerous ratios to analyze and interpret the financial form once of the enterprise
or firm. However, for our purpose, only important and relevant ratios are used to check the
financial health of Everest bank limited, which are as below;

2.1.1) Profitability Ratio : In any firm, profitability is a major concern. Profit is the
objective of all the policies framed and decisions taken by the management. Profitability
ratios reveal an interesting picture of how the individual firm has been managed. These
ratios enable one to judge the overall performance of the firm. The various profitability
ratios, which reflect the operating efficiency of the bank, have been analyzed
comparatively.

2.1.1.1) Net profit to total income ratio: This ratio is calculated by dividing net profit by
total income. It measures the profitability of the company. The net profit to total income
ratio of the EBL are tabulated below.
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 Table no 2.1.1.1

Net profit to total income ratio (in %)

SN/YEAR Net profit to total income ratio (%)

2073/74 26.75

2074/75 22.86

2075/76 21.13

2076/77 16.25

2077/78 13.54

Average 𝑋̅ 20.106
(Sources: annual report)

Figure no. 2.1.1.1

Net profit to total income ratio

NET PROFIT TO TOTAL IMCOME

RATIO (%)
Series 1

30
25
20
15
10
5
0
2073/74 2074/75 2075/76 2076/77 2077/78

(Sources: table no 2.1.1.1)

The above table shows that the net profit to total income ratio of Everest bank limited is in
a decreasing trend. the highest ratio was in FY 2073/74 which was 26.75 % and lowest
ratio was in FY 2077/78 which is 13.54 %. And the average ratio was 20.106%.

12
2.1.1.2) Net profit to total loan and advance ratio: This ratio is calculated by dividing
Net profit in by total loan and advance. This ratio measures the profitability of all financial
resources with represents the utilization of overall resources efficiently.

Table No. 2.1.1.2

Net profit to total loan and advance ratio (NRS. In Millions)
SN/ Year Net profit Total loan and advance Ratio (%)

2073/74 2006.2 78284.6 2.65

2074/75 2581.7 94182.2 2.71

2075/76 3054.1 112007.2 2.70

2076/77 2516.2 119069.2 2.08

2077/78 1770.9 135173.2 1.29

Average 𝑋̅ 2.286

(Sources: annual report)

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 Figure No. 2.1.1.2
Net profit to loan and advance Ratios of Everest bank limited

NET PROFIT TO TOTAL LOAN AND

ADVANCE RATIO
Series 1

2.5

1.5

0.5

0
2073/74 2074/75 2075/76 2076/77 2077/78

(Sources: table no 2.1.1.2)

The above table shows that the net profit to loan and advance ratio of Everest bank
limited is in a fluctuating trend. the highest ratio was in FY 2074/75 which was 2.71 %
and lowest ratio was in FY 2077/78 which is 1.29 %. And the average ratio was 2.286 %.

2.1.1.3) Net profit to total assets Ratio: The ratio measures by dividing net profit by its
total assets which is also known as return on assets. This shows the percentage of profit a
company earns in relation to its overall resources. Net profit to total assets ratios of the
EBL are tabulated below:

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 Table No. 2.1.1.3
Net profit to total assets ratio (NRS. In Millions)
SN/ year Net profit Total assets Ratio (%)

2073/74 2006.2 116946.28 1.72

2074/75 2581.7 144818.26 1.78

2075/76 3054.1 170077.53 1.79

2076/77 2516.2 185023.18 1.35

2077/78 1770.9 211650.24 0.83

Average 𝑋̅ 1.494
(Sources: annual report)

Figure No. 2.1.1.3

Net profit to total assets Ratios of Everest bank limited

NET PROFIT TO TOTAL ASSETS

RATIO
Series 1

1.5

0.5

0
2073/74 2074/75 2075/76 2076/77 2077/78

(Sources: table no 2.1.1.3)

15
The above table and graph show the net profit to total assets ratio of Everest bank limited.
The highest ratio was in FY 2075/76 which was 1.79 % and the lowest ratio was in FY
2077/78 which was 0.83 %. And the average ratio was 1.494 %.

2.1.2) Liquidity Ratio

Liquidity ratios measure a corporation’s ability to meet its maturing short-term obligations.
Liquidity refers to ‘nearness to cash’. With too much liquidity, the possibility of its misuse
becomes high. On the other hand, too little may lead to sever cash problems, which can
result in liquidity to pay debts in time. Following ratios are analyzed in the liquidity ratio.
This chapter is the main part of my study. This chapter has been of great relevance for my
study, as all the findings, conclusions and recommendations are going to be derived from
the calculations done in this section. The analysis of data consists of organizing, tabulating
and performing financial as well as statistical analysis.

2.1.2.1) Current ratio:- It measures the degree to which current assets cover current
liabilities. A higher ratio indicates greater assurance of ability to pay current liabilities. A
current ratio of 2:1 is generally considered to be an acceptable standard though it is only a
rule of thumb standard. A low ratio indicates that the corporation may not be able to meet
short-term obligations.
The calculation of the current ratio of EVEREST can be shown by the table.

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 Table no 2.1.2.1

Current ratio (NRS. In Million)

SN/YEAR Current Assets Current Liabilities Ratios (in times)

2073/74 18156.20 14328.42 1.267

2074/75 18934.51 15373.33 1.232

2075/76 21306.63 15565.67 1.368

2076/77 22354.37 21043.11 1.062

2077/78 23764.82 21436.76 1.108

Average 𝑋̅ 1.207
(Sources: Annual report)

Figure no 2.1.2.1
current ratio of Everest Bank Limited

CURRENT RATIO OF EBL

Series 1

1.5

0.5

0
2073/74 2074/75 2075/76 2076/77 2077/78

(Sources: table no 2.1.2.1)

The above table shows that the current ratio of Everest bank limited is in a fluctuating trend.
the highest ratio was in FY 2075/76 which was 1.368 times and lowest ratio was in FY
2076/77 which was 1.062 times, And the average ratio was 1.207 times.
17
2.1.2.2) Cash and Bank Balance to total deposit ratio: - Cash and bank balance are the
most Liquid Assets, so this ratio measures the bank’s ability to immediately fund the
withdrawal of their depositors. A high ratio represents a greater ability to cover their
deposits and vice versa. This ratio is determined by dividing cash and bank balance by total
deposits.
Table No. 2.1.2.2
Cash and Bank Balance to Total Deposit Ratio Table (NRS. In Millions)
SN/year Cash and bank balance Total deposit Ratio (%)

2073/74 3,060.84 95094.4 3.21

2074/75 10065.42 116427.8 8.64

2075/76 7759.12 130177.4 5.96

2076/77 10368.14 144728.3 7.16

2077/78 9163.40 160899.2 5.69

Average 𝑋̅ 6.123

(Sources: annual report)

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 Figure No.2.1.2.2
Cash and Bank Balance to Total Deposit Ratio of EBL

(Sources: table no 2.1.2.2)

The above table shows the cash and bank balance to total deposit ratio of Everest bank
limited and the ratio of cash and bank balance to total deposit ratio of EVEREST Bank is
moving in a zigzag trend, firstly increasing and decreasing and soon. The maximum was
in FY 2074/75 which was 8.64% and minimum was in the FY 2073/74 which was 3.21 %.
The average for the review period was 6.123.

This analysis helps us to conclude that cash and bank position with respect to its total
deposit EVEREST.

2.1.2.3) Tier 1 capital to risk weighted ratio: - the tier 1 capital ratio is the ratio of a
bank’s core tier 1 capital i.e. its equity capital and disclosed reserves to its total risk
weighted assets. It is a key measure of a bank’s financial strength that has been adopted as
part of the Basel III accord on banks regulation. The tier 1 capital to risk weighted assets
have been tabulated below.

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 Table 2.1.2.3

Tier 1 capital to risk weighted assets (Nrs. In million)

SN/Year Tier 1 capital Total risk weighted assets Ratio (%)

2073/74 11309.301 88929.577 12.58

2074/75 13912.342 11005.455 12.65

2075/76 15276.006 123391.104 12.38

2076/77 15843.628 132882.211 11.92

2077/78 17194.48 152955.307 11.24

Average 𝑋̅ 12.154
(Sources: annual report)

Figure No. 2.1.2.3

Tier 1 capital to risk weighted Asset ratio of EBL

TIER 1 CAPITAL TO RISK

WEIGHTED ASSETS RATIO
Series 1

13
12.5
12
11.5
11
10.5
2073/74 2074/75 2075/76 2076/77 2077/78

(Sources: table no. 2.1.2.3)

The above mention table and figure shows that Everest bank limited has decreasing trend
of tier 1 capital to risk weighted assets ratio. It was maximum in the FY 2074/75 which
was 12.65% and minimum in the FY 2077/78 which was 11.24%. the average for the
review period was 12.154 %.

20
2.1.2.4) Total Capital to Total risk weighted assets Ratio: it is a ratio of
combined tier 1 capital and tier 2 capital to risk weighted assets of the bank determined in
accordance with the call report instruction. The total capital to risk weighted assets ratio
have been tabulated below.

Table 2.1.2.4

Total capital to risk weighted assets (NRS. in million)

SN/ year Total capital Total risk weighted assets Ratio (%)

2073/74 13063.702 88929.577 14.54

2074/75 15616.67 110005.455 14.20

2075/76 16955.638 123391.104 13.74

2076/77 17780.357 132882.211 13.38

2077/78 19089.321 152955.307 12.48

Average 𝑋̅ 13.668

(Sources: annual report)

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 Figure No. 2.1.2.4
Total capital to risk weighted Asset ratio of EBL

TOTAL CAPITAL TO RISK WEIGHTED

ASSTES RATIO
Series 1

15
14.5
14
13.5
13
12.5
12
11.5
11
2073/74 2074/75 2075/76 2076/77 2077/78

(Sources: table no. 2.1.2.4)

The above mention table and figure shows that Everest bank limited has decreasing trend
of total capital to risk weighted assets ratio. It was maximum in the FY 2073/74 which was
14.54% and minimum in the FY 2077/78 which was 12.48%. the average for the review
period was 13.668%.

2.1.3) Valuation Ratios: - Various valuation ratios like price earnings ratio, dividend
payout ratio and market value per share to book value per share have been calculated to
indicate the market value of the bank as compared to the book value and to measure the
stock price relative to earnings.

2.1.3.1) Price Earnings Ratio (P/E ratio): This ratio is calculated by dividing market
value per share by earning per share. Price earnings ratio indicates investor’s judgment or
expectation about the firm’s performance. Higher the ratio more the value of the stock, P/
E ratio of the selected banks are presented below.

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 Table No. 2.1.3.1
Price Earnings Ratio (In times)
SN/ year P/E ratio

2073/74 41.66

2074/75 20.23

2075/76 17.50

2076/77 22.72

2077/78 37.06

Average 𝑋̅ 27.834

(Sources: annual report)

Figure No. 2.1.3.1

Price Earning Ratio of Everest bank limited

P/E RATIO (IN TIMES)

Series 1
45
40
35
30
25
20
15
10
5
0
2073/74 2074/75 2075/76 2076/77 2077/78

(Sources: table no. 2.1.3.1)

The above table shows that the P/ E ratio of Everest bank limited is in a fluctuation trend.
the highest price earning ratio of the bank was in FY 2073/74 which was 41.66 times. And
the lowest price earning ratio was in FY 2075/76 which was 17.50 times, and the average
price earning ratio was 27.834 times of the bank.

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 2.2 Findings
After summarizing the objective of the study, certain findings based on the analysis
conducted under the analytical section are going to be revealed in the following section:

• To analyze the profitability ratio, net profit to total income ratio, net profit to loan and
advance ratio, net profit to total assets ratio have been calculated which shows the
profitability of the bank.
• the net profit to total income ratio of Everest bank limited is in a decreasing trend. the
highest ratio was in FY 2073/74 which was 26.75 % and lowest ratio was in FY 2077/78
which is 13.54 %. And the average ratio was 20.106%.
• The net profit to loan and advance ratio of Everest bank limited is in a fluctuating trend.
the highest ratio was in FY 2074/75 which was 2.71 % and lowest ratio was in FY 2077/78
which is 1.29 %. And the average ratio was 2.286 %.
• The net profit to total assets ratio of Everest bank limited. The highest ratio was in FY
2075/76 which was 1.79 % and the lowest ratio was in FY 2077/78 which was 0.83 %. And
the average ratio was 1.494 %.
• To analyze the liquidity position of a EBL, current ratio, cash and bank balance to total
deposit ratio, tier 1 capital to total risk weighted assets ratio, total capital to total risk
weighted assets ratio has been calculated.
• The current ratio of Everest bank limited is in a fluctuating trend. the highest ratio was in
FY 2075/76 which was 1.368 times and lowest ratio was in FY 2076/77 which was 1.062
times, And the average ratio was 1.207 times.
• The Everest bank limited has decreasing trend of tier 1 capital to risk weighted assets ratio.
It was maximum in the FY 2074/75 which was 12.65% and minimum in the FY 2077/78
which was 11.24%. the average for the review period was 12.154 %.
• Capital adequacy ratio calculated for the banks stood below the prescribed adequacy ratio
by NRB to absorb unexpected losses than can be incurred in the bank. And Everest bank
limited has maintained its core and total capital as prescribed by the NRB. As the average
core capital ratio was 12.154% which is higher than the prescribed ratio and the average
total capital ratio was 13.668%.

24
• The cash and bank balance to total deposit ratio is in a fluctuating trend and its higher ratio
was in FY 2074/75 which was 8.64% and the lowest was in FY 2073/74 which was 3.21%.
and the average of its ratio was 6.123%.
• To analyze the valuation of the EBL, this study shows the P/E ratio of the EBL.
• The P/ E ratio of Everest bank limited is in a fluctuation trend. the highest P/E ratio of the
bank was in FY 2073/74 which was 41.66 times. And the lowest P/E ratio was in FY
2075/76 which was 17.50 times, and the average P/E ratio was 27.834 times of the bank.

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 CHAPTER III

SUMMARY AND CONCLUSION

3.1 Summary
Banks, which deal with commercial activities, are known as commercial banks. These
financial institutes help to integrate every financial activity of the community. The main
objective of a commercial bank is to play a vital role in the development of good trade.

Commercial banks are mechanisms of mobilizing funds in returnable resources. They offer
financial support to all types of business through providing various types of loans and other
financial services. Commercial banks aid the economic development of the nation.

The banking industry in Nepal has a huge canvas of history, which covers the traditional
banking practices from the time of Bruisers to the reforms period, nationalization to
privatization of banks and now increasing numbers of foreign banks in Nepal. Therefore,
Banking in Nepal has been through a long journey. Banking industry in Nepal has also
achieved a new height with the changing times. The use of technology has brought a
revolution in the working style of the banks. Nevertheless, the fundamental aspects of
banking i.e. trust and the confidence of the people on the institution remain the same. The
some of the banks are still successful in keeping with the confidence of the shareholders as
well as other stakeholder, and Everest Bank limited is one of them. However, with the
changing dynamics of banking business brings new kind of risk exposure.

In this study, an attempt has been made to identify the financial performance evaluation of
Everest Bank. This research study is divided in three parts.
First part includes the introduction and general scenario of Nepal banking industry.
Discusses the regularity framework of faced by Nepali banking industry and the financial
performance of Everest bank limited.

Second part deals with the Presentation and Analysis of Data, interpretation, and major
findings of the study of Everest Bank.

26
Third, the chapter deals with the summary, Conclusion of this study. The Nepalese banking
industry is passing through a phase of customer market. The customers have more choices
in choosing their bank. The competition has been established within the bank operating in
Nepal.

To know the real performance of banks, I have observed and analyzed the performance
analysis of Everest bank for five years period. It is hoped that the performance analysis of
the Everest bank has give a rational result and represent the overall banking scenario in
terms of performance analysis.

3.2 Conclusion

The analyzed data proved that the major source of income of EBL is interest receipt. The
collection of interest of EBL is the volume of total earning. The average of collection of
interest income is from the calculation the researcher has found that the net profit margin
ratio of EBL is more fluctuated.
The liquidity position of Everest bank limited is below than normal standard. banks should
increase current assets. Though, the overall liquidity position of EBL is in a better position.
Profitability ratio is measurement of efficiency. It provides the degree of success in
achieving desired profit. Profitability in terms of net profit to total assets ratio, net profit to
total deposit ratio, EBL average ratio is in a better position. Thus, it can be concluded that
EBL is getting good return from its investment.

The major expenses, for the Everest bank limited is interest expenses, staff expenses, office
expenses and provision for bonus.

In case of EBL, the P/E ratio and EPS is more fluctuated. Though, the average P/E ratio of
Everest bank is higher within the study period. This shows that, EBL is found better
performance in term of P/E ratio.

After this analysis, it is recommended to EBL to reduce their interest spread (margin
between the interest received from loans and advances and interest paid to the depositors)
as directed by NRB. Interest spread can only be reduced if the internal rate of return, i.e.

27
return from assets is higher than overall cost of capital. Therefore, the bank should search
for lower cost source of fund to decrease the interest spread.

Everest bank should develop such a dividend policy, which divided the net earning into
dividend and retained earnings in an optimum way to achieve the objective of maximizing
the wealth of the shareholders. The EBL is found to be centralized in urban areas. Since
profitability is not only the sole objective of the bank, it is recommended for EVEREST to
expand its branches in the rural areas for the upliftment of deprived community as well as
the economy of the nation. The joint venture banks are found to be interested to pay penalty
than allocate priority sector credits. This negative attitude must be changed and devote
oneself for uplifting the economic condition of the deprived community as its social
responsibilities.

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BIBLIOGRAPHY

Aryal, Madhav Prashad, (2014). "Nepalese Banking System". Shree Printing Press.

Brigham.M (2008), “Financial Management: Theory & Practice”. New Work: Cengage
learning
Edward, I, Altmen,(2010). “Financial Ratio. Discriminate Analysis and Prediction of
Corporate Bankruptcy.”, Journal of Finance. M.K publisher and Distributor.
Erich A. H. (2005). Technique of Financial Analysis. Seventh Revised Edition. Jaico
Publishing House. Commercial Bank Act 2033.
Joshi, Archana (2008) “A Comparative Study on Financial Performance of Nepal SBI
bank ltd & Nepal Bangladesh bank Ltd.” Unpublished master's Degree Thesis, TU 2008.

Shakya, Suman (2010). “Financial Performance of Nepal SBI Bank Limited and Everest
Bank Limited.” An Unpublished Master's Degree Thesis, Kathmandu. Shanker Dev
Campus, T.U.
Shrestha Bal Krishna (2016). "An Evaluation of Financial performance of Nepal Bank
Limited: Unpublished master's Degree Thesis, TU 2016.

Thapa, K. (2017). “Financial Instituation & Markets”. Kathmandu: M.K Book Publishers
and Distributers Pvt. Ltd.

Websites

http://everestbankltd.com

www.nrb.org.np

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 Appendix I

Current ratio (NRS. In Million)

SN/YEAR Current Assets Current Liabilities Ratios (in times)

2073/74 18156.20 14328.42 1.267
2074/75 18934.51 15373.33 1.232
2075/76 21306.63 15565.67 1.368
2076/77 22354.37 21043.11 1.062
2077/78 23764.82 21436.76 1.108
Average 𝑋̅ 1.207
(Sources: Annual report)

Appendix II
Tier 1 capital to risk weighted assets (NRS. In million)
SN/Year Tier 1 capital Total risk weighted assets Ratio (%)

2073/74 11309.301 88929.577 12.58

2074/75 13912.342 11005.455 12.65
2075/76 15276.006 123391.104 12.38
2076/77 15843.628 132882.211 11.92
2077/78 17194.48 152955.307 11.24
Average 𝑋̅ 12.145

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 Appendix III

Total capital to risk weighted assets (NRS. in million)

SN/ year Total capital Total risk weighted assets Ratio (%)
2073/74 13063.702 88929.577 14.54
2074/75 15616.67 110005.455 14.20
2075/76 16955.638 123391.104 13.74
2076/77 17780.357 132882.211 13.38
2077/78 19089.321 152955.307 12.48
Average 𝑋̅ 13.668

Appendix IV
Loan and Advances to Total Deposit Ratio (NRS. In Millions)
SN/year Loan and advance Total deposit Ratio (%)

2073/74 78284.6 95094.4 84.05

2074/75 94182.2 116427.8 81.86

2075/76 112007.2 130177.4 87.01

2076/77 119069.2 144728.3 83.52

2077/78 135173.2 160899.2 85.30

Average 𝑋̅ 83.385

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 Appendix V
Net profit to total loan and advance ratio (NRS. In Millions)
SN/ Year Net profit Total loan and advance Ratio (%)

2073/74 2006.2 78284.6 2.65

2074/75 2581.7 94182.2 2.71

2075/76 3054.1 112007.2 2.70

2076/77 2516.2 119069.2 2.08

2077/78 1770.9 135173.2 1.29

Average 𝑋̅ 2.286

Appendix VI
Price Earnings Ratio (In times)
SN/ year P/E ratio

2073/74 41.66

2074/75 20.23

2075/76 17.50

2076/77 22.72

2077/78 37.06

Average 𝑋̅ 27.834

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A

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