Premium Collection, Investment Position and Profitability of Nepal Life Insurance

Co. Ltd. (NLIC)

A Dissertation Submitted to the Office of the Dean, Faculty of Management in Partial

Fulfillment of the Requirements for the Master's Degree

By
Asmita Ghimire
Exam Roll: No: 18150/19
Registration No: 7-2-1071-23-2013
Birendra Memorial College, Dharan

Dharan, Sunsari
 May, 2023
Certification of Authorship

I hereby corroborate that I have researched and submitted the final draft of dissertation
entitled “Premium collection,investment position and profitability of Nepal Life
Insurance Co.ltd (NLIC) ”. The work of this dissertation has not been submitted
previously for the purpose of conferral of any degrees nor has it been proposed and
presented as part of requirements for any other academic purposes.
The assistance and cooperation that I have received during this research work has
been acknowledged. In addition, I declare that all information sources and literature used
are cited in the reference section of the dissertation.

…………………………..
Manisha Chaudhary
May, 2023

ii
 Report of Research Committee

Ms. Manisha Chaudhary has defended research proposal entitled “Financial Performance
of Everest Bank Limited” successfully. The research committee has registered the
dissertation for further process. It is recommended to carry out the work as per suggestion
and guidelines of supervisor Mr. Ganga Prasad Chaulagain and submit the thesis for
evaluation and viva-voce examination.

…………………….. Dissertation Proposal Defended Date:

Mr. Ganga Prasad Chaulagain
Dissertation Proposal Supervisor: …………………………………

…………………….. Dissertation Submitted Date:

Mr. Ganga Prasad Chaulagain …………………………………..
Dissertation Supervisor:

…………………….
Dissertation Viva-voce Date:
Prof. Dr. Ashok Kumar Jha
Chairperson, Research committee
…………………………………
Date:

iii
 Approval Sheet

We have examined the dissertation entitled “Financial Performance of Everest Bank

Limited” presented by Manisha Chaudhary for the degree of Master of Business Studies
(MBS).We hereby certifies that the dissertation is acceptable for the award of degree.

……………………………………
Mr. Ganga Prasad Chaulagain
Dissertation Supervisor

……………………………….
Mr. Ramesh Kumar Khatiwada
Internal Examiner

…………………………………
External Examiner

…………………………………….
Prof. Dr. Ashok Kumar Jha
Chairperson, Research Committee
Date:

iv
 Acknowledgements

The dissertation entitled “Financial Performance of Everest Bank Limited” has been
conducted to satisfy the partial requirements for the Masters of Business Studies,
Tribhuvan University.
Firstly, I would like to extend my immense gratitude to my supervisor, Mr. Ganga
Prasad Chaulagain, for his continuous supervision and guidance during the completion of
this study. I am very thankful for research committee head Prof. Dr. Ashok Kumar Jha
for his continuous support and constructive suggestions that have enabled this research
project to achieve its present form.
Similarly, I would also like to thank Birendra Memorial College, Dharan for
providing me with all the necessary resources for research work and computing support
without which knowledge and assistance of this study wouldn’t has been successful.
Lastly, I would like to thank my parents, family relatives, friends and all those
who helped me during the research work. However, I accept the sole responsibility for
any errors and discrepancies that might have occurred in this report.
Thank you

v
 Table of Contents

Title Page of the Dissertation i

Certification of Authorship ii
Report of Research Committee iii
Approval Sheet iv
Acknowledgements v
Table of contents vi
List of Table’s ix
List of Figures xi
Abbreviations xii
Abstract xiii
Chapter – I: Introduction
1.1 Background of Study 1
1.2 Profile of Organization 1
1.2.1 Everest Bank Limited (EBL) 1
1.3 Statement of Problem 2
1.4 Objective of the Study 2
1.5 Rationale of the Study 3
1.6 Limitations of the Study 4
1.7 Organization of the Study 4
Chapter- II: Review of Literature
2.1 Conceptual Framework 6
2.1.1 Dependent variable 7
2.1.2 Independent variable 8
2.2. Review of Related Studies 10
2.3 Review of Thesis 13
2.4 Research Gap 14
Chapter-III: Research Methodology
3.1 Research Design 16
3.2 Population and Sample 16
3.3 Nature and Sources of Data 17

vi
3.4 Data Collection Procedure
3.4.1 Financial Tools 17
3.4.2 Statistical Tools 24
Chapter-IV: Results and Discussion
4.1 Result 28
4.1.1 Financial Analysis 28
4.1.1.1 Liquidity ratios 28
4.1.1.2 Leverage Ratio 31
4.1.1.3 Activity Turnover Ratio 33
4.1.1.4 Profitability Ratio 55
4.1.1.5 Others Indicators 37
4.1.2 Income and Expenditure Analysis 41
4.1.2.1 Income Analysis 41
4.1.2.2 Expenses Analysis 43
4.2 Discussion 44
4.3 Major Findings 44
Chapter V: Summary & Conclusions
5.1 Summary 48
5.2 Conclusions 49
5.3 Implication 50
References 52
Appendices 55

vii
 List of Tables

Table No Page No

3.1 Current Ratio 29

3.2 Cash Ratio 30
3.3 Quick Ratio 31
3.4 Debt-equity Ratio 32
3.5 Debt-Asset Ratio 33
3.6 Loan and Advances to Total Deposit Ratio 34
3.7 Investment to Total Deposit Ratio 35
3.8 Return to Total Assets Ratio 36
3.9 Return on Total Deposit Ratio 36
3.10 Earnings per Share (EPS) 37
3.11 Dividend per Share (DPS) 38
3.12 Price Earnings Ratio- P/E Ratio 39
3.13 Market value per share 40

viii
 List of Figure

Figure No Page No

2.1 Conceptual framework 6

4.1 Income of EBL 42
4.2 Expenditure of EBL 43

ix
 Abbreviation

ADBN Asian Development Bank Limited

BAFIA Banks and Financial Institutions Act
BIMSTEC Bay of Bengal Initiative for Multi-Sectoral
Technical and Economic Cooperation
C.V Coefficient of Variation
DPR Dividend Payout Ratio
DPS Dividend per Share
EPS Earnings per Share
ESAP Elderly Simplified Application Project
GDP Gross Domestic Product
IMF International Monetary Fund
IT Information Technology
MVPS Market Value per Share
NBBL Nepal Bangladesh Bank Limited
NEPSE Nepal stock Exchange
NGO Non Government Organization
P.E Problem Error
P/Ratio Price-Earnings Ratio
S.D Standard Deviation
SAFTA South Asia Free Trade Area
SAP Systems Applications and Products in data
processing
WTO World Trade Organization

x
 Abstract

This dissertation research project entitled “Financial Performance Analysis EBL”. The
objective of this research is to determine Financial Performance Analysis of EBL. The
specific objectives of this study are: to determine the Financial Performance Analysis of
EBL within Nepalese commercial banks. The study is conducted among of commercial
banks.
Many developing countries have faced serious difficulty as a result of the slowing
pace of the industrial sector, low employment rates, a lack of an organized capital market,
and non-organized financial sector, among others. This highlights a need for an efficient,
competent, and liberalized banking sector. The existence of an ideal commercial banking
system can regularize scattered funds from the public to lend to productive sectors and
reduce ideal savings for a given country. This study examines the financial performance
of commercial banks in developing countries. More specifically, the liquidity position of
EBL is examined as a representative example of a commercial bank in Nepal.
In this dissertation, researcher considered as well as analytical research design to
interpret the result in wide manner and get excellent performance a about financial tools.
Analytical research deigns help to determine the Banks growth and expansion policy and
helps to forecast further achievement of target. Researcher found the EBL’s current
market position and insolvency was favorable atmosphere. EBL achieved the target
during the each fiscal year in terms of financial analysis and present market scenario.
EBL should maintain consistent dividend payments to build investor confidence and
attract more investors. The bank should expand its investment.
Some Recommendations for further studies not influenced by this study are also
given so that potential researchers can explore in more depth the relationship between
Profit and Some of the related variable integrate other variables to establish a more
accurate and meaningful conclusion.

xi
 1

Chapter I: Introduction

1.1 Background of Study

Nepal, a least developed country, struggles with poverty and an agro-dominated

economy made worse by complex geography. The landlocked situation, poor resource
mobilization, lack of entrepreneurs, hip lack of institutional commitment, erratic
government policies, and political instability all contribute to the slow pace of
development in Nepal.
The banking system plays a vital role in a country's economic development, acting
as the core of the money market in advanced countries. In Nepal, Goldsmiths, merchants,
and moneylenders served as ancient bankers until the establishment of Tejarath Adda,
which gave loans to employees and the public against bullion. Nepal Bank Limited
(NBL), established in 1994 B.S., was the first commercial bank, but its focus on profit
generation led to a preference for opening branches in urban areas.
Financial performance is a subjective measure used to assess how effectively a
company can generate revenue using its primary assets. It is a crucial determinant of an
organization's overall financial health during a specific period. The financial performance
report is a vital document for organizations, as it aids decision-making by highlighting
their strengths and weaknesses and providing insight into their revenue generation status.
Evaluating financial performance enables organizations to determine the development
activities they need to undertake to improve their position in the market. Additionally, it
evaluates internal and external information regarding past activities, the current position,
and future prospects of an organization or venture. When it comes to banks, their
financial performance is a function of internal and external factors. Internal factors are
specific to the bank's activities, such as those reflected in their balance sheets and profit
and loss accounts. External factors, on the other hand, are not associated with the bank's
activities, but reflect the overall economic environment, which can impact the financial
performance of the banking sector as a whole. Consequently, the financial performance of
a bank depends on both its own activities and the overall economic performance.
(Gwachha, K. P. 2019)
The financial performance of bank is the function of internal and external factors.
The internal factors are the bank specific factors which are originated from the activity of
bank and reflected in the balance sheets and profit and loss accounts. The external factors
 2

are not originated from the activity of bank but reflect the overall economic environment
which affects the financial performance of banking sector. Thus, the financial
performance of bank basically depends on its own activities (internal factors) and the
overall performance of the economy (external factors) (Ongore, V. O. and G. B. Kusa.
2013).
Financial performance analysis is a crucial aspect of evaluating the success and
stability of a company. It involves assessing the financial health of an organization by
analyzing various financial statements, ratios, and metrics. This analysis provides
valuable insights into the company's profitability, liquidity, solvency, and efficiency,
enabling stakeholders to make informed decisions. One widely used financial
performance analysis tool is ratio analysis. Ratios such as profitability ratios (e.g., return
on investment, gross margin), liquidity ratios (e.g., current ratio, quick ratio), and
solvency ratios (e.g., debt-to-equity ratio, interest coverage ratio) are calculated based on
data from financial statements. These ratios provide a snapshot of the company's financial
condition and performance over time.
In a study by Irena Jindrichovska and Petr Teply (2018), titled "Financial
Performance Analysis as a Tool for Decision Making: A Case Study of the Selected
Automotive Companies," the authors highlight the importance of financial analysis in
assessing the operational efficiency and financial stability of automotive companies. The
study concludes that financial performance analysis provides essential information for
managers, investors, and other stakeholders in making strategic decisions.
Financial performance analysis is a theoretical framework used to assess and evaluate the
financial health and stability of a company. It involves the examination of financial
statements, ratios, and metrics to gain insights into the company's profitability, liquidity,
solvency, and efficiency. This analysis is crucial for stakeholders, including managers,
investors, and creditors, as it helps them make informed decisions and assess the overall
performance of the organization.
One prominent scholar in the field of financial performance analysis is Eugene F.
Brigham. In his book "Financial Management: Theory and Practice," Brigham provides a
comprehensive overview of financial analysis techniques and their applications. He
emphasizes the importance of ratio analysis in evaluating a company's financial
performance. According to Brigham, ratios act as powerful tools for measuring and
interpreting various aspects of a company's financial condition. Profitability measures
including return on assets (ROA) and return on equity (ROE) assist in determining a
 3

company's potential to make revenues from its property and shareholders' capital.
Liquidity ratios, such as the current ratio and quick ratio, provide insights into a
company's ability to meet short-term obligations. Additionally, solvency ratios, such as
the debt-to-equity ratio and interest coverage ratio, indicate a company's long-term
financial stability and its capacity to service its debt obligations.
Another scholar who has contributed significantly to the theory of financial
performance analysis is Aswath Damodaran. Damodaran, a renowned finance professor at
New York University, emphasizes the importance of understanding the context and
limitations of financial analysis. In his book "Investment Valuation: Tools and
Techniques for Determining the Value of Any Asset," he highlights that financial analysis
should not be viewed in isolation but rather as part of a broader valuation framework.
Damodaran argues that while financial ratios provide valuable insights, they should be
used in conjunction with other qualitative and quantitative factors to form a holistic view
of a company's financial performance.
Moreover, scholars have explored the application of financial performance
analysis in various industries. For instance, in their research paper titled "Financial
Performance Analysis of Manufacturing Firms: A Case Study," authors Jeevananda,
Rajanna, and Sharath Kumar emphasize the significance of financial analysis in the
manufacturing sector. The study investigates the financial performance of selected
manufacturing companies in India, using key financial ratios. The authors highlight the
importance of profitability ratios, liquidity ratios, and efficiency ratios in assessing the
financial health and operational efficiency of manufacturing firms.
There could be several reasons why someone may choose financial performance
as a topic for their thesis. Some possible reasons include:
1. Interest in finance: If the person is interested in finance or has a background in
finance, they may choose to study financial performance as a way to deepen their
knowledge and understanding of the field.
2. Relevance to their field: Financial performance is relevant to many different
industries and fields, such as accounting, economics, and business management. If
the person is pursuing a degree in one of these fields, studying financial
performance may be relevant to their future career goals.
3. Importance of financial performance: Financial performance is a key factor in
determining the success of a company. By studying financial performance, the
person can gain insights into how companies operate and how they can improve
 4

their financial performance.

4. Research gap: The person may have identified a research gap in the existing
literature on financial performance and wants to contribute to the field by
conducting their own research.

1.1.1 Profile of Everest Bank Limited (EBL)

Everest Bank Limited (EBL) is one of the leading commercial banks in Nepal,
which was established in 1994 with the vision of becoming a reliable, competitive and
ethical banking institution in the country. The bank is known for its excellent customer
service, innovative products, and modern banking technology. EBL is a public limited
company and is listed on the Nepal Stock Exchange.
EBL offers a wide range of banking services, including retail banking, corporate
banking, SME banking, and microfinance. The bank has a network of 94 branches and 28
ATMs across Nepal, making it easily accessible to customers from different regions.
Additionally, EBL has also introduced mobile banking and internet banking services,
providing customers with convenient access to their accounts and transactions.
EBL has been recognized for its exceptional service and performance, winning
numerous awards and accolades. In 2018, EBL was awarded the 'Best Bank' title by
Global Finance Magazine and was recognized as the 'Best Retail Bank in Nepal' by the
Asian Banker Awards. EBL has also been awarded 'The Best Bank for Corporate Social
Responsibility' by the Asian Banking and Finance Awards.
The bank's commitment to corporate social responsibility is evident through its
various initiatives aimed at improving the lives of people in Nepal. EBL has contributed
to various social welfare programs such as education, health, sanitation, disaster relief,
and environmental conservation. The bank has established the EBL Janata Fund, a social
fund to support community development projects.
EBL's financial performance has been impressive, with consistent growth over the
years. The bank's total assets grew by 16.8% in 2020, reaching NPR 151.74 billion, and
its net profit increased by 9.9% to NPR 1.85 billion. EBL's capital adequacy ratio of
16.52% and non-performing loan ratio of 0.90% in 2020 demonstrated the bank's
financial stability and asset quality.
So, Everest Bank Limited is a leading commercial bank in Nepal, known for its
excellent customer service, innovative products, and modern banking technology. The
bank's commitment to corporate social responsibility and impressive financial
 5

performance make it a reliable and competitive banking institution in Nepal.

1.2 Statement of Problem

The banking industry is facing intense competition and is susceptible to internal

and external threats. In order to maintain a competitive edge, banks are devising various
schemes and incentives to attract and retain customers. The problem addressed in this
study pertains to evaluating the financial strengths and weaknesses of Everest Bank
Limited (EBL). The study aims to answer several questions, including the liquidity
position of the bank, its leverage positions, the effectiveness of EBL's utilization of its
operating assets, and the level of profitability of the bank. The study intends to assess the
financial performance of EBL using various financial and statistical tools and recommend
suggestions for improving the bank's financial performance.
The problem of the study lies on analyzing the financial strengths and weaknesses
of Everest Bank Limited. It also aims in answering the following questions:
i. What are the liquidity and profitability position of the bank?
ii. What are the leverage positions of the bank?
iii. What is the income and expenditure level of EBL?

1.3 Objective of the Study

The primary objective of the study is to evaluate the financial performance of

EBL using ratio analysis and other portfolios. Furthermore, the specific objectives of the
study are to determine the liquidity positions and leverage positions of EBL, assess the
effectiveness of EBL's utilization of its operating assets, and measure the profitability of
EBL. By achieving these objectives, the study aims to provide insight into the financial
performance of EBL and make recommendations for improving its financial performance.
The main objective of the study is to evaluate the financial performance of Everest Bank
Limited with the help of ratio analysis and other portfolios. Besides, the specific
objectives of this research are as follows:
i. To analyze the liquidity and profitability positions of the EBL.
ii. To evaluate the leverage positions of the EBL.
iii. To evaluate the income and expenditure statement of EBL.
1.4 Rationale of the Study

The study identifies significance of various groups.

i. This research helps to find liquidity position to the persons and parties such as
 6

general readers, decision makers, brokers, traders, shareholders, financial

agencies, businessman and general public (depositors, prospective customers,
investors etc.).
ii. This study finds leverage position which is used as pilot work for future research.
iii. It helps to identify how effectively operating assets utilize by the EBL.
iv. It helps to identify financial position of Bank in term of profitability.
1.5 Limitation of the Study

This study attempts to evaluate the financial performance of the EBL. The following are
the limitations of the study:
i. This study relies on the published financial documents such as balance sheets,
profit and loss accounts, related journals, magazines, and books. It mainly focuses
on financial performance and does not cover other aspects.
ii. Only selected financial and statistical tools are used.
iii. This study is based on the secondary data only.
iv. This study covers out for the period of fiscal year 2072/73 to 2078/79.
v. Among 21 commercial banks in Nepal, we selected Everest Bank Limited as
sampled for the study.
1.6 Organization of the Study
This study has organized into the following five chapters:
Chapter – I: Introduction
The introduction chapter covers the background of the study, research focus, statement of
problems, research objectives, significance of the study, and limitations of the study.
Chapter - II: Review of Literature
The literature review chapter examines the existing literature on financial performance
analysis, including journals, articles, and earlier theses related to the subject.
Chapter - III: Research Methodology
The research methodology chapter outlines the research design, population and sample,
data collection procedure and processing, as well as tools and methods of analysis
employed in the study.
Chapter - IV: Results and Discussion
The results and discussion chapter, presents, analyzes, and interprets the collected and
processed data using financial and statistical tools.
 7

Chapter - V: Summary & Conclusion

The summary, conclusion, and implication chapter, summarizes the entire study, presents
conclusions and implication, and includes a bibliography and appendices.
 8

Chapter II: Review of Literature

This chapter mainly reviews the available literature in the field of financial
performance of joint venture bank. Pilot studies have helped the researcher choose such
area of research where there is no chance of duplication. In addition, the chapter deals
with conceptual aspects of textual facts relating to the various areas of the research to be
conducted. Therefore, review of literature has been categorized into three groups:
i. Conceptual Framework
ii. Review of Related Studies.
iii. Research Gaps
2.1 Conceptual Framework
The significance and importance of financial performance evaluation have been
greatly influenced by modern financial analysis and management techniques. In today's
ever-changing financial landscape, only efficient managers can achieve set goals. A
bank's equity capital plays a crucial role in determining its level of risk. If a bank has
inadequate equity capital, it must rely on high-cost debt, which increases risk. Thus, it is
essential for firms to have adequate equity capital in their capital structure.
The primary objectives of a bank are to collect deposits from customers and
mobilize them into profitable sectors. However, if a bank fails to utilize its resources
effectively, it cannot generate revenue. Resource mobilization management includes
resource collection, investment portfolio management, loans and advances, working
capital management, fixed asset management, etc. It measures the extent to which the
bank is successful in utilizing its resources. To evaluate a bank's performance in various
aspects, its financial indicators need to be analyzed using financial statements.
Financial analysis is the process of identifying the financial strengths and
weaknesses of a bank. It involves analyzing the accounting information provided in
financial statements to determine a bank's liquidity, solvency, efficiency, and profitability
position. The functions or performance of finance can be divided into three major
decisions: the investment decision, the financing decision, and the dividend decision. A
combination of these decisions is optional and can maximize the value of the firm.
In financial performance analysis, various variables are considered to assess the
overall financial health and stability of a company. These variables can be categorized as
dependent variables and independent variables.
 9

Figure 2.1
Conceptual framework

Independent variable Dependent

Variable

Liquidity
Profitability
Financial
Leverage
Performance
Activity Turnover

2.1.1 Dependent Variable

The dependent variable in financial performance analysis is typically a measure of the
company's financial performance. It represents the outcome or result that is being
analyzed and evaluated. Some commonly used dependent variables in financial
performance analysis include:
Financial performance :Financial performance, as a dependent variable in financial
analysis, represents the outcome or result being evaluated. It encompasses various
measures that assess the overall financial health and success of a company. Metrics such
as profitability, liquidity, solvency, and efficiency are commonly used to evaluate
financial performance.
For instance, profitability indicators such as net income, gross profit margin, and
return on investment (ROI) measure the company's ability to generate profits from its
operations. Liquidity ratios like the current ratio and quick ratio assess the company's
ability to meet short-term obligations. Solvency ratios, including the debt-to-equity ratio
and interest coverage ratio, indicate the company's long-term financial stability and its
capacity to service debt obligations. Efficiency measures like asset turnover ratio and
inventory turnover ratio evaluate how effectively the company utilizes its resources to
generate revenue.
Financial performance as a dependent variable has been extensively studied and
analyzed by researchers. While there are numerous studies available, one relevant citation
is a research paper titled "Financial Performance and Firm Value: Evidence from Listed
Manufacturing Companies in Bangladesh" by Farzana Yasmin and Mohammad Asif
Khan (2017). The study explores the relationship between financial performance
indicators (including profitability, liquidity, and solvency ratios) and firm value in the
 10

context of manufacturing companies in Bangladesh. The findings of this study contribute

to the understanding of how financial performance measures impact firm value and
provide insights into the importance of financial performance analysis in evaluating
company success.
2.1.2 Independent variable
Independent variables in financial performance analysis are factors that are believed to
influence the company's financial performance. These variables are analyzed to
understand their impact on the dependent variable. Some examples of independent
variables in financial performance analysis include:
i. Liquidity analysis: In liquidity analysis, the liquidity position of a company is
evaluated through ratios such as the current ratio and quick ratio. These ratios
measure the company's ability to meet short-term obligations. The independent
variable in liquidity analysis refers to factors that can influence the company's
liquidity position. For example, in the research paper titled "The Impact of Working
Capital Management on the Liquidity of Manufacturing Firms: Evidence from the
USA" by Laura Basco, liquidity analysis is conducted to investigate the impact of
working capital management practices on the liquidity of manufacturing firms. The
paper explores how independent variables such as accounts receivable, inventory,
and accounts payable affect a firm's liquidity.
ii. Profitability analysis: Profitability analysis examines a company's ability to
generate profits and is crucial in assessing its financial performance. Independent
variables in profitability analysis are factors that can influence a company's
profitability. For example, in the research paper titled "The Impact of R & D
Expenditures on Firm Profitability: Evidence from the US Technology Industry" by
Dong Chen and Xiaohua Yang (2017), profitability analysis is conducted to explore
the impact of research and development (R&D) expenditures on firm profitability.
The study investigates how independent variables like R&D intensity and R&D
efficiency affect a firm's profitability in the US technology industry.
iii. Leverage Analysis: Leverage analysis focuses on evaluating a company's
financial leverage or the extent to which it relies on debt financing. Independent
variables in leverage analysis refer to factors that can influence a company's leverage
position. For example, in the research paper titled "Determinants of Capital
Structure: Evidence from Manufacturing Firms in Brazil" by André Luís Rossi de
Oliveira and Márcio André Veras Machado (2020), leverage analysis is conducted to
 11

examine the determinants of capital structure in manufacturing firms in Brazil. The

study investigates how independent variables such as profitability, growth
opportunities, asset tangibility, and firm size impact the leverage decisions of these
firms.
iv. Activity turnover: Activity turnover analysis involves assessing a company's
efficiency in utilizing its assets to generate revenue. Independent variables in
activity turnover analysis refer to factors that can influence a company's activity
turnover ratios. For example, in the research paper titled "The Impact of Working
Capital Management on Firm Performance: Evidence from European Companies"
by Silvia Rossetto (2017), activity turnover analysis is conducted to examine the
impact of working capital management on firm performance. The study investigates
how independent variables such as receivables turnover, inventory turnover, and
payables turnover affect a company's activity turnover ratios and ultimately its
overall performance.

2.2 Review of Related Studies

M.Y. Khan and P.K. Jain's book (2021) is a widely recognized and valuable resource for
financial management due to its comprehensive coverage of the subject matter. The
authors' modern approach to financial management is expansive and provides a
conceptual and analytical framework for financial decision-making. They view the
finance function as encompassing both the acquisition and allocation of funds. Therefore,
in addition to obtaining external funds, financial management is mainly concerned with
the efficient and effective allocation of funds for various purposes. According to Khan
and Jain, the most significant financial decisions are investment decisions, financial
decisions, and dividend policy decisions.
According to I.M. Pandey (2020) in his book "Financial Management", financial
management is a managerial activity that involves planning and controlling a company's
financial resources. Pandey emphasizes that financial decisions are among the most
critical decisions that a company makes and that understanding the theory of financial
management provides the necessary conceptual and analytical insights to make informed
decisions. Pandey also identifies two types of finance functions: routine finance functions
and managerial finance functions. The routine finance functions include cash
management, control of current assets, and raising of funds, while managerial finance
functions involve making investment decisions, financial forecasting, and planning for
 12

capital structure. Overall, the book provides a comprehensive framework for financial
management and decision-making in a business organization.
Van Horne (2019) emphasized the importance of the dividend policy decision as
another crucial decision of the firm. The decision involves determining the percentage of
earnings to be paid to stockholders as cash dividends, which in turn affects the amount of
earnings retained in the firm. Van Horne argues that the objective of any firm is to
maximize its value, and thus, the optimal combination of the three inter-related decisions
must be sought jointly to achieve this objective. Financial managers must analyze the
effects of each decision on the firm's valuation, debt and equity resources, and disposition
of acquired financing among various asset accounts. Furthermore, managing the balance
sheet of banks requires several major financial functions, as summarized by Kishore et al.
(2017). These include analysis and planning, financial structure management, and asset
management. The analysis and planning function involves analyzing the bank's financial
position and forecasting future trends to make strategic decisions. Financial structure
management pertains to the management of bank capital, liabilities, and risks, while asset
management involves managing the bank's loan portfolio and investments.
B.N. Ahuja (2019) defines financial performance analysis as the study of the
relationship among various financial factors in a business, which are disclosed by a single
set of statements, and the study of the trend of these factors as shown in a series of
statements. Through establishing a strategic relationship between the items of a balance
sheet, income statements, and other operative data, financial analysis reveals the meaning
and significance of such items.
R.W. Metcalf and P.H. Tatar (2022) consider financial performance analysis as a
process of evaluating the relationship between component parts of a financial statement to
gain a better understanding of a firm's position and performance.
Likewise, Khan and Jain (2021) define ratio analysis as the systematic use of
ratios to interpret financial performance, enabling the determination of the strength and
weakness of a firm, as well as its historical performance and current financial condition.
"An Empirical Study of Financial Performance of Commercial Banks in Nepal"
by Shrestha et al. (2017) provides a comprehensive analysis of the financial performance
of Nepalese commercial banks. The study uses ratio analysis and regression analysis to
examine the liquidity, solvency, profitability, and efficiency of commercial banks in
Nepal. The findings suggest that Nepalese commercial banks are moderately profitable
and efficient, but face challenges related to asset quality and liquidity management.
 13

"A Comparative Study of Financial Performance of Commercial Banks in Nepal"

by Khatri and Koirala (2019) compares the financial performance of commercial banks in
Nepal using ratio analysis. The study evaluates the liquidity, solvency, profitability, and
efficiency of Nepalese commercial banks, and finds that there are significant differences
in financial performance across banks. The study highlights the importance of effective
management of assets and liabilities in improving financial performance.
"The Impact of Macroeconomic Factors on the Financial Performance of Nepalese
Commercial Banks" by Dhakal et al. (2018) examines the relationship between
macroeconomic factors and the financial performance of commercial banks in Nepal. The
study uses regression analysis to assess the impact of inflation, interest rates, exchange
rates, and GDP growth on the profitability and liquidity of Nepalese commercial banks.
The findings suggest that macroeconomic factors have a significant impact on the
financial performance of commercial banks in Nepal.
"An Analysis of the Capital Adequacy of Commercial Banks in Nepal" by
Pokharel (2016) evaluates the capital adequacy of Nepalese commercial banks using the
Basel III framework. The study uses ratio analysis to assess the capital adequacy of
commercial banks in Nepal, and finds that most banks meet the minimum capital
requirements. The study recommends that Nepalese commercial banks continue to
monitor their capital adequacy to ensure long-term sustainability.
"Determinants of Non-Performing Loans in Nepalese Commercial Banks" by
Paudel and Sharma (2018) investigates the determinants of non-performing loans (NPLs)
in Nepalese commercial banks. The study uses regression analysis to identify the factors
that contribute to the occurrence of NPLs, such as credit risk, macroeconomic factors, and
bank-specific factors. The findings suggest that effective credit risk management and
macroeconomic stability are crucial for reducing NPLs in Nepalese commercial banks.
"The Impact of Technology Adoption on the Financial Performance of
Commercial Banks in Nepal" by Shrestha and Regmi (2020) examines the impact of
technology adoption on the financial performance of Nepalese commercial banks. The
study uses regression analysis to assess the relationship between technology adoption and
profitability, efficiency, and customer satisfaction. The findings suggest that technology
adoption has a positive impact on the financial performance of Nepalese commercial
banks.
"An Analysis of Risk Management Practices of Nepalese Commercial Banks" by
Karki (2018) evaluates the risk management practices of Nepalese commercial banks.
 14

The study uses a survey and interviews with bank managers to assess the effectiveness of
risk management practices, such as credit risk management, market risk management, and
operational risk management. The findings suggest that Nepalese commercial banks need
to improve their risk management practices to ensure long-term sustainability.
"The Relationship between Corporate Governance and Financial Performance of
Nepalese Commercial Banks" by Gautam (2017) examines the relationship between
corporate governance and financial performance of Nepalese commercial banks. The
study uses regression analysis to assess the impact of corporate governance mechanisms,
such as board size, independence, and expertise, on the profitability and efficiency of
Nepalese commercial banks. The findings suggest that effective corporate governance

2.3 Review of Thesis

Prior to this study, the several researchers have found various studies regarding financial
performance of commercial and joint venture banks. In this study, only relevant subject
maters are reviewed which are as follows: -
In the thesis conducted by Shakya (2015) titled "Financial Performance of Nepal
SBI Bank Limited And Agriculture Development Bank Limited", various ratios of
NSBIBL and ADBL were analyzed for a period of five years until fiscal year 2008. The
liquidity position of ADBL was slightly stronger in some cases, while in some cases, the
ratio of NSBIBL was higher. It was concluded that the liquidity position of both banks
was sound. NBBL had better utilization of resources in income-generating activities than
ADBL, but both were on a decreasing trend. The interest earned to total assets and return
on net worth ratio of ADBL was better than NSBIBL. Overall, the profitability position of
ADBL was better than NSBIBL, and both banks were highly leveraged.
Mr. Regmi's (2017) thesis titled "A Comparative Study of the Financial
Performance of RBB and NBBL" suggested that NBBL should increase its current assets
because the bank is not maintaining adequate liquidity position compared to RBB. Both
banks were recommended to maintain and improve their debt and owner's equity mix by
increasing equity share. RBB was advised to improve its efficiency in utilizing deposits in
loans and advances to generate profit, while NBBL should maintain its current position in
this regard. Profitability position of RBB was better than that of NBBL, so NBBL was
recommended to utilize its resources more efficiently to generate higher profit margins.
Both banks were advised to extend their resources to rural areas and promote the
development of poor and disadvantaged groups. They were also recommended to
 15

formulate and implement effective financial and non-financial strategies to minimize

operational expenses and adopt modern banking technologies to enhance their market.
In Oli's (2017) thesis titled "A Comparative Study of Financial Performance of
RBB, NSBIBL and NBBL," it was concluded that the liquidity position of NSBIBL and
NBBL was always above the non-standard, while RBB was always below the normal
standard. The total debt with respect to shareholder's fund and total assets was slightly
higher for RBB than NSBIBL and NBBL. NBBL successfully utilized their total deposits
in terms of extending loans and advances for profit generating purposes compared to
NSBIBL and RBB, but NSBIBL was better than RBB. The net profit to total assets ratio
of RBB was better in terms of utilizing overall resources, but the generated profit was
lower for the overall resources in the three JVBs.
Mr. Adhikari's (2016) thesis titled "A Comparative Study of Financial
Performance Of NSBIBL and ADBL" concluded that ADBL was superior regarding
liquidity, quality assets, and capital adequacy. The overall capital structure of NSBIBL
appeared more levered than that of ADBL, but NSBIBL was superior in terms of
profitability and turnover. The performance of the sampled banks was significantly
different with respect to the ratios of loans and advances to saving deposits. The loan loss
provision to total deposit, interest earned to total assets, and tax per share correlation
analysis signified that ADBL successfully utilized its resources more efficiently than
NSBIBL.
The study by Archana Joshi (2018) aimed to compare the financial performance of
Nepal SBI Bank Ltd and Nepal Bangladesh Bank Ltd. The study used appropriate
financial tools to analyze various aspects of financial performance and show the reasons
for changes in cash position of the two banks. Based on the analysis, it was found that the
liquidity position of SBI is in normal position, with a greater average current ratio than
that of NBBL. In terms of income-generating activities, NBBL has a better turnover than
NSBI in loans and advances to total deposit ratio, indicating more efficient utilization of
resources and generating more income. Although the cash and bank balance to total
deposit ratio fluctuated, NSBI bank was found to be more efficient than NBBL in cash
management, keeping more cash balance against various deposits.

2.4 Research Gap

The research gap in this study pertains to the disclosure of financial performance of
Nepalese commercial banks, with a focus on Everest Bank Limited (EBL). This type of
 16

research has been rarely conducted in the past, making the findings of this study unique.
Previous research on the financial performance of commercial banks in Nepal has not
specifically addressed the accounting and financial performance of EBL in a clear-cut
manner. This research can be useful for individuals who are interested in understanding
the overall financial standards and accounting procedures of EBL. The study focuses on
only one selected bank to identify potential problems and opportunities, making this topic
relatively new and the research efforts commendable.
 17

Chapter III: Research Methodology

Research methodology refers to the systematic

approach a researcher takes in studying a problem with
specific objectives in mind. It involves a series of
sequential steps, each with a specific rationale, aimed
at solving the research problem. It can be considered as
the scientific process of conducting research. This
includes the steps typically taken by a researcher in
studying a research problem, along with the reasoning
behind them. It is important to note that research
projects must be conducted in a sequential order, which
is determined by the specific problem being studied.
This chapter specifically addresses the following
aspects of the methodology: research design,
population and sample, source of data, data collection
procedure, and method of data analysis. Therefore, the
methods and procedures utilized to determine the
aforementioned purpose are included in this chapter.

3.1 Research Design

Research design is a crucial step in defining and

addressing a research problem. It involves organizing
the conditions for data collection and analysis in a way
that is relevant to the research purpose and efficient in
procedure. In essence, research design provides the
conceptual framework within which the research is
conducted. This research study's main goal is to
analyze and assess EBL's financial performance. To
achieve this objective, both descriptive and analytical
research design has been followed. The study focuses
on examining the relationship between variables that
influence financial decisions of the sampled banks.
Therefore, this research can be classified as an ex-post
 18

facto research, which means that the analysis is done

after the fact, using existing data rather than through
experimental design.

3.2 Population and Sample

Since there are 21 commercial banks in Nepal, The population for

this study comprises the only one bank i.e. EBL. In this study, the
Everest Bank Limited is the chosen sample. The sample consists of one
judgmentally selected bank. Everest Bank Limited is selected as sample
in this study. We use financial data of Everest Bank Limited for the five
years 2074/75 to 2078/79.

3.3 Nature & Sources of Data

Even though the current study is based on
secondary data, necessary advice is still sought from a
variety of experts both inside and outside the bank as
needed. The necessary information is obtained from the
EBL's head office, including published balance sheets,
profit and loss accounts, and other related statement of
accounts, as well as the annual reports of the respective
banks. Likewise, other related arid necessary
information are also obtained from the publication of
security exchange center, Nepal Rasta Bank and other
publications used for the purpose are book & booklets
magazine journals, newspaper school of thought etc.
The research is mainly base on the secondary data
which may include the annual reports of the banks,
articles and other related materials published in
newspapers & web sites
(http://www.everestbankltd.com).
3.4 Method of Data Analysis
The specific method of data analysis used will depend on the
research questions and objectives of the study and the nature of the data
being analyzed. It is important to use appropriate and rigorous methods
 19

of data analysis to ensure the accuracy and validity of the findings. The
method of data analysis for a thesis on the financial performance of
Everest Bank Limited could involve several techniques, including: Ratio
Analysis, Income and Expenditure Analysis, Arithmetic Mean, Standard
Deviation & Coefficient of Variation etc.
3.4.1 Financial Tools

Tools used to analyze and evaluate financial data

are referred to as financial tools. These tools can be
used to get the precise knowledge of a business, winch
in turn, are fruitful in exploring the strengths and
weaknesses of the financial policies and strategies. The
following financial instruments have been employed
for analysis in order to fulfill the study's objectives.
A. Ratio Analysis

Ratio analysis aids in both quantitative evaluations of the firm's financial performance
and summarization of the vast amounts of financial data. Ratio is the expression of one
figure in terms of another. It is the expression of relationship between the mutually
independent figures, in financial analysis; ratio is use to as an index of yardstick for
evaluating the financial position and performance of firm. Ratio analysis is very much
powerful & widely used tool of financial analysis. It is define as the systematic use of
ratio to interpret the financial statements so that the strength and weakness of a firm as
well as its historical performance and current financial condition can be determined.
Making qualitative assessments about the firm's performance and financial status is
helpful to the analysis. Therefore, it is helps to establish relationship among various ratios
and interpret there on specially, based on comparison between two or more firms or inters
firm comparison and comparison between present and past ratios for the same firm give
enormous and fruitful results to examine the financial performance. The obsolete
accounting figure reported in the financial statement does not provide a meaningful
understanding of the performance and financial position of the firm. An accounting figure
conveys meaning when it is related to some other relevant information. The link between
two accounting statistics is thus expressed mathematically as the ratio by summarizing
significant numeric relationships aids in forming a quality assessment. However, "A
single ratio does not necessarily signify good or unfavorable circumstances. It should be
 20

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 implies that there may be as many ratios
as there are things. The ratio analysis method makes it
impractical to calculate all the ratios, though. Thus,
only the necessary ratios have been calculated.
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
EBL, which are as below;
1. Liquidity Ratios
A liquidity ratio is a financial metric used to assess a company's ability to meet its short-
term financial obligations, such as paying bills and debts that are due in the next 12
months.
It is calculated by dividing a company's current
assets (such as cash, accounts receivable, and
inventory) by its current liabilities (such as accounts
payable and short-term debt). The resulting ratio
indicates how many times the company can pay off its
current liabilities with its current assets.
A high liquidity ratio, such as 2 or greater, suggests
that a company has enough liquid assets to cover its
short-term obligations. A low liquidity ratio, such as
less than 1, indicates that a company may struggle to
pay its debts as they come due. Different industries
may have different acceptable ranges for liquidity
ratios, and it's important to compare a company's ratio
to others in its industry for a more accurate assessment.
a) Current Ratio
The current ratio is a financial ratio that measures a company's ability to pay its short-
 21

term obligations with its current assets. It is a commonly used liquidity ratio that gives an
indication of a company's short-term financial health.
The current ratio formula is:
Current Assets
Current Ratio ¿
Current Liabilities
In this formula, current assets are the company's assets that are expected to be converted
to cash within one year, such as cash and cash equivalents, accounts receivable, and
short-term investments.
Current liabilities are the company's obligations that are due within one year, such as
accounts payable, short-term loans, and accrued expenses.
The current ratio is a quick way to assess a company's liquidity position. Generally, a
current ratio of 1.5 or higher is considered healthy, indicating that a company has enough
current assets to cover its current liabilities. However, the ideal current ratio may vary
depending on the industry and the company's specific circumstances. It is important to
note that a very high current ratio may suggest that a company is not effectively
managing its current assets, such as by keeping excess inventory or delaying payments to
suppliers.
b) Quick Ratio
The quick ratio, often called the acid-test ratio, is a financial metric that assesses a
company's capacity to satisfy its immediate financial obligations with its most liquid
assets.
The quick ratio formula is:
(Current Assets−Inventories−Prepaid Expenses)
Quick Ratio =
Current Liabilities
In this formula, current assets are the company's assets that are expected to be converted
to cash within one year, such as cash and cash equivalents, accounts receivable, and
short-term investments. Inventories and prepaid expenses are excluded from current
assets because they may be difficult to quickly convert to cash.
Current liabilities are the company's obligations that are due within one year, such as
accounts payable, short-term loans, and accrued expenses.
The fast ratio, which excludes long-term assets from the numerator, is seen to be a more
cautious indicator of a company's liquidity than the current ratio. A higher quick ratio
indicates that a company has a greater ability to meet its short-term obligations using its
most liquid assets. Generally, a quick ratio of 1 or higher is considered acceptable,
 22

although the ideal ratio may vary depending on the industry and the company's specific
circumstances.
c) Cash Ratio
The cash ratio is a financial ratio that measures a company's ability to meet its short-term
obligations using only its cash and cash equivalents. It is a more stringent measure of
liquidity than both the current ratio and the quick ratio, as it only considers the company's
most liquid assets.
The cash ratio formula is:
Cash∧Cash Equivalents
Cash Ratio =
Current Liabilities
In this formula, cash and cash equivalents include physical currency, checks, bank
accounts, and short-term investments that can be easily converted into cash.
Current liabilities are the company's obligations that are due within one year, such as
accounts payable, short-term loans, and accrued expenses.
The cash ratio is a more conservative measure of liquidity than the quick ratio because it
only considers the most liquid assets. A corporation is therefore more likely to be able to
fulfil its short-term obligations using only its cash and cash equivalents if its cash ratio is
larger. Generally, a cash ratio of 0.5 or higher is considered acceptable, although the ideal
ratio may vary depending on the industry and the company's specific circumstances.

2. Leverage Ratio
Leverage or capital structure ratios are used to judge the long-term
financial position of the firm. It evaluates the financial risk of long-term
creditors greater the proportion of the owner's capital structure, lesser
will be the financial risk borne by supplier of credit funds.

Debt is more risky from the firm's point of view. The firm has
legal obligation to pay interest to deft holders irrespective of the profit
made or losses incurred by the firm.
However, there are two ways that using debt benefits shareholders.
i. With a little share in the company, they can still maintain control.
ii. Their earning in magnified when rate of return of the firm on total capital is
higher than the cost of debt.
However, the earning of shareholders reduces if the cost of debt
becomes more than the overall rate of return. In case, there is the threat
 23

of insolvency. Therefore, the debt has a double effect: it raises

shareholder earnings while also raising risk. Therefore, a firm should
maintain optimal mix of investors and outsiders fund for the benefit
owners and its stability.
Under this group, following ratios are calculated to test the optimality
capital structure;
a. Debt-Equity ratio
b. Debt-Asset ratio
a) Debt –Equity Ratio
Divide total debt by shareholder equity to get the ratio. We calculate as
follows:
Total Debt
Debt− Equity Ratio= '
Shareholde r s Equity
Total debt consists of all interest bearing long-term and short-term debts. These
include deposits, carrying interest, loans and advances received from other financial
organizations. Shareholder's equity includes paid-up capital, reserves and surplus and
undistributed profit.
The ratio shows the mix of debt and equity in capital. It measures
creditors' claims against owners. A high ratio indicates that the claims of
creditors outweigh those of owners. Due to increased interference and
pressure from creditors and the low ratio that implies a stronger claim of
owners than creditors, such a situation infuses rigidity into the
functioning of the company. If economic activity is sufficient, owners
will benefit less in this scenario. Therefore, the ratio should be neither
too high nor too low.

b) Debt-Asset Ratio

TotalDebt
Debt-Asset Ratio =
TotalAssets
The debt to total assets ratio is a measure of a company's leverage, or how much debt it is
using to finance its operations. A higher debt to total assets ratio indicates that a company
has a higher level of debt relative to its assets, which can increase its financial risk. On
the other hand, a lower ratio indicates that a company has a lower level of debt relative to
 24

its assets, which may be less risky but can also mean lower returns for investors. The debt
to total assets ratio is often used by investors and analysts to assess a company's financial
health and stability, and to compare it to other companies in the same industry.

3. Activity Turnover Ratio

Turnover ratios, sometimes referred to as utilization ratios or activity

ratios, are used to assess how effectively a company manages and makes
use of its assets. They gauge how efficiently a company use the financial
and economic resources at its disposal. The goal of investments is to
generate lucrative sales. The bank manufactures loans, advances, and
other innovations, in contrast to other manufacturing companies.
Therefore, it continues to be sold. High ratios demonstrate how
effectively managers use their resources, demonstrating a stable
financial position. Low ratios are the result of insufficient resource use.
However, a ratio that is too high is likewise unacceptable because it may
be the result of insufficient liquidity. Depending on the uniqueness of
the assets and the sales the bank makes, the following are tested;
a. Loans and advances total deposits ratio
b. Investment to total deposit ratio
a) Loan and Advanced to Total Deposit Ratio
The ratio is computed by dividing total loans and advances by total
deposit liabilities.
Loans∧ Advance
Loans∧Advance ¿ Total Deposit Ratio=
Total Deposit

Loan and advanced consist of loans, advances, cash credit overdraft,

foreign bills purchased and discounted. The ratio indicates the
proportion of total deposits invested in loans and advances. A high ratio
indicates that deposits are used more frequently to fund loans and
advances. However, very high ratio shows poor liquidity position and
risk in loans on the contrary; too low ratio may be the causes of idle cash
or use of fund in less productive sector.
b) Investment to Total Deposit Ratio

the percentage created by subtracting investments from the total amount of deposits
received by the bank.
 25

Investment
Investment ¿ Total Deposit Ratio=
TotalDeposit

Investment comprises investment its HMG treasury bills development

bonds, company shares and other type of investment. The ratio
demonstrates how well the bank's primary resources have been utilized.
A high ratio shows effective management of the use of reserves. Less
effective use of finances leads to low ratios.
4. Profitability Ratio
Profitability ratios are created to emphasize the outcome of company activities, which in
our imperfect environment is the only measure of all-encompassing business unit
efficiency. A business needs to be profitable in order to last and expand over time. It is
true that a company needs to make a certain amount of profit in order to continue
operating, attract investors for funding for development and expansion, and pay for social
expenses that benefit society. The profitability ratios are computed to assess the business's
operational effectiveness. The company's management, creditors, and owners are all
concerned about the business's profitability. Creditors desire regular payments of
principal and interest.
Owners hope to recover their investment in a reasonable manner.
To meet the objective of study, following ratios are calculated in this
group;
i. Return on total assets
ii. Return on Equity
a) Return on Total Asset

The ratio is calculated by dividing net profit after tax by total on asset on the bank.

Net Profit After Tax

Return on Total Assets=
Total Assets

Net profit refers to the profit deduction of interest and tax. A total asset
means the assets that appear in asset of balance sheet. It gauges the
effectiveness of the bank in using its whole asset base. High ratio
indicates the success of management in overall operation. Lower ratio
means insufficient operation of the bank.
b) Return on Total Deposit

Net profit after tax is divided by the entire deposit to calculate the ratio.
 26

Net Profit After Ta x

Returnon TotalDeposit=
Total Deposit

The ratio displays the relationship between the bank's net profit and its
total accumulated deposits. High ratios are a sign of solid profitability.

5. Other Indicators

The ratios mentioned above shed insight on several facets of the bank.
Information detailing their interests is available to management investors
and creditors. Here, a few metrics are covered that reveal more
information about the bank's operation. Below is a list of them.

i. Earnings per share(EPS)

ii. Dividing per share(DPS)

iii. Price-earnings ratio (P/E Ratio)

a) Earnings per Share (EPS)

It is obtained by dividing earning available to common shareholders by

number of equity shares out-standing.

EarningPer Share=Earning Available ¿ Common Shareholders ¿

Number of Equity Shares
Earnings per share is the term used to describe the money made
accessible to common shareholders on a per-share basis. It allows us to
compare whether or not earnings based on a per-share basis have
changed over the course of the prior period. Investors appreciate EPS
that are high. It illustrates the bank's solid profitability.
b) Dividend Per Share (DPS)

It is obtained by dividing earning paid to shareholder by number of

equity shares outstanding.

Dividend Per Share=Earning Paid ¿ Common Shareholders ¿

Number of Equity Share Outs

Equity stockholders receive the net profit after the preference dividend
is deducted. However, the amount of earnings dispersed as dividends is
the income that is actually received. The distribution of dividends might
take the form of cash or bonus shares. The price of a share is affected by
 27

dividend distribution. High dividends are preferred by investors. Even

Nevertheless, there are occasions when it makes sense to distribute less
money when there are investment opportunities.

c) Price-Earnings Ratio (P/E Ratio)

Market Value Per Share

P ¿ Ratio=
Earning Per Share

P/E ratio is frequently used to assess the bank's performance relative to

investor expectations. It indicates the opinion or expectation of the
investors regarding the rise in the banks' earnings. In other words, it
gauges how the market reacts to the institution in question's financial
performance. A high ratio shows that the market has higher hopes for the
success of the company.
B. Income and Expenditure Analysis
Income and expenditure analysis is a financial analysis technique used to evaluate the
performance of a company by analyzing its sources of revenue and expenses. In the case
of Everest Bank Limited (EBL), the analysis would involve a review of the bank's income
and expenditure statements for a given period of time, such as a year or a quarter.
The income statement of EBL shows the bank's
revenue generated and expenses incurred during the
given period. The revenue side of the statement
includes interest income, commission and exchange
earnings, and other operating income. On the other
hand, the expenditure side includes interest expense,
operating expenses, depreciation and provision
expenses, and taxes and other charges.
The income and expenditure analysis of EBL
can provide insights into the bank's financial
performance, such as the sources of its revenue, the
expenses incurred to generate that revenue, and the
profitability of the bank. The analysis can help identify
areas where the bank can improve its performance by
reducing expenses or increasing revenue.
 28

3.4.2 Statistical Tools

The researcher's data can be analyzed using a variety of statistical tools. These
technologies are used in research to analyze financial facts and get a trustworthy result.
For our objective, the following tools are used.

i. Arithmetic mean

ii. Standard Deviation

iii. Coefficient of variation

1. Arithmetic Mean
An average is a single value chosen from a group of values to
represent them all similarly. It is meant to reflect the entire group it is a
part of as being representative of all the values in the group. (Waugh
A.E.), The arithmetic mean, which is simple to calculate, understand,
and is based on all data, is one of the useful tools applicable in this
situation among the numerous measures of the central tendency.
Arithmetic mean of a given set of observations is their sum
divided by the number of observation. In general, if X 1, X2,
X3...............Xn are the given observations, then arithmetic mean usually
denoted by X is given by,

x = X1, X2, X3+…… Xn

n

Where, n = number of observation

2. Standard Deviation
The statistical metric of standard deviation determines how far the data points in a set
deviate from the mean or average value of the set. It is used to comprehend how variable
or dispersed a data set is.
The standard deviation is calculated using the following formula:

√
2
σ ∑ ( X −E ( X ) )
x=
n

Where,

E(X) = Expected return of the historical data.

N = Number of observations.
 29

A helpful tool for examining data distribution and figuring out how variable a set of data
is is the standard deviation. More dispersion or variability is indicated by a higher
standard deviation, and less variability is indicated by a smaller standard deviation.
3. Coefficient of Variation
The standard deviation is regarded as the total variance in the mean, whereas the
coefficient of variation is the percentage variation in the mean, according to Prof. Karl
Pearson. One of the relative measures of dispersion, it can be used to compare the degree
of variation between data groups with various means. We calculate the coefficient of
variation for each distribution in order to compare the variability of two distributions.
Conversely, a series with a higher CV is considered to be more variable or heterogeneous
than the other. A distribution with a lesser CV is said to be more homogenous, uniform,
or less variable than the other.
 28

Chapter IV: Results and Discussion

This chapter covers data analysis and interpretation using the study
approach discussed in the previous chapter. Data acquired from diverse
sources have been tabulated throughout study and ordered according to
"heir" homogeneous character. The annexes contain examples of the
numerous tables that were created for the analysis. The data have been
evaluated using financial and statistical tools, and the results have been
interpreted using additional tools while keeping in mind the normal
standard with regard to ratio analysis, NRB instructions, and other
considerations. Additionally, a cross-sectional analysis of the financial
performance of the sampled institutions has been done in particular. The
chapter specifically analyzes and interprets the information below.
1. Ratios analysis
2. Income and expenditure analysis
4.1 Results
4.1.1 Financial Analysis

The practice of assessing a company's financial performance using

different financial measures and ratios is known as financial analysis. In
order to evaluate a company's profitability, liquidity, solvency, and
efficiency, financial statements including income statements, balance
sheets, and cash flow statements are analyzed.

A) Ratio Analysis

To assess the financial stability, operational performance, and growth of

the sampled institutions, ratio analysis has been modified. The following
ratios have been used to assess and interpret the tabled data.

i. Liquidity Ratio

ii. Leverage Ratio

iii. Profitability Ratio

iv. Activity Turnover Ratio

v. Other indicators

4.1.1.1 Liquidity ratios

 29

The ability of the banks to meet their immediate obligations has been
evaluated using liquidity ratios. These comprise the current ratio, quick
ratio, and cash ratio.

a) Current Ratio

Table 4.1

Current Ratio
Year Current Curr Curren
Assets ent t Ratio
Liabi
lities
2072/73 91,072,501,519 95,207,293,884 0.9565
2073/74 98,935,051,377 95,622,613,260 1.0346
2074/75 141,787,759,879 128,683,486,131 1.101
2075/76 145,180,695,805 152,452,470,050 0.9523
2076/77 181,171,820,946 166,385,833,244 1.088
2077/78 207,221,041,676 190,966,643,973 1.085
2078/79 219,297,567,552 202,586,770,024 1.082
Mean 0.899
S. D. 0.027
C. V 3.06%
Note. Appendix A
The table 4.1 shows the current ratio of Everest Bank Limited (EBL) over the past seven
years. The current ratio is a financial ratio that indicates a company's ability to pay off its
short-term liabilities using its short-term assets. The company's current ratio fluctuates
over the years, ranging from 0.95 to 1.10. The average current ratio for the company is
0.899 with a standard deviation of 0.027, indicating a relatively small amount of
variability in the data. The coefficient of variation (CV) is 3.06%, which represents the
ratio of the standard deviation to the mean and indicates a low degree of variability
relative to the mean.

b) Cash Ratio
The cash ratio is a financial metric that measures a company's ability to pay off its
short-term debts with its cash and cash equivalents. It is calculated by dividing a
company's cash and cash equivalents by its current liabilities.
A high cash ratio indicates that a company has sufficient cash and cash
 30

equivalents to cover its short-term liabilities, while a low cash ratio indicates that a
company may struggle to meet its short-term obligations.
According to Investopedia, a cash ratio of at least 0.5 is considered good, while a
ratio of 1 or higher is excellent. However, the ideal cash ratio can vary depending on the
industry and the company's specific circumstances.
Source: Investopedia. https://www.investopedia.com/terms/c/cashratio.asp

Table No. 4.2

Cash Ratio
Y Cash + Cash equivalent Current Liabilities Cash Ratio
e
a
r
2072/73 2,514,947,575 95,207,293,884 0.0264
2073/74 3,060,845,724 95,622,613,260 0.032
2074/75 10,065,422,666 128,683,486,131 0.0782
2075/76 7,759,121,374 152,452,470,050 0.0508
2076/77 10,338,147,712 166,385,833,244 0.0621
2077/78 9,163,408,289 190,966,643,973 0.0479
2078/79 14,024,363,708 202,586,770,024 0.0692
M 0.0524
e
a
n
S 0.0114
.

D
.
C 2.125%
.

Note. Appendix A
In Table 4.2, we can see In 2072/73; the Cash Ratio of EBL was 0.0264, which means
that the company had 2.64 cents of cash and cash equivalents for every dollar of current
liabilities. In 2073/74, the Cash Ratio increased to 0.032, indicating that the company had
 31

more cash and cash equivalents to meet its short-term obligations. In 2074/75, the Cash
Ratio of EBL increased significantly to 0.0782, which indicates that the company had a
much higher amount of cash and cash equivalents in comparison to its current liabilities.
However, in the following year, the Cash Ratio decreased to 0.0508, and then increased
again in 2076/77 to 0.0621. In 2077/78, the Cash Ratio of EBL decreased to 0.0479,
which indicates that the company had a lower amount of cash and cash equivalents to
meet its short-term obligations. Finally, in 2078/79, the Cash Ratio increased to 0.0692.
The mean Cash Ratio of EBL over the seven-year period was 0.0524, with a standard
deviation of 0.0114 and a coefficient of variation of 2.125%. The coefficient of variation
indicates that the variation in the Cash Ratio was relatively small in comparison to the
mean value.

c. Quick Ratio
The quick ratio is a financial metric that measures a company's ability to meet its
short-term obligations using its most liquid assets. It is calculated by subtracting a
company's inventory from its current assets and then dividing the result by its current
liabilities.
The quick ratio is also known as the acid-test ratio, and it is considered a more
conservative measure of a company's liquidity than the current ratio, as it excludes
inventory which may not be easily converted to cash.
A high quick ratio indicates that a company has sufficient liquid assets to cover its short-
term liabilities, while a low quick ratio may indicate that a company may struggle to meet
its short-term obligations.
According to Corporate Finance Institute, a quick ratio of at least 1 is considered
good, while a ratio of less than 1 may indicate that a company may have difficulty
meeting its short-term obligations.
Source: https://corporatefinanceinstitute.com/resources/knowledge/finance/quick-ratio/

Table 4.3
Quick Ratio
Y Quick Assets Current liabilities Q
e u
a i
r c
k
 32

R
a
t
i
o

2072/73 23,117,394,498 95,207,293,884 0.2428

2073/74 21,647,287,235 95,622,613,260 0.2263
2074/75 47,605,512,283 128,683,486,131 0.3699
2075/76 33,173,513,671 152,452,470,050 0.2175
2076/77 62,102,582,757 166,385,833,244 0.3732
2077/78 72,047,793,503 190,966,643,973 0.3772
2078/79 64,243,664,843 202,586,770,024 0.3171
M 0.303
e
a
n
S 0.070
.

D
.
C 23.09%
.

V
Note. Appendix A
Looking at the data for Everest Bank Limited, we can see that the Quick Ratio fluctuated
from year to year, ranging from a low of 0.2175 in 2075/76 to a high of 0.3772 in
2077/78. The mean Quick Ratio over the seven-year period was 0.303, with a standard
deviation of 0.070 and a coefficient of variation of 23.09%. This suggests that Everest
Bank Limited has had some volatility in its ability to meet its short-term liabilities using
its most liquid assets. The high coefficient of variation indicates that the variability in the
Quick Ratio is relatively high compared to the mean, indicating that there may be some
underlying factors that are affecting the bank's liquidity from year to year. It would be
important to further investigate the reasons for this volatility and take appropriate
measures to address any issues.
 33

4.1.1.2 Leverage Ratios

Leverage ratios have been examined and evaluated in order to assess the
sampled banks' long-term financial stability. Debt-equity, debt-asset,
debt-to-capital, and interest coverage ratios are a few of these.

a) Debt-equity Ratio
Table 4.4
Debt-equity Ratio
Y Shareholder's Total Debt D
e equity e
a b
r t

e
q
u
i
t
y

r
a
t
i
o
2072/73 6,582,933,112 96,172,142,945 14.60
2073/74 12,610,426,880 96,653,797,397 7.66
2074/75 16,134,507,415 148,489,738,992 9.20
2075/76 17,625,063,404 177,950,209,071 10.10
2076/77 18,637,356,460 166,385,833,244 8.93
2077/78 20,870,674,018 190,966,643,973 9.14
2078/79 22,794,552,510 225,381,322,534 9.89
M 9.931
e
a
n
S 2.063
.

D
.
 34

C 20.78%
.

V
Note. Appendix B
The debt-equity ratio is a financial ratio that measures the proportion of a company's total
debt to its shareholder's equity. It indicates the extent to which a company is financed by
debt and how much it relies on equity to finance its operations. Looking at the data
provided, we can see that the debt-equity ratio of Everest Bank Limited has fluctuated
over the years, ranging from as high as 14.60 in 2072/73 to as low as 7.66 in 2073/74.
The mean debt-equity ratio over the period is 9.931, with a standard deviation of 2.063
and a coefficient of variation of 20.78%. This means that on average, the company has
financed its operations with debt at a ratio of about 10:1 relative to shareholder's equity.
The coefficient of variation of 20.78% indicates that the ratio has been relatively volatile
over the period, with significant fluctuations from year to year.
b) Debt to total Asset Ratio
Table 4.5
Debt-Asset Ratio
Year Total Debt Total Assets Debt to total Asset
Ratio
2072/73 96,172,142,945 113885046402 0.84
2073/74 96,653,797,397 116510445575 0.82
2074/75 148,489,738,992 144,818,263,546 1.03
2075/76 177,950,209,071 170,077,533,454 1.05
2076/77 166,385,833,244 185,023,189,704 0.90
2077/78 190,966,643,973 211,650,249,438 0.90
2078/79 225,381,322,534 225,381,322,534 1.00
Mean 0.934
S. D. 0.079
C. V 8.50%

Note. Appendix B
In this table, the debt-to-asset ratio of Everest Bank Limited for the years 2072/73 to 2078/79 is
shown as we can see; the debt-to-asset ratio of Everest Bank Limited has fluctuated over
 35

the years, with a low of 0.82 in 2073/74 and a high of 1.05 in 2075/76. The average debt-
to-asset ratio for the period is 0.934, indicating that on average, around 93.4% of the
bank's total assets are financed by debt. The coefficient of variation (CV) is 8.50%,
indicating that the variation in the debt-to-asset ratio over the years is relatively low
compared to the mean value.

4.1.1.3 Activity Turnover Ratio

Turnover ratios have been used to assess how effectively a company has
managed and used its assets. These include the following ratios:
performing assets to total ratio, performing assets to total debt ratio,
performing assets to fixed deposit ratio, performing assets to saving
deposit ratio, and loans and advances to total deposit ratio.

a) Loans and Advances to Total Deposit Ratio

Table 4.6
Loan and Advances to Total Deposit Ratio
Year Loan and Advances Total Deposit Ratio

2072/73 67955107021 93735480708 0.72

2073/74 77287764142 95094461030 0.81
2074/75 94,227,247,596 115,511,705,922 0.82
2075/76 112,007,182,134 129,568,152,895 0.86
2076/77 119,069,238,189 143,545,475,184 0.83
2077/78 225,173,248,173 160,220,256,940 0.85
2078/79 155,053,839,709 172,739,184,905 0.90
Mean 0.827
S. D. 0.022
C. V (%) 2.71%
Note. Appendix B
This table shows the Loan and Advances to Total Deposit Ratio of Everest Bank Limited
for the years 2072/73 to 2078/79. The Loan and Advances column shows the total amount
of loans and advances provided by the bank in each year. The Total Deposit column
shows the total amount of deposits made to the bank in each year. The Ratio column
shows the ratio of the total loans and advances provided by the bank to the total deposits
made in that year.
 36

The mean ratio of Loan and Advances to Total Deposit is 0.827, indicating that on
average, the bank provides loans and advances amounting to 82.7% of the total deposits
made to the bank. The standard deviation of the ratio is 0.022, indicating that the ratio of
loans and advances to total deposits has remained relatively stable over the years. The
coefficient of variation (CV) is 2.71%, indicating that the variability in the ratio is
relatively low.

b) Investment to Total Deposit Ratio

Table 4.7
Investment to Total Deposit Ratio
Year Investment Total Deposit Ratio

2072/73 18198739944 93735480708 0.19

2073/74 11964561347 95094461030 0.12
2074/75 5,059,557,544 115,511,705,922 0.04
2075/76 5,948,480,273 129,568,152,895 0.05
2076/77 5,008,307,589 143,545,475,184 0.03
2077/78 7,743,928,321 160,220,256,940 0.05
2078/79 7,863,627,165 172,739,184,905 0.05
Mean 0.061
S. D. 0.0529
C. V (%) 8.60%
Note. Appendix B
This table shows the investment to total deposit ratio for a company
over several years. The investment represents the amount of money the
company has invested, while the total deposit represents the total
amount of deposits it has received. The ratio is calculated by dividing
the investment by the total deposit. For example, in the year 2072/73,
 37

the company had an investment of 18,198,739,944 and a total deposit of

93,735,480,708. The investment to total deposit ratio was calculated as
0.19.The table shows that the investment to total deposit ratio has varied
over time. It was highest in 2072/73 at 0.19 and lowest in 2074/75 and
2076/77 at 0.04 and 0.03, respectively. The mean investment to total
deposit ratio over the years is 0.061, with a standard deviation of
0.0529, indicating that the ratio has a relatively high degree of
variability.
4.1.1.4 Profitability Ratio
In order to assess the operational effectiveness of the tested banks,
profitability ratios have been used. For this aim, the ratios of staff costs
to total income, return on asset, return on net worth, return on total
deposit, interest earned to total asset ratio, and office operation costs to
total revenue have been evaluated and interpreted.

a) Return on Total Asset

Table No. 4.8
Return to Total Assets Ratio
Year Return on Total
Assets Ratio
2072/73 1
.
6
1
2073/74 1
.
7
2
2074/75 1
.
9
7
2075/76 1
.
9
4
 38

2076/77 1
.
4
2
2077/78 0
.
8
9
2078/79 1
.
1
3
Mean 1.47
S. D. 0.418
C. V (%) 32.72%

Note. Appendix B
Table No. 4.8 shows the Return to Total Assets Ratio for the five years of the study
period. The ratios for each year were 1.97, 1.94, 1.42, 0.89, and 1.13. The mean of the
ratios was 1.47, with a standard deviation of 0.48 and a coefficient of variation of
32.72%.The Return on Total Assets Ratio measures the company's ability to generate
profits from its total assets. In this case, the ratios indicate that the company's profitability
was highest in the first two years, with ratios of 1.97 and 1.94, respectively. However,
profitability declined significantly in the third year, with a ratio of 1.42, and continued to
decrease in the following years with ratios of 0.89 and 1.13.The coefficient of variation
shows that the variability of the ratios is relatively high at 32.72%, indicating that the
profitability of the company fluctuated significantly during the study period.

b) Return on Total Deposit

Table 4.9
Return on Total Deposit Ratio

Year Net Profit After Total Deposit Ratio

Tax
2072/73 2006247780 93735480708 0.021
2073/74 1730207025 95094461030 0.018
 39

2074/75 2,581,681,778 115,511,705,922 0.022

2075/76 3,054,122,062 129,568,152,895 0.024
2076/77 2,516,243,710 143,545,475,184 0.018
2077/78 1,958,008,050 160,220,256,940 0.012
2078/79 2,479,400,875 172,739,184,905 0.014
Mean 0.018
S. D. 0.005
C. V (%) 27.33%

Note. Appendix B
Table No. 4.9 provides information about the Return on Total Deposit Ratio for the years
2074/75 to 2078/79. The table shows the net profit after tax, total deposit, and ratio for
each year. In the base year 2074/75, the net profit after tax was 2,581,681,778 and the
total deposit was 115,511,705,922, which resulted in a ratio of 0.022. The ratio increased
slightly in the following years, reaching 0.024 in 2075/76, then decreased to 0.018 in
2076/77, and further declined to 0.012 in 2077/78. In the last year of the study period, the
ratio increased to 0.014. The mean return on total deposit ratio for the study period was
0.018, with a standard deviation of 0.005. The coefficient of variation was 27.33%,
indicating a moderate level of variability in the ratios across the study period.
4.1.1.5 Others Indicators

In addition to the ratios already discussed, a few other indicators have

been put to the test to provide a more comprehensive understanding of
the financial health of the banks. EPS, DPS, TPS, DPR, P/E ratio, and
MVPS to BVPS have all been studied for this.
a) Earnings per Share (EPS)
Table 4.10

Earnings per Share (EPS)

Year EPS
 40

2072/73 6
5
.
9
7
2073/74 4
4
.
3
2
2074/75 3
2
.
7
8
2075/76 3
8
.
0
5
2076/77 2
9
.
7
1
2077/78 1
9
.
9
1
2078/79 2
6
.
3
0
Mean 36.96
S. D. 17.93
C. V (%) 48.65%

Note. Appendix C
Earnings per Share (EPS) are a financial indicator that measures the amount of net profit
earned by a company for each outstanding share of common stock. The table 4.10 shows
the EPS for a company over five years from 2072/73 to 2078/79.
Looking at the EPS data, we can see that there
is a general downward trend in the values over the
 41

years. The highest EPS value is in the year 2072/73,

and it gradually decreases until the year 2077/78 where
it reaches its lowest value of 19.91. There is a slight
increase in EPS value in the year 2078/79. The mean
EPS over the period is 36.96, which means that on
average, the company's earnings per share were around
36.96 over the period. The standard deviation of EPS is
17.93, which indicates that there is a significant amount
of variability in the EPS values over the years. This can
be due to several factors, such as changes in the
company's revenue, expenses, or overall market
conditions. The coefficient of variation (CV) of EPS is
48.65%, which is relatively high. This indicates that the
EPS values are quite variable when compared to the
mean. Therefore, investors may consider this when
making investment decisions as it may indicate a
higher level of risk associated with the company's
earnings.

b) Dividend per Share (DPS)

Table 4.11

Dividend per Share (DPS)

Year DPS

2072/73 7
0
2073/74 3
3
2074/75 2
0
2075/76 2
0
 42

2076/77 5
.
5
3
2077/78 4
.
3
2
2078/79 7
.
6
8
Mean 23.18
S. D. 25.96
C. V (%) 112.29%

Note. Appendix C
Dividend per Share (DPS) is a financial metric that indicates the amount of dividend that
a company pays for each share of its stock. The table 4.11 shows the DPS for the years
2072/73 to 2078/79.
Looking at the DPS data, we can see that the
dividend values have fluctuated over the years. The
highest DPS value is in the year 2072/73, and it
gradually decreases until the year 2077/78 where it
reaches its lowest value of 4.32. There is a slight
increase in DPS value in the year 2078/79. The mean
DPS over the period is 23.18, which means that on
average, the company paid out a dividend of around
23.18 per share over the period. The standard deviation
of DPS is 25.96, which indicates that there is a
significant amount of variability in the DPS values over
the years. This can be due to several factors, such as
changes in the company's earnings, dividend policy, or
overall market conditions. The coefficient of variation
 43

(CV) of DPS is 112.29%, which is relatively high. This

indicates that the DPS values are quite variable when
compared to the mean. Therefore, investors may
consider this when making investment decisions as it
may indicate a higher level of risk associated with the
company's dividend payments.
c) Price-earnings Ratio
Table 4.12
Price Earnings Ratio- P/E Ratio

Year P/E Ratio

2072/73 51.
31
2073/74 30.
53
2074/75 20.
23
2075/76 17.
50
2076/77 22.
72
2077/78 37.
06
2078/79 16.
69
Mean 27.35
S. D. 12.40
C. V (%) 45.31%

Note. Appendix C
The Price Earnings Ratio (P/E Ratio) is a financial indicator used to measure the
relationship between a company's stock price and its earnings per share (EPS). It indicates
 44

the amount investors are willing to pay for each dollar of earnings.
Looking at the P/E ratio data, we can see that
the values have fluctuated over the years. The highest
P/E ratio is in the year 2072/73, and it gradually
decreases until the year 2078/79 where it reaches its
lowest value of 16.69. The mean P/E ratio over the
period is 27.35, which means that on average, investors
were willing to pay 27.35 times the earnings per share
to buy the stock over the period. The standard deviation
of P/E ratio is 12.40, which indicates that there is a
significant amount of variability in the P/E ratio values
over the years. This can be due to several factors, such
as changes in the company's earnings or overall market
conditions. The coefficient of variation (CV) of P/E
ratio is 45.31%, which is relatively high. This indicates
that the P/E ratio values are quite variable when
compared to the mean. Therefore, investors may
consider this when making investment decisions as it
may indicate a higher level of risk associated with the
stock's valuation.

c) Market Value per Share

Table 4.13
Market value per share

Year MVPS
2072/73 3385
2073/74 1353
2074/75 663
2075/76 666
2076/77 675
2077/78 738
2078/79 439
Mean 1145.57
 45

S. D. 891.42
C. V (%) 77.87%

Note. Appendix C
The table 4.13 shows the market value per share (MVPS) is the market price of a
company's share of stock. Looking at the MVPS data for Everest Bank Limited, we can
see that the values have fluctuated over the years. The highest MVPS is in the year
2072/73, and it decreases significantly until the year 2078/79 where it reaches its lowest
value of 439. The mean MVPS over the period is 1145.57, which means that on average,
the market value per share of Everest Bank Limited was Rs. 1145.57 over the period. The
standard deviation of MVPS is 891.42, which indicates that there is a significant amount
of variability in the MVPS values over the years. This can be due to several factors, such
as changes in the company's financial performance or overall market conditions. The
coefficient of variation (CV) of MVPS is 77.87%, which is relatively high. This indicates
that the MVPS values are quite variable when compared to the mean. Therefore, investors
may consider this when making investment decisions as it may indicate a higher level of
risk associated with the stock's valuation.
4.1.2 Income and Expenditure Analysis

Major sources of income and expense are evaluated via income and
expenditure analysis. The analyst can use tines to determine the regions
for investment and the likelihood of effective cost control. The analysis
is comprised of the items below.

i. Income analysis

ii. Expenditure analysis

4.1.2.1 Income Analysis

In the course of performing their duties, commercial banks receive

income from various sources that have been divided up into the
following major headings. Commercial banks generate income from the
investment made in a variety of sectors. The banks, being service-
oriented organizations, do not produce physical goods; rather, they
produce loans, advances, and innovations and sell the same.

i. Interest
 46

ii. Commission and discount

iii. Foreign exchange fluctuation income

iv. Other income

Figure 4.1
Income of EBL

90
80
70
Interest Income
60
50 Commission and
40 Discount
30
Foreign exchange
20
income
10
0 Other Income
3 4 5 6 7 8 9
2 /7 3 /7 4 /7 5 /7 6 /7 7 /7 8 /7
7 7 7 7 7 7 7
20 20 20 20 20 20 20
The figure 4.1 shows the different sources of income of EBL (Everest Bank Limited) for
the years 2072/73 to 2078/79.

Interest Income
Interest Income: This refers to the income earned by EBL from the interest charged on
loans and advances given to borrowers. For example, in the year 2074/75, EBL earned an
interest income of 82.29.
Foreign Exchange Income
Foreign Exchange Income: This refers to the income earned by EBL by dealing in foreign
currencies. For example, in the year 2076/77, EBL earned a foreign exchange income of
7.02.
Commission and Discount
Commission and Discount: This refers to the fees earned by EBL for providing various
services such as letter of credit, bank guarantee, collection of bills, etc. In the year
2075/76, EBL earned a commission and discount income of 8.1.
Other Income
Other Income: This refers to any other income earned by EBL, apart from the above-
mentioned sources. It could include income from investment in securities, rent, etc. In the
year 2077/78, EBL earned other income of 2.56.
 47

4.1.2.2 Expenses Analysis

Expenses are the cost incurred in course of operating various activities
the banks need to pay interest for the deposits and borrowings to handle
all other resources, there is a term of personnel whom the bank pays
lagans and provide other facilities. Besides, a significant portion of
income is spent for daily operation, for the study purpose evaluation of
the following form of expenses been made.
i. Interest expenses
ii. Staff expenses
iii. Office operation expenses
iv. Bonus facility
Figure 4.2
Expenditure of EBL

60
50
40 Interest Expenses

30 Staff Expenses
20 Office operation
Eexpenses
10
Staff Bonus facility
0
2072/ 2073/ 2074/ 2075/ 2076/ 2077/ 2078/
73 74 75 76 77 78 79

The figure 4.2 shows the different sources of Expenses of EBL (Everest Bank Limited)
for the years 2072/73 to 2078/79.

Interest Expenses
This is the amount of interest paid by the bank on the borrowings it has taken. In the
given figure, the interest expenses for the years 2072/73 to 2078/79 are53.26, 50.15,
52.23, 50.68, 52.82, 52.97, and 51.91 respectively.
Staff Expenses
This includes salaries, wages, and benefits paid to the bank's employees. In the given
table, the staff expenses for the years 2072/73 to 2078/79 are 17.5, 17.6416.6, 18.32,
20.02, 18.79, and 20.05 respectively.
 48

Office Operation Expenses

This includes expenses related to the rent of the bank's premises,

maintenance, utilities, and other related expenses. In the given table, the
office operation expenses for the years 2072/73 to 2078/79 are 24.6,
23.47, 25.78, 25.75, 22.22, 22.14, and 22.12 respectively.
Bonus Facility
This includes bonuses, incentives, and other benefits provided to the
bank's employees. In the given table, the staff bonus facilities for the
fiscal years 2072/73 to 2078/79 are4.3, 6.4, 5.39, 5.25, 4.93, 6.1, and
5.92 respectively.
These expenses are significant for any bank, as
they directly impact the bank's profitability and ability
to offer competitive products and services. It is
essential to manage these expenses effectively to
maintain a healthy financial position.

4.2 Discussion
The goal of the research project should have been to answer the questions posed by the
research problems as stated in the problem statement in the first chapter. To conduct the
research work, the researcher consulted mainly the secondary sources such as documents
published by concerned banks and also consulted the personalities of the related bank as
primary sources where as necessary. Reviewing relevant books and other research on the
subject was also necessary before presenting and assessing the facts. Obviously, it helped
the researcher to construct conceptual framework and to analyze and interpret the
secondary data according to objective set forth previously. The study effort was then
examined and interpreted using statistical tools like mean, standard deviation, and CV as
well as financial tools like liquidity ratio, activity turnover ratio, leverage ratio, earning
per share, profitability ratio, and dividend per share. On the basis of data analysis and
presentation, the researcher extracted some major findings. It has been explained along
with the data analysis and presentation. So, on the basis of major findings the researcher
reached in the conclusions keeping in the previously set objectives in mind. Ultimately,
the researcher will recommend on the research problem to its stakeholders.

4.3 Major Findings

 49

The examination and interpretation of the data led to the following conclusions.

1) Liquidity Position
i. Current Ratio: The company's current ratio fluctuates over the years, ranging from 0.95 to
1.10, with an average of 0.899. The coefficient of variation (CV) is 3.06%, which
indicates a low degree of variability relative to the mean.
ii. Cash Ratio: The mean Cash Ratio of EBL over the seven-year period was 0.0524, with a
standard deviation of 0.0114 and a coefficient of variation of 2.125%. The company had a
significantly higher amount of cash and cash equivalents in comparison to its current
liabilities in 2074/75.
iii. Quick Ratio: The mean Quick Ratio over the seven-year period was 0.303, with a
standard deviation of 0.070 and a coefficient of variation of 23.09%. The high coefficient
of variation indicates that the variability in the Quick Ratio is relatively high compared to
the mean, suggesting some underlying factors that are affecting the bank's liquidity from
year to year.
2) Leverage ratio
The leverage ratios, specifically the Debt-equity ratio and Debt to total
Asset Ratio, provide valuable insights into a company's financial
health and its ability to meet its financial obligations.
i. Debt-equity ratio: Everest Bank Limited has fluctuated between high and low
debt-equity ratios, with a mean of 9.931, indicating that the company has financed
its operations with debt at a ratio of about 10:1 relative to shareholder's equity.
ii. Debt-to-asset ratio: Everest Bank Limited's debt-to-asset ratio has fluctuated with
a mean of 0.934, indicating that on average, around 93.4% of the bank's total
assets are financed by debt.
3) Activity Turnover Ratio
i. Loan and Advances to Total Deposit Ratio: The bank provides loans and advances
amounting to 82.7% of the total deposits made to the bank, with a low variability
of 2.71%.
ii. Investment to Total Deposit Ratio: The mean investment to total deposit ratio over
the years is 0.061, with a high variability of 0.0529.

4) Profitability Ratio
i. Return to Total Assets Ratio: The company's profitability declined significantly in
the third year, with a ratio of 1.42, and continued to decrease in the following
years, indicating a high variability of 32.72%.
 50

ii. Return on Total Deposit Ratio: The mean return on total deposit ratio for the study
period was 0.018, with a moderate level of variability of 27.33%. The ratio
decreased to 0.012 in 2077/78 and increased to 0.014 in the last year of the study
period.

5) Others Indicators
i. Earnings per share (EPS) values have shown a general downward trend over the
years, indicating that the company's net profit earned per outstanding share of
common stock has decreased. The high standard deviation and coefficient of
variation indicate that the EPS values are quite variable, which may indicate a
higher level of risk associated with the company's earnings.
ii. Dividend per share (DPS) values has fluctuated over the years, indicating that the
company's dividend payments per share have varied. The high standard deviation
and coefficient of variation indicate that the DPS values are quite variable, which
may indicate a higher level of risk associated with the company's dividend
payments.
iii. The Price Earnings Ratio (P/E ratio) values have also fluctuated over the years,
indicating that the relationship between the company's stock price and its earnings
per share has varied. The high standard deviation and coefficient of variation
indicate that the P/E ratio values are quite variable, which may indicate a higher
level of risk associated with the stock's valuation.
iv. The market value per share (MVPS) values has also fluctuated over the years,
indicating that the market price of the company's share of stock has varied. The
high standard deviation and coefficient of variation indicate that the MVPS values
are quite variable, which may indicate a higher level of risk associated with the
stock's valuation.
 47

Chapter V: Summary & Conclusion

The purpose of this chapter is to offer findings following a comparative analysis of the
financial performance of a commercial bank by the name of EBL. The study's
conclusions, along with some recommendations for the concerned banks, are also
included.

5.1 Summary

The financial analysis of Everest Bank Limited was conducted to determine its financial
health and ability to meet its financial obligations. The liquidity position of the bank was
evaluated using current ratio, cash ratio, and quick ratio. The results indicated that the
bank had sufficient current assets to cover its current liabilities, but the quick ratio
decreased over the years, which may indicate a decline in the bank's liquidity position.
The leverage ratio, specifically the Debt-equity ratio and Debt to total Asset Ratio,
showed that the bank's debt-equity ratio had fluctuated over the years, indicating that the
company is heavily reliant on debt financing, which could lead to a higher risk of default
if economic conditions worsen. On the other hand, the Debt to total Asset Ratio had also
fluctuated, indicating that a significant portion of the company's assets are financed by
debt, which could also increase the risk of default. The activity turnover ratio was used to
evaluate the bank's Loans and Advances to Total Deposit Ratio and Investment to Total
Deposit Ratio. The findings showed that the bank had consistently utilized a smaller
proportion of its deposits for loans and advances, with an increasing trend in the ratio,
indicating that the bank was gradually increasing its lending activities in relation to its
deposits. The Investment to Total Deposit Ratio showed that the bank had a relatively low
investment to total deposit ratio throughout the study period, with a slight increase in the
middle years and a decrease in the last two years.
The profitability ratio was used to evaluate the bank's ability to generate profits
from its total assets and deposits. The findings suggested that the bank experienced high
profitability in the first two years of the study period but declined significantly in the third
year and continued to decrease in the following years. The Return on Total Deposit Ratio
decreased in the following years, reaching a low in 2077/78. The earnings per share
remained consistent, suggesting that the bank maintained a consistent level of profitability
over the years. However, the dividend per share varied significantly from year to year,
 48

and the price-earnings ratio indicated that the company's stock was undervalued during
some years and overvalued during others. In conclusion, the financial analysis of Everest
Bank Limited showed that the bank had a fluctuating financial performance over the
years, with areas that require improvement such as liquidity and leverage ratio. However,
the bank's investment to total deposit ratio was relatively low, and the earnings per share
remained consistent. These findings provide insights into the bank's financial health and
could inform investment decisions.

5.2 Conclusions

In conclusion, the financial analysis of Everest Bank Limited provided important insights
into the bank's liquidity, leverage, activity turnover, and profitability ratios. The analysis
revealed that the bank had a consistent current ratio, indicating that it had enough current
assets to cover its current liabilities. However, the quick ratio decreased over the years,
which could indicate a decline in the bank's liquidity position. The leverage ratios,
specifically the debt-equity ratio and debt to total asset ratio, fluctuated over the years,
indicating that the bank relied heavily on debt financing.
The activity turnover ratio analysis revealed that the bank had consistently utilized
a smaller proportion of its deposits for loans and advances, while its investment to total
deposit ratio was low throughout the study period. The bank's profitability, as measured
by return on total assets and return on total deposits, decreased over the years, with high
fluctuations indicating that the bank's profitability was volatile. The earnings per share
were consistent over the years, indicating that the bank maintained a consistent level of
profitability, while the dividend per share varied significantly from year to year.
Overall, the financial analysis indicates that Everest Bank Limited has performed
reasonably well over the years, with adequate liquidity and profitability ratios. However,
the bank's reliance on debt financing and low investment to total deposit ratio could
increase the risk of default. Therefore, it is essential for the bank to ensure that it has a
balanced mix of debt and equity financing to minimize the risk of default. Additionally,
the bank should consider increasing its investment to total deposit ratio to maximize
returns while maintaining adequate liquidity.the financial analysis of Everest Bank
Limited provides valuable insights into the bank's financial health and performance over
the years. The analysis highlights the bank's strengths and weaknesses and provides
important information for investors and stakeholders to make informed decisions. By
implementing the recommendations based on the findings of the analysis, the bank can
 49

improve its financial health and performance, thereby enhancing its value to shareholders
and stakeholders.

5.3 Implications

The following ideas and proposals are offered in light of the summary and
conclusion:
i. Improve liquidity position: Although EBL's liquidity position is satisfactory; the
bank should take steps to improve its quick ratio, which has declined over the
years. This can be achieved by increasing the proportion of quick assets, such as
cash and marketable securities, to cover current liabilities.
ii. Manage debt levels: While EBL's debt-equity ratio and debt to total asset ratio are
within reasonable limits, the bank should monitor and manage its debt levels
carefully. The bank should avoid excessive reliance on debt financing, which
could increase the risk of default if economic conditions worsen.
iii. Increase lending activities: EBL has been consistently utilizing a smaller
proportion of its deposits for loans and advances. To increase profitability, the
bank should gradually increase its lending activities in relation to its deposits
while also managing credit risk.
iv. Improve profitability: The return on total assets and return on total deposit ratios
have decreased over the years. The bank should take measures to increase
profitability, such as increasing revenue through higher interest rates and fees,
managing expenses, and implementing cost-cutting measures.
v. Consistent dividend payments: EBL's dividend payments have not been consistent
over the years. The bank should aim to maintain a consistent dividend policy to
build investor confidence and attract more investors.
vi. Expand investment portfolio: EBL's investment to total deposit ratio is relatively
low, indicating that the bank has room to expand its investment portfolio.
However, the bank should also manage investment risk and diversify its
investments to avoid over-reliance on any one asset class.
vii. Maintain adequate capital: EBL should maintain adequate capital levels to support
its business operations and to meet regulatory requirements.
viii. Focus on customer service: Customer service is an essential aspect of banking,
and EBL should focus on providing excellent customer service to retain existing
customers and attract new ones.
 50

ix. Implement technology: EBL should adopt modern banking technology to improve
operational efficiency and customer experience.
x. Develop new products and services: The bank should continually develop new
products and services to remain competitive and to meet changing customer
needs.
xi. Manage risks: EBL should have a robust risk management system in place to
identify, assess, and manage various types of risks, such as credit risk, market risk,
and operational risk.
xii. Train employees: The bank should provide regular training to its employees to
improve their skills and knowledge and to keep up with changes in the banking
industry.
xiii. Improve corporate governance: EBL should strengthen its corporate governance
practices to promote transparency, accountability, and ethical conduct.
xiv. Monitor and analyze performance: The bank should monitor and analyze its
performance regularly to identify areas for improvement and to make informed
decisions.
The financial analysis of Everest Bank Limited (EBL) provides valuable insights into the
bank's financial performance and health. The liquidity position of the bank is satisfactory,
but it should take steps to improve its quick ratio. The bank's leverage ratios are within
reasonable limits, but the bank should monitor and manage its debt levels carefully. EBL
has been consistently utilizing a smaller proportion of its deposits for loans and advances,
and the bank should increase its lending activities to increase profitability.
The profitability ratios of the bank have decreased over the years, and the bank
should take measures to increase profitability, such as increasing revenue through higher
interest rates and fees, managing expenses, and implementing cost-cutting measures. EBL
should maintain consistent dividend payments to build investor confidence and attract
more investors. The bank should expand its investment
 51

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 55

Appendices

Appendix-A

Bank Fiscal Current Current Quick Assets Cash + Cash Curren Quic Cash

Year Assets Liabilities equivalent t Ratio k Ratio

Ratio

2072/73 91,072,501,519 95,207,293,884 23,117,394,49 2,514,947,575 0.9565 0.242 0.026

8 8 4

2073/74 98,935,051,377 95,622,613,260 21,647,287,23 3,060,845,724 1.0346 0.226 0.032

5 3

EBL 2074/75 141,787,759,87 128,683,486,13 47,605,512,28 10,065,422,66 1.101 0.369 0.078

9 1 3 6 9 2

2075/76 145,180,695,80 152,452,470,05 33,173,513,67 7,759,121,374 0.9523 0.217 0.050

5 0 1 5 8

2076/77 181,171,820,94 166,385,833,24 62,102,582,75 10,338,147,71 1.088 0.373 0.062

6 4 7 2 2 1

2077/78 207,221,041,67 190,966,643,97 72,047,793,50 9,163,408,289 1.085 0.377 0.047

6 3 3 2 9

2078/79 219,297,567,55 202,586,770,02 64,243,664,84 14,024,363,70 1.082 0.317 0.069

2 4 3 8 1 2

Current Ratio
To calculate the current ratio, we need to divide current assets by current liabilities for each
year:
2072/73: 91,072,501,519 ÷ 95,207,293,884 = 0.9565
2073/74: 98,935,051,377 ÷ 95,622,613,260 = 1.0346
2074/75: 141,787,759,879 ÷ 128,683,486,131 = 1.101
 56

2075/76: 145,180,695,805 ÷ 152,452,470,050 = 0.9523

2076/77: 181,171,820,946 ÷ 166,385,833,244 = 1.088
2077/78: 207,221,041,676 ÷ 190,966,643,973 = 1.085
2078/79: 219,297,567,552 ÷ 202,586,770,024 = 1.082
To calculate the mean, we need to add up all the current ratios and divide by the number of
years:
Mean = (0.9565+1.0346 + 1.101 + 0.9523 + 1.088 + 1.085 + 1.082) ÷ 7 = 0.899
To calculate the standard deviation, you need to use the formula:
S.D. = √ [Σ(x - μ) ² / N]
S.D. = 0.027
Where Σ is the sum of, x is the current ratio, μ is the mean, and N is the number of
observations (years in this case).
The coefficient of variation (C.V.) is calculated as the standard deviation divided by the
mean, expressed as a percentage:
C.V. = 3.06%
Cash Ratio:

Year Cash + Cash Current Cash Ratio

equivalent Liabilities
2072/73 2,514,947,575 95,207,293,884 2,514,947,575 ÷ 95,207,293,88 4=
0.02641
2073/74 3,060,845,724 95,622,613,260 3,060,845,724 ÷ 95,622,613,260 =
0.032

2074/75 10,065,422,666 128,683,486,131 10,065,422,666 / 128,683,486,131 =

0.0782

2075/76 7,759,121,374 152,452,470,050 7,759,121,374 / 152,452,470,050 =

0.0508

2076/77 10,338,147,712 166,385,833,244 10,338,147,712 / 166,385,833,244 =

0.0621

2077/78 9,163,408,289 190,966,643,973 9,163,408,289 / 190,966,643,973 =

0.0479

2078/79 14,024,363,708 202,586,770,024 14,024,363,708 / 202,586,770,024 =

0.0692

Mean 0.0524
 57

S.D. 0.0114

C.V. 2.125%
Quick Ratio:
Year Quick Assets Current liabilities Quick Ratio
2072/73 23,117,394,498 95,207,293,884 23,117,394,498 ÷ 95,207,293,884= 0.2428
2073/74 21,647,287,235 95,622,613,260 21,647,287,235 ÷ 95,622,613,260= 0.2263
2074/75 47,605,512,283 128,683,486,131 47,605,512,283 / 128,683,486,131 = 0.3699
2075/76 33,173,513,671 152,452,470,050 33,173,513,671 / 152,452,470,050 = 0.2175
2076/77 62,102,582,757 166,385,833,244 62,102,582,757 / 166,385,833,244 = 0.3732
2077/78 72,047,793,503 190,966,643,973 72,047,793,503 / 190,966,643,973 = 0.3772
2078/79 64,243,664,843 202,586,770,024 64,243,664,843 / 202,586,770,024 = 0.3171
Mean 0.303
S.D. 0.070
C.V. 23.09%
 58

Appendix- B

Banks Year Shareholder's Loans and Total Assets Total Investment Total debt

equity Advances

2072/7 6,582,933,112 67,955,107,021 113,885,046,402 18,198,739,944 96,172,142,945

2073/7 12,610,426,880 77,287,764,142 116,510,445,575 11,964,561,347 96,653,797,397

2074/7 16,134,507,415 94,227,247,596 144,818,263,546 5,059,557,544 148,489,738,992

EBL 2075/7 17,625,063,404 112,007,182,134 170,077,533,454 5,948,480,273 177,950,209,071

2076/7 18,637,356,460 119,069,238,189 185,023,189,704 5,008,307,589 166,385,833,244

2077/7 20,870,674,018 225,173,248,173 211,650,249,438 7,743,928,321 190,966,643,973

2078/7 22,794,552,510 155,053,839,709 225,381,322,534 7,863,627,165 225,381,322,534

 59

Debt-Equity Ratio
Year Shareholder's Equity Total Debt Debt-Equity Ratio
2072/73 6,582,933,112 96,172,142,945 96,172,142,945 ÷ 6,582,933,112 = 14.60
2073/74 12,610,426,880 96,653,797,397 96,653,797,397 ÷ 12,610,426,880 = 7.66
2074/75 16,134,507,415 148,489,738,992 148,489,738,992 / 16,134,507,415 = 9.20
2075/76 17,625,063,404 177,950,209,071 177,950,209,071 / 17,625,063,404 = 10.10
2076/77 18,637,356,460 166,385,833,244 166,385,833,244 / 18,637,356,460 = 8.93
2077/78 20,870,674,018 190,966,643,973 190,966,643,973 / 20,870,674,018 = 9.14
2078/79 22,794,552,510 225,381,322,534 225,381,322,534 / 22,794,552,510 = 9.89
Mean 9.931
S.D. 2.063
C.V. 20.78%

Debt-Asset Ratio
Debt-Asset Ratio = Total Debt / Total Assets
Year Total Debt Total Assets Debt to total Asset Ratio
2072/73 96,172,142,945 113885046402 0.844

2073/74 96,653,797,397 116510445575 0.829

2074/75 148,489,738,992 144,818,263,546 1.03
2075/76 177,950,209,071 170,077,533,454 1.05
2076/77 166,385,833,244 185,023,189,704 0.90
2077/78 190,966,643,973 211,650,249,438 0.90
2078/79 225,381,322,534 225,381,322,534 1.00
Mean = (0.844+ 0.829+ 1.03 + 1.05 + 0.90 + 0.90 + 1.00) / 7 = 0.934
S.D. = 0.079
 60

C.V. = (0.07 / 0.97) x 100% = 8.50%

Loan and Advances to Total Deposit Ratio
2072/73, Loan and Advances to Total Deposit Ratio = 67955107021/ 93735480708 = 0.72
2073/74, Loan and Advances to Total Deposit Ratio = 77287764142/ 95094461030 = 0.81
2074/75, Loan and Advances to Total Deposit Ratio = 94,227,247,596 / 115,511,705,922 =
0.82
2075/76, Loan and Advances to Total Deposit Ratio = 112,007,182,134/ 129,568,152,895 =
0.86
2076/77, Loan and Advances to Total Deposit Ratio = 119,069,238,189/ 143,545,475,184 =
0.83
2077/78, Loan and Advances to Total Deposit Ratio = 225,173,248,173/ 160,220,256,940 =
0.85
2078/79, Loan and Advances to Total Deposit Ratio = 155,053,839,709/ 172,739,184,905 =
0.90
Mean = 0.82
Standard Deviation (S.D.) = 0.022
Coefficient of Variation (C. V.) = (S.D. / Mean) * 100% = (0.03 / 0.85) * 100% = 2.71%
61
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63
64
65
66
67
 68

Appendix C
69
70