Profit Plan and Control of MBL

PROFIT PLANNING AND CONTROL OF
MACHHAPUCHCHHRE BANK LIMITED
A Dissertation Submitted to the Office of Dean, Faculty of Management Tribhuvan

University in partial fulfillment of the requirement for the Master’s Degree of
Business Studies (MBS)
Submitted
By
Maya Joshi
Nepal Commerce Campus
Roll. No: 318/18
T.U. Registration No.:7-2-914-21-2013
Kathmandu, Nepal
Jan, 2023
II
ACKNOWLEDGEMENTS
The study entitled “Profit Planning and Control of Machhapuchchhre Bank
Limited” has been conducted to satisfy the partial requirement for the degree of
Masters of Business Studies at Tribhuvan University. I would like to extend my
immense gratitude to my supervisor Mr. Shanker Dhodary, Lecturer of Nepal
Commerce Campus for his valuable time, continuous guidance, and inspiration
throughout the entire period of the study.
It is my utmost responsibility to appreciate and acknowledge other people behind the

success of this study. I am very grateful to Assoc. Prof. Dr. Jitendra Prasad
Upadhyaya head of research of Nepal Commerce Campus for his valuable
suggestions. Similarly, I highly appreciate the efforts, supervision, guidance and
inspirations of all the faculties of Nepal Commerce Campus.
I am very thankful to members of library management of Nepal Commerce Campus

who duly supported by providing the references and resources. I would like to express
special thanks to all the facilitators for their support and valuable suggestion. I would
also like to extend my thanks to all my friends who have supported in preparation of
this report.
Maya Joshi
Jan, 2023
III
CERTIFICATE OF AUTHORSHIP
I certify that the work in this dissertation has not previously been submitted for a
degree nor has it been submitted as part of requirements for a degree except as fully
acknowledged within the text.
I also certify that the dissertation has been written by me. Any help that I have
received in my research work and the preparation of the dissertation itself has been
acknowledged. In addition, I certify that all information sources and literature used
are indicated in the reference section of the dissertation.
Maya Joshi
IV
Ref
RECOMMENDATION
This is to certify that the dissertation
Submitted by:
Maya Joshi
Entitled
Profit Planning and Control of Machhapuchchhre

Bank Limited
has been prepared as approved by this department in the prescribed format of the
faculty of management. This dissertation is forwarded for examination.
Shanker Dhodary Assoc. Prof. Dr. Jitendra Pd. Upadhyay

Dissertation Supervisor Head of Research
Department
Date:
Prof. Dhurba Prasad Silwal

(Campus Chief)
V
Ref
REPORT OF RESEARCH COMMITTEE

Ms. Maya Joshi has defended her research proposal entitled
Profit Planning and Control of Machhapuchchhre Bank Limited
successfully. The research committee has registered the dissertation
for further progress. It is recommended to carry out the work as the
per suggestion and guidance of Mr. Shanker Bhodari and submitted
the dissertation for evaluation and Viva- Voce examination.
Mr. Shanker Dhodary

Dissertation proposal Defended Date:
Position: …………………….
……………………………………
Signature……………………
VI
APPROVAL-SHEET
We, the undersigned, have examined the thesis entitled Determinants of Liquidity in
Nepalese Commercial Banks presented by Ms. Maya Joshi a candidate for the degree
of Master of Business Studies (MBS) and conducted the viva voce examination of
the candidate. We hereby certify that the dissertation is worthy of acceptance.
Dissertation Supervisor
Internal Examiner
External Examiner
Assoc. Prof Dr. Jitendra Prasad Upadhyaya
Date:
VII
TABLE OF CONTENTS
TITLE PAGE..................................................................................................................
ACKNOWLEDGEMENTS..........................................................................................
CERTIFICATE OF AUTHORSHIP............................................................................
RECOMMENDATION...............................................................................................
REPORT OF RESEARCH COMMITTEE...................................................................
APPROVAL-SHEET...................................................................................................
TABLE OF CONTENTS...........................................................................................
LIST OF TABLES.......................................................................................................
LIST OF FIGURES.......................................................................................................
LIST OFABBREVIATIONSN....................................................................................
CHAPTER I- INTRODUCTION...............................................................................
1.1 Background of the study..........................................................................................
1.2 Problem Statement...................................................................................................
1.3 Focus of Study..........................................................................................................
1.4 Objectives of study...................................................................................................
1.5 Rationale of the study...............................................................................................
1.6 Limitation of the study.............................................................................................
1.7 Hypothesis Formulation...........................................................................................
1.8 Organization of the Study........................................................................................
CHAPTER II- REVIEW OF LITERATURE...........................................................
2.1 Conceptual Framework Review...............................................................................
2.2 Review of Related Studies.....................................................................................
2.3 Research Gap.........................................................................................................
CHAPTER III- RESEARCH METHODOLOGY.................................................
3.1 Research Design.....................................................................................................
3.2 The population and sample....................................................................................
3.3 Period Covered.......................................................................................................
3.3 Nature and source of Data Collection....................................................................
VIII
3.4 Instrument of data collection.................................................................................

3.5 Research Methodology...........................................................................................
3.6 Research Framework..............................................................................................
3.6 Research Variable..................................................................................................
CHAPTER IV- DATA PRESENTATION AND ANALYSIS................................
4.1 Analysis of Income................................................................................................
4.2 Analysis of source of expense................................................................................
4.3 Cost Volume Profit Analysis.................................................................................
4.4 Break-even Point (BEP).........................................................................................
4.5 Margin of Safety (MOS)........................................................................................
4.6 Profitability analysis of MBL.................................................................................
4.7 Correlation Analysis...............................................................................................
4.8 Trend Analysis.......................................................................................................
4.9 Major findings of study..........................................................................................
4.10 Discussion............................................................................................................
CHAPTER V- SUMMARY, CONCLUSION AND IMPLICATION...................
5.1 Summary................................................................................................................
5.2 Conclusion..............................................................................................................
5.3 Implications............................................................................................................
BIBLOGRAPHY........................................................................................................
APPENDIX.................................................................................................................
IX
LIST OF TABLES
Table 4. 1: Sector-wise Income from interest..............................................................57
Table 4. 2: Sector wise Income form Commission and Discount................................59
Table 4. 3: Other Operating Income............................................................................61
Table 4. 4: Non-Operating Income..............................................................................62
Table 4. 5: Interest Expense.........................................................................................63
Table 4. 6: Personnel Expenses....................................................................................65
Table 4. 7: Other Operating Expenses.........................................................................66
Table 4. 8: Net Profit and Operating Profit..................................................................67
Table 4. 9: Fixed cost and Variable cost...................................................................68
Table 4. 10: Variable cost Ratio...................................................................................70
Table 4. 11: Contribution Margin................................................................................71
Table 4. 12: Contribution margin ratio analysis...........................................................72
Table 4. 13: BEP Income.............................................................................................73
Table 4. 14: BEP ratio..................................................................................................74
Table 4. 15: Margin of safety.......................................................................................75
Table 4. 16: Net Profit Margin Ratio...........................................................................77
Table 4. 17: Return on total assets ratio.......................................................................78
Table 4. 18: Return on Equity ratio..............................................................................80
Table 4. 19: Operating Efficiency Ratio......................................................................81
Table 4. 20: Relationship between Total cost and profit.............................................82
Table 4. 21: Relationship between Income and Profit.................................................83
Table 4. 22: Trend Value of Income............................................................................84
Table 4. 23: Trend value of Net profit.........................................................................85
Table 4. 24: Trend line of total cost.............................................................................86
Table 4. 25: Results of Hypothesis Testing…………………………………………..90
X
LIST OF FIGURES
Figure 4. 1: Total Interest Income................................................................................58
Figure 4. 2: Income from Commission and discount...................................................60
Figure 4. 3: Other Operating Income...........................................................................62
Figure 4. 4: Non-Operating Income.............................................................................63
Figure 4. 5: Interest Expense........................................................................................64
Figure 4. 6: Personnel Expenses..................................................................................66
Figure 4. 7:Admin. Expenses.......................................................................................67
Figure 4. 8: Operating Profit and Net Profit................................................................68
Figure 4. 9: Fixed cost and Variable cost.....................................................................69
Figure 4. 10:Variable cost Ratio..................................................................................70
Figure 4. 11: Contribution Margin...............................................................................71
Figure 4. 12: Contribution Margin Ratio Analysis......................................................72
Figure 4. 13: BEP Income............................................................................................73
Figure 4. 14 : BEP Ratio..............................................................................................74
Figure 4. 15: Margin of safety......................................................................................76
Figure 4. 16: Net profit Margin Ratio..........................................................................78
Figure 4. 17:Return on total assets ratio.......................................................................79
Figure 4. 18: Return on Equity.....................................................................................80
Figure 4. 19: Operating Efficiency Ratio.....................................................................81
Figure 4. 20: Trend Line of Income.............................................................................84
Figure 4. 21: Trend Line of Net Profit.........................................................................85
Figure 4. 22: Trend line of Total cost..........................................................................86
LIST OF ABBREVIATION
XI
%: Percentage
A/C : Account
B. S. : Bikram Sambat
BEP : Break Even Point
C. V. : Coefficient of Variation
CM : Contribution Margin
F/Y : Fiscal Year
FC : Fixed Cost
GDP : Gross Domestic Product
NP : Net Profit
NPMR : Net Profit Margin ratio
P/V : Profit Volume
PPC : Profit Plan and Control
ROE : Return on Equity
ROA : Return on total assets
MBL : Machhapuchchhre Bank
Limited
S.D. : Standard Deviation
VC : Variable Cost
MOS : Margin of Safety
CHAPTER I
INTRODUCTION
1.1 Background of the study
Profit planning is the set of actions taken to achieve a targeted profit level.
These actions involve the development of an interlocking set of budgets that roll up
into a master budget. The management team adjusts the information in this set of
budgets to arrive at the combination of actions needed to arrive at the targeted profit
level. The planning process may involve a significant amount of what-if analysis, to
see what happens to projected profits in different scenarios. The plan may result in
operational and financial issues that must be addressed. For example, it may be
necessary to increase the headcount in certain areas, which in turn will require more
office space and computer equipment. Further, an expansion of the business may call
for more financing, either in the form of debt or equity. And in particular,
management must plan around any bottlenecks in the business that will keep sales
volume from increasing. Profit planning is only effective if the management team
follows through on the action items stated in the plan. All too often, profit planning is
merely an annual exercise that management engages in, but does not follow through
on. Also, profit planning must be revisited whenever there is a significant change in
business conditions that invalidates the results of the old plan. Otherwise,
management will continue to follow old directives that have no relevance in the new
environment (Harris, 2017).
Profit is the lifeblood of a business organization which not only keeps it alive
but also assures the future and makes it sound. In other words, every such
organization needs profit to survive and complete in open market. The success or the
failure of the business firm depends upon the margin of profit because profits are the
primary requirements for its success. The excess income over expenditure is called
profit. The word profit brings for visions of reserves. The concept of profit is not new,
but the concept of profit planning and control is a tool of management used in profit
making organization. The managerial skill which increases revenues and minimize the
cost is called profit planning and control. Profit planning and control involves long
term commitment waiting for a reward which comes in future and always remains
uncertain. Therefore, every planning entails some degree of uncertainty. So, we can
conclude profit planning and control is as an organized and formal approach for
realize the planning, synchronization and control responsibilities of management
which provides
2
guidelines to the overall managerial task (Fago and Niraula, 2015).

Occasionally it is said that comprehensive profit planning and control is
applicable to only very large and complex organization. A not unusual comment is
that "comprehensive budgeting is a fine idea for most concerns, by ours is different,
and so on. To the contrary, profit planning and control can be adapted to any
organization (profit or nonprofit), except perhaps the smallest, regardless of special
circumstances and conditions. The fact that a company has peculiar circumstances or
critical problems frequently is good reason for the adaption of certain profit planning
and control procedures. In respect to size, when operations are extensive enough to
require more than one or two supervisory personnel, there may be a need for profit
planning and control applications. The smallest concern certainly has different needs
in this respect than a large one. As with accounting, no one system of profit planning
and control can be designed for all operations; a profit planning and control system
must be tailored to fit the particular environment, and it must be continually updated
and adapted as the environment changes (Welsch, 1976).
Profit planning is a comprehensive plan expressed in financial terms by which
an operating program can be made effective for a given period it is a tool of direction,
co-ordination, and control and as such it is the most important administrative device
for these purposes. Profit planning and control is the latest invention in the field of
modern management. A comprehensive profit planning and control is viewed as a
process designed to help management effectively perform significant phases of
planning and controlling functions (Fago and Niraula, 2015).
The potentials of comprehensive profit planning and control should not be

assumed that the concept is foolproof nor that it is free of problems. The principal
problems in profit planning and control are: (1) developing management
sophistication in its application; (2) developing a realistic sales plan (budget); (3)
developing realistic objectives and standards; (4) adequate communication of the
attitudes, policies, and guidelines by higher levels of management; (5) attaining
managerial flexibility in application of the system; and (6) updating the system to
harmonize with the changing environment within which the management operates
(Welsch, 1976).
The failure on the part of many people to make a distinction between strategic
long-range planning and forecasting was given by Warren as an example of the first
3
type of misconception. Forecasting is a technical activity, usually assigned to

technically trained staff specialists, the purpose being to predict a probable outcome
from a given set of circumstances for a specified period in the future. A forecast
necessarily rests upon certain assumptions made by the forecaster. Forecasting is one
of many elements of planning, and it provides some of the basic data for the planning
process. In contrast, planning, as we have fundamentally outlined it in the prior
discussions, is a managerial activity (as opposed to a technical staff activity)
involving development of enterprise objectives and strategies and evaluation of the
effectiveness of those decisions. It requires definite management commitments to
attain those objectives. Warren has offered the following definition, which seems to
capture the essence of the concept: Planning is essentially a process of preparing for
the commitment of resources in the most economical fashion and, by preparing, of
allowing this commitment to be made faster and less disruptively (Welsch, 1976).
1.2 Problem Statement

Profit is the main measure for the success of the business. Profits are necessary
for the operation of any kind of business organization. But commercial bank has to
make profit from its operation for their survival and fulfillment of the responsibilities
assigned. The banking sectors have to maximize their profit as well as render services
of different types. Both objectives of the bank must be linked with the management of
the organization. Profit is the return a of good management system of an organization.
Therefore, we can say that management is the part of profit planning.
Profit planning and control (PPC) provides ideas for more effective
performance and supervision of individual department and administration of a
business organization. So, successful planning of any organization mainly depends on
the planning system adopted by the organization. Profit plan is one of the most
important managerial devices that play key role for the effective formation and
implementation of strategic as well as tactical plan of an organization. It requires the
effective co-ordination between various annual budget of different departments like as
sales plan, production, material requirement budget, personnel cost budget, growth
rate, service provide budget, capital expenditure budget and cash budget.
The major activities are including in commercial bank to mobilize resources,

which involves cost, and profitable deployment of those resources, which generates
4
income. The differential interest income over the interest, which is popularly called as
interest margin can be considered as the contributed margin in the profit of the bank.
Pradhan (2021) revealed that Liquidity is a financial term that measures the
amount of capital that is available for investment. Today, most of this capital is credit
fund. That is because the large financial institutions prefer using borrowed money for
investment. Low interest rates mean credit is cheaper, thus, businesses and investors
are more likely to borrow. The return on investment has to be higher than the interest
rate, to make investments attractive. In this way, high liquidity spurs economic
growth (Heffernan, 1996). The banking institution had contributed significantly to the
effectiveness of the entire financial system as they offer an efficient institutional
mechanism through which resources can be mobilized and directed from less essential
uses to more productive investments. Liquidity creation itself is seen as the primary
source of economic welfare contribution by banks and also as their primary source of
risk. Therefore, virtually every financial transaction or commitment has implications
for bank’s liquidity. In Nepalese context, authors have found that liquidity ratio was
relatively fluctuating over the period, return on the equity is found satisfactory and
there is positive relationship between deposits and loan advances. It is also found that
the liquidity and banks loan are positively related to banks profitability and revealed
that the capital adequacy and liquidity is positively associated with banks profitability.
Adwerd (2020) revealed that there is significant influence of return on assets,

return on equity, non-performing loan, capital adequacy ratio on liquidity of bank.
The study concluded that return on equity, return on assets, non-performing loan,
interbank rate has negative impact on the liquidity of Nepalese commercial banks
indicating that higher the return on equity, return on assets, nonperforming loan,
interbank rate, lower the liquidity.
Every business organization

set up with certain objective
of providing services
5
topeople and earns profit

as income whether that is
productive or non-
productive. But it is not
a joke to fulfill that
objective easily in this
competitive world of
business. As globalization
take place it became
tougher
to sustain in market. So,
they not only just try and
see the result also do
hard work and provide
many facilities to secure
from loss. Hence, they
6
need to think about future

course olfaction in such a
way so that they can
accomplish their business
objectives. In order to
make profit it is necessary
to
check business capacity,
activities, utilization of
resources and if there is
any
part to reduce cast
because little reduction in
expenses can make profit
in
7
income. Hence, profit

planning tools helps to
assist in analyzing the
situation.
Therefore, proper planning
and controlling is
important to survive and
lead the
company successfully.
Organization cannot
achieve its goal without
proper
8
to people and earns profit

productive or non-
a joke to fill t obje e
easily in th
tougher
9

course of action in such a
to
any
part to reduce cast
in
10

situation.
and controlling is
lead the
Organization cannot
proper
11

productive or non-
tougher
12

course of action in such a
to
any
part to reduce cast
in
13

situation.
and controlling is
lead the
Organization cannot
proper
14

productive or non-
tougher
to sustain in market.
So,they not only just try
and see the result also do
manyfacilities to secure
from loss. Hence they
15

course ofaction in such a
objectives. In orderto
to
activities, utilization
ofresources and if there is
any
part to reduce cast
expensescan make profit
in
16

assist in analyzingthe
situation.
and controlling is
important to survive
andlead the
Organization cannot
achieve its goal
withoutproper
17

productive or non-
productive.But it is not
competitive world
ofbusiness. As globalization
tougher
18

to
any
part to reduce cast
in
19

situation.
and controlling is
andlead the
Organization cannot
achieve its goal
withoutproper
20

productive or non-
competitive world
tougher
21

to
any
part to reduce cast
in
22

situation.
and controlling is
andlead the
Organization cannot
achieve its goal
withoutproper
23

productive or non-
competitive world
tougher
24

to
any
part to reduce cast
in
25

situation.
and controlling is
andlead the
Organization cannot
achieve its goal
withoutproper
26

productive or non-
competitive world
tougher
27

to
any
part to reduce cast
in
28

situation.
and controlling is
andlead the
Organization cannot
achieve its goal
withoutproper
29

productive or non-
competitive world
tougher
30

to
any
part to reduce cast
in
31

situation.
and controlling is
andlead the
Organization cannot
achieve its goal
withoutproper
Sharma (2017) revealed that every business organization up with certain
objective of providing services to people and earns profit as income whether that is
productive or nonproductive. But it is not a joke to fulfill that objective easily in this
competitive world of business. As globalization take place it became tougher to
sustain in market. So, they not only just try and see the result also do hard work and
provide many facilities to secure from loss. Hence, they need to think about future
course of action in such a way so that they can accomplish their business objectives.
In order to make profit it is necessary to check business capacity, activities, utilization
of resources and if there is any part to reduce cast because little reduction in make
32
profit in income. Hence, profit planning tools helps to assist in analyzing the situation.
Therefore, proper planning and controlling is important to survive andlead the
company successfully. Organization cannot achieve its goal without proper planning
and implementation.
The present study has tried to analyze and examine the PPC side of
commercial bank taking a case of MBL bank. This research report attempts to show
the relationship between these various functional budgets their achievement and their
effective application within the conceptual framework of profit planning for solving
the problems that have occurred. If MBL bank is funded to have been earning profit
overs the years. this study will answer whether it is under a planning or not. If the
profit has not been realized under the technique of profit planning. Furthermore, the
study has tried to answer the following research questions:
i. What are the overall profit planning problems and does the bank have
appropriate profit planning system?
ii. Does the bank mobilize its deposit and other resources optimally and what is
the gap between Budgeted and actual performance?
1.3 Focus of the Study

This research study is focused on evaluating the use of different types of
functional budgets and planning system for the effective implementation of profit
planning in MBL. This study is designed to describe the purpose of the different kinds
of budget used, how they are applied and finally settled and how they assist in policy
making and in financial control. The study is intended to clarify the purpose of
different budgets and to identify the person responsible for different items in the
problems.
There are two types of profit planning practices are used in an organization
namely long-range profit plan and short-range profit plan. Long range profit plan
covers period of more than two years whereas short range profit plan made generally
for one year. These both plans are equally important for organization to grow but this
study is more focused on short range planning.
To compare the short-term planning of Machhapuchchhre Bank Limited some

plans are analyzed such as Loan disbursement plan, Fund collection plan. (This
33
budget contains the money collection by different types of account loan from NRB
and other Bank and financial companies.), The expenses budget (MBL prepares many
expenses budget is following employee, salary and allowance operations and
maintenance vehicles, over time overhead), Capital expenditure budget, Cash flow
budget and Cost volume profit relationship.
1.4 Objectives of the study

The main objective of the present study is to exam the main approaches of
profit planning and to test the extent of achievement of planning of MBL with
consistently the present research will try to meet following.
i. To examine the trend of profit, revenue and expenses.

ii. To analyse the Bank’s profit planning based on overall managerial Budgets
developed by the Bank.
1.5 Rationale of the study
This research is concerned with the profit planning in commercial banks with
a case study of MBL. Profit planning process significantly contributes to improve the
profitability as well as the overall financial performance of an organization.
Accomplishment of objectives in every organization depends upon the application of
scarce resources most effectively. Also, the financial performance of an organization
depends purely on the use of its resources. Budgeting is the key to productive
financial planning. Therefore, the planning process of every organization will be
effective and result oriented, then the pace of development naturally steps forward.
Profit planning is the core area of management. It tells us profit as the most important
indicators for judging managerial efficiency because profit does not just happen for
this every organization have to manage its profit. Various functional budgets are the
basic tools for planning of profit and control over them. This research study may be
useful for those who want to know the PPC in the MBL. It may also be helpful for
the future researchers as a reference material.
1.6 Limitation of the study

Today world is dynamic, everything existing here are of limit character. Every
principal rule and formula and conditions are applied with in the limitation likewise,
this study cannot escape from limitation and study is confined only to profit planning
and budgeting in MBL. Following factors have limited the scope of this study.
34
i. The study is made for partial fulfillment of the requirement of master's in

business studies (MBS) in a short duration of time and only focused on profit
planning and control of MBL.
ii. This study has been considered on the basis of secondary data and analysis
evaluated comparing Fiscal Year 2015/16 to 2020/21 only.
iii. Only Machhapuchchhre bank limited is taken into consideration in this study
out of 26 commercial banks and the accuracy of this study is based on the data
available from the management of MBL the various published document of
MBL Bank.
1.7 Hypothesis Formulation
This section of the study deals with the statement of hypothesis of the variables used
in this study. The study attempts to investigate profit planning of MBL. Below
presented are the hypothesis that have been tested in this study.
Improvement of Loan Portfolio can increase the profit of MBL
(a) Null Hypothesis (H0) : There is no relation between sales and profit
(b) Alternative Hypothesis (H1) : If the loan portfolio is incresed the profit of
MBL will improve
1.8 Organization of the Study

The structure of the thesis report will comprise of five chapters which have
been briefly described as follows:
Chapter I: Introduction
Introduction section provides an overall description of the study to be carried

out. This chapter includes background of the study, Nepalese Economy-the current
picture, Historical background / Origin, and growth of banking sectors in Nepal,
Major financial policy of Nepal, Conceptual framework of profit planning, Focus of
the Study, Profile of MBL Bank, Statements of the problems, Objectives of the study,
Rationale of the study, Limitation of the study.
Chapter II: Review of Literature
This chapter describes theoretical analysis and brief review of related and
pertinent literature available. It includes conceptual review of commercial banks and
35
review of empirical work. For this purpose, various books, journals and periodicals as
well as internet shall be used.
Chapter III: Research Methodology
This chapter describes the research methodology enjoyed in the study. It

includes Research design, Sample selection, Sources of data, Data collection
procedure and tools for analysis of the study.
Chapter IV: Presentation and Analysis of Data
This chapter is one of the main chapters of this study. This chapter illustrates
the collected data into a systematic format such as graphs. It discusses the analysis of
the data as well as interpretation of data.
Chapter V: Summary, Conclusion and Recommendations
This chapter comprises the summary of entire thesis. It describes major

findings of the thesis and provides some suggestions and recommendations based on
the analysis of study. A bibliography and appendices will be attached at the end of the
study.
CHAPTER - II
REVIEW OF LITERATURE
This chapter is concerned with review of literature relevant to the topic ‘Profit
Planning of Commercial Bank’. The purpose of reviewing of literature is to develop
some expertise in one’s area, to see what new contribution has made and to receive
some ideas for developing a research design. Thus, previous studies cannot be ignored
as they provide the foundation of the present study. This chapter highlights the
literature that is available in concerned subject as to my knowledge, research work,
and relevant study on this topic, review of books, journals and articles and review of
thesis work performed previously.
2.1 Conceptual Framework Review

Review of supportive text provides the essential conceptual framework and
foundation to the present study. For this various book, journals, articles and some
dissertations etc. dealing with theoretical aspects profit planning is taken into
consideration.
2.1.1 Concept of profit
Profit, in business usage, the excess of total revenue over total cost during a
specific period of time. In general, profit is the excess over the returns to capital, land,
and labour (interest, rent, and wages). To the economist, much of what is classified in
business usage as profit consists of the implicit wages of manager-owners, the
implicit rent on land owned by the firm, and the implicit interest on the capital
invested by the firm’s owners. In conditions of competitive equilibrium, “pure” profit
would not exist, because the competitive market would cause the rates of return to
capital, land, and labour to rise until they exhausted the total value of the product.
Should profits emerge in any field of production, the resulting increase in output
would cause price declines that would eventually squeeze out profits (Welsch, 1976).
The real world is never one of complete competitive equilibrium, though, and
the theory recognizes that profits arise for several reasons. First, the innovator who
introduces a new technique can produce at a cost below the market price and thus earn
entrepreneurial profits. Secondly, changes in consumer tastes may cause revenues of
some firms to increase, giving rise to what are often called windfall profits. The third
10
type of profit is monopoly profit, which occurs when a firm restricts output so as to
prevent prices from falling to the level of costs. The first two types of profit result
from relaxing the usual theoretical assumptions of unchanging consumer tastes and
states of technology. The third type accompanies the violation of perfect competition
itself (Welsch, 1976).
Summary
Researcher(S)/Years Major findings

Welsch, (1976) In conditions of competitive equilibrium, “pure” profit
would not exist, because the competitive market would
cause the rates of return to capital, land, and labour to rise
until they exhausted the total value of the product.
2.1.2 Concept of Planning
Planning is the process of deciding when, what, where and how to do a certain
activity before starting to work. Various types of plans are- Operational, tactical and
strategic plan, formal and informal plan, proactive and reactive plan and functional
and Corporative plan. The planning process comprises- Analysis of the environment,
Setting the objectives, develop premises, Determine and evaluate alternatives,
Selection of the Best alternative, Formulation of the derivative plan. Budget
formulation, Implementation of the plan and follow up action.
Planning is based on the theory of "thinking before acting". Planning is an

integral part of our life. We make plans in each and every step of life whether it be to
go to school or to buy household goods during shopping. We make plans according to
the limitations of our budget and resources to get maximum satisfaction and to fulfill
goals from our activities. Planning is the most basic and primary function of
management. It is the pre-decided outline of the activities to be conducted in the
organization. Planning is the process of deciding when, what, when where and how to
do a certain activity before starting to work (Agrawal, 2000).
It is an intellectual process that needs a lot of thinking before the formation of

plans. Planning is to set goals and to make certain guidelines achieve the goals. Also,
planning means to formulate policies, segregation of budget, future programs, etc.
These are all done to make the activity successful. All other function of management
is useless if there is not a proper planning system in an organization. So, planning is
11
the basis of all other functions. Thus, planning is the map or a blueprint for the
organization.
Planning is the first essence of management and all other functions are
performed within the framework of planning. Planning means deciding in advance
what is to be done in future. Planning starts from forecasting and predetermination of
future events. Planning is the whole concept of any business organization with proper
and effective planning. No firm can accomplish its predetermined goals and
objectives. Hence it is the life blood of any organization which helps them to run
efficiently in competitive environment. Planning is techniques were by the use pattern
of resources is carried out (Agrawal, 2000).
The planning processes both short and long term is the most crucial
component of the whole system. It is both foundation and the bond for the other
elements because it is through the planning process that we determine what we are
going to do, how we are going to do it and who is going to do it. It operates as the
brain center of an organization and like the brain it both reason and communicate
(Welsch, 2001).
Planning is the conscious recognition of the futurity of present decision

(Drucker, 1989).
Planning is the feed forward process to reduce uncertainty about the future.
The planning process is based on the conviction that management can plan its
activities and condition that state of the enterprise that determines its density (Pandey,
1991).
Summary

Agrawal, (2000) No firm can accomplish its predetermined goals and
objectives without Planning. Hence it is the life blood of
any organization which helps them to run efficiently in
competitive environment.
Drucker, (1989) Planning is the conscious recognition of the futurity of
present decision.
Welsch, (2001) It operates as the brain center of an organization and like
the brain it both reason and communicate.
12
2.1.3 Concept of profit planning
Profit planning is the set of actions taken to achieve a targeted profit level.
These actions involve the development of an interlocking set of budgets that roll up
into a master budget. The management team adjusts the information in this set of
budgets to arrive at the combination of actions needed to arrive at the targeted profit
level. The planning process may involve a significant amount of what-if analysis, to
see what happens to projected profits in different scenarios (Welsch, 2001).
The plan may result in operational and financial issues that must be addressed.
For example, it may be necessary to increase the headcount in certain areas, which in
turn will require more office space and computer equipment. Further, an expansion of
the business may call for more financing, either in the form of debt or equity. And in
particular, management must plan around any bottlenecks in the business that will
keep sales volume from increasing.
Profit planning is only effective if the management team follows through on

the action items stated in the plan. All too often, profit planning is merely an annual
exercise that management engages in, but does not follow through on. Also, profit
planning must be revisited whenever there is a significant change in business
conditions that invalidates the results of the old plan. Otherwise, management will
continue to follow old directives that have no relevance in the new environment
Welsch, (2001).
A profit planning and control program can be one of the more effective
communication networks in an enterprise. Communication for effective planning and
control requires that both the executive and the subordinate have the same
understanding of responsibilities, ensure a degree of understanding not otherwise
understanding of responsibilities, and ensure a degree of understanding not otherwise
possible. Full and open reporting in performing reports that, fouls on assigned
responsibilities likewise enhance the degree of communication essential to sound
management (Welsch, 2001).
Profit Planning is an example of short-range planning. This planning focuses

on improving the profit especially from a particular product over a relatively short
13
period of time. Therefore, as used here, it is not the same as corporate planning of a
cost rendition program (Drucker, 1989).
Necessary changes that may be uncovered as part of the profit planning

process include increasing or decreasing the employee force, changing vendors of raw
materials, or upgrading equipment and machinery that are key to the production of
goods and services. In like manner, the need to restructure marketing campaigns so
that more resources are directed toward strategies that are providing the greatest
return, while minimizing or even eliminating allocations to strategies that are not
producing significant results, may also become apparent as a result of this type of
planning. Even issues such as changing shippers or making slight changes to
packaging that trim expenses may be identified as part of the profit planning process
(Horngreen, 1992).
While this is a useful process in any business setting, there are some
limitations on what can be accomplished. The effectiveness of the planning is only as
good as the data that is assembled for use in the process. Should the data be incorrect
or incomplete, the results of the planning are highly unlikely to produce the desired
results. In addition, if the findings of the process do not result in the implementation
of procedures and changes in the relevant areas of the business, the time spent on the
profit planning is essentially wasted. For this reason, profit planning should be seen as
a starting point for operations and not simply recommendations of what should be
done in order to increase profit margins (Horngreen, 1992).
Summary

Welsch, (2001) The planning process may involve a significant amount of
what-if analysis, to see what happens to projected profits in
different scenarios.
Horngreen, (1992) Even issues such as changing shippers or making slight
changes to packaging that trim expenses may be identified
as part of the profit planning process.
Horngreen, (1992) profit planning should be seen as a starting point for
operations and not simply recommendations of what should
be done in order to increase profit margins.
14
2.1.4 Types of Planning
An organization can have different plans. We can classify the types of plans in
the following ways:
On the basis of Nature
i. Operational Plan:
Operational plans are the plans which are formulated by the lower-level
management for a short-term period of up to one year. It is concerned with the
day-to-day operations of the organization. It is detailed and specific. It is usually
based on past experiences. It usually covers functional aspects such as production,
finance, human resources, etc.
ii. Tactical Plan:
The tactical plan is the plan which is concerned with the integration of various
organizational units and ensures implementation of strategic plans on day-to-day
basis. It involves how the resources of an organization should be used in order to
achieve strategic goals. The tactical plan is also known as a coordinative or
functional plan.
iii. Strategic Plan:
A strategic plan is a plan which is formulated by top-level management for a long
period of time of five years or more. They decide the major goals and policies to
achieve their goals. It takes in a note of all the external factors and risks involved
and makes a long-term policy of the organization. It involves the determination of
strengths and weaknesses, external risks, missions, and control systems to
implement plans.
On the basis of the Managerial Level
i. Top-level Plans:
Plans which are formulated by general managers and directors are called top-level
plans. Under these plans, the objectives, budget, policies, etc. for the whole
organization are laid down. These plans are mostly long-term plans.
15
ii. Middle-level Plans:

The managerial hierarchy at the middle level includes the departmental managers.
A corporation has many departments like the purchasing department, sales
department, finance department, personnel department, etc. The plans formulated
by the departmental managers are called middle-level plans.
iii. Lower-level Plans:
These plans are prepared by the foreman or the supervisors. They take the
existence of the actual work and the problems connected with it. They are
formulated for a short period of time and called short term plans.
On the basis of Time

i. Long Term Plan:
The long-term plan is the long-term process that business owners use to reach
their business mission and vision. It determines the path for business owners
to reach their goals. It also reinforces and makes corrections to the goals as the
plan progresses.
ii. Intermediate Plan:
Intermediate planning covers 6 months to 2 years. It outlines how the strategic
plan will be pursued. In business, intermediate plans are most often used for
campaigns.
iii. Short-term Plan:
The short-term plan involves pans for a few weeks or at most a year. It
allocates resources for day-to-day business development and management
within the strategic plan. Short-term plans outline objectives necessary to meet
intermediate plans and the strategic planning process.
On the basis of Use

i. Single Plan:
These plans are connected with some special problems. These plans end the
moment of the problems to be solved. They are not used, once after their use.
They are further re-created whenever required.
ii. Standing Plan:
These plans are formulated once and they are repeatedly used. These plans
continuously guide managers. That is why it is said that a standing plan is a
16
standing guide to solving the problems. These plans include mission, policies,
objectives, rules, and strategy.
A long-range planning is closely concerned with the concept of the

corporation as a long living institution (Dangol, 1999).
2.1.5 Role of Forecasting in Planning
Forecasting is the key to planning. It generates the planning process. Planning

decides the future course of action which is expected to take place in certain
circumstances and conditions. Unless the managers know these conditions, they
cannot go for effective planning. The need for forecasting is increasing as
management attempts to decrease its dependence on change and become more
scientific in dealing with its environment.
Forecasting is a key ingredient of decision making both in the public and in

the private sector. It is particularly important in the context of banking, both for their
management and for their supervision. Banks’ assets and liabilities are influenced by
a number of factors, such as general economic and financial conditions, interest rates,
and the prices of financial assets. As these variables are the result of a vast, complex,
dynamic and stochastic system, forecasting them is very difficult and forecast errors
are unavoidable. Yet, forecast errors can be reduced and forecast precision enhanced
by using proper econometric models and methods. This course provides a primer on
econometric methods for forecasting economic and financial variables relevant in a
banking context, and it also discusses some more advanced topics related to forecast
construction and evaluation (Decoster and Schafer, 1985).
Summary

Decoster and Schafer, these variables (general economic and financial conditions,
(1985) interest rates, and the prices of financial assets) are the
result of a vast, complex, dynamic and stochastic system,
forecasting them is very difficult and forecast errors are
unavoidable.
2.1.6 Planning verses Forecasting
17
Forecasting, is basically a prediction or projection about a future event,

depending on the past and present performance and trend. Conversely, planning, as
the name signifies, is the process of drafting plans for what should be done in future,
and that too is based on the present performance plus expectations.
Planning and forecasting are two important managerial functions that are
relevant for other functions. Basically, forecasting talks about what could practically
happen, depending on the company’s performance in the past and at present. On the
contrary, planning implies thinking before acting, i.e., deciding today, what is to be
done tomorrow. This article makes an attempt to clear the differences between
forecasting and planning.
The management of a company may accept modify or eject the forecast. In

contrast a sales plan incorporates management decision that are based on the forecast,
other inputs and management judgment about such related items as sales volume,
price, production and sales, effort and financing (Welsch, 2001).
Summary

Welsch, (2001) In contrast a sales plan incorporates management decision
that are based on the forecast, other inputs and management
judgment about such related items as sales volume, price,
production and sales, effort and financing.
2.1.7 Purpose of Profit Planning
There are several purposes of profit planning, namely:
i. To set profit objectives for the budget period.

ii. To specify the policy decisions and course of action to be followed during the
budget period
iii. To give planning directives for the preparation of detailed operating plans
The profit objectives reflect the expected return on capital employed. This depends
on:
i. The commercial environment during the budget period

18
ii. Projected sales of the company

iii. Past profits
iv. Maintenance of liquidity
2.1.8 Long Range and Short-Range Profit Plan
Long-term planning involves goals that take a longer time to reach and require
more steps; they usually take a minimum of a year or two to complete. They aim to
permanently resolve issues and reach and maintain success over a continued period.
Short-term planning is usually considered to take 12 months or less. Your

daily, weekly, monthly, even quarterly and yearly goals – all can be filed under
“short-term goals.” They are stepping stones that will help you to reach your big
goal(s). That type of planning requires you to look at the current situation and fix
potential issues as soon as possible. Sometimes “as soon as possible” takes a day,
sometimes 6 months, depending on the complexity of the issue Welsch, (2001).
The most obvious difference between long-term and short-term planning is the
amount of time each one takes; while short-term planning involves processes that take
12 months or less, long-term planning is, as the name suggests, longer – there’s no
upper limit to the longevity of a long-term plan.
There’s an anecdote that Ingvar Kamprad, founder of IKEA, told a group of

managers that it’s important to think where we should be in 200 years. (You don’t
have to think that far ahead 5-year plan is completely fine.
Another difference is their complexity: long-term planning is more elaborate,

tactical, and involves more steps. As opposed to that, short-term planning is often
quite straightforward. Short-term goals usually serve as milestones that get you to
your long-term goal.
In business, short-term goals are mostly focused on internal issues, such as

customer complaints or inefficient management, while long-term goals cover both
external and internal issues. When you’re planning long-term, you need to be aware
19
of external factors, like global trends and changes, political situation, the ways current
events may affect the economy, and so on.
It is possible for the firms to develop these two profit plans for all aspects of
the operations. Assuming participatory planning and receipt of the executive
instruments, the manager of each responsibility center will immediately initiate
activities within his or her responsibility center to develop strategic profit plan and
tactical profit plan. Certain format and normally the financial function should
establish the general format, amount of detail, and other relevant procedural and
format requirements essentially for aggregation of the plan. All these activities
must be coordinating among the centers in conformity with the organization structure
(Welsch, 2001).
Summary

Welsch, (2001) Certain format and normally the financial function should
establish the general format, amount of detail, and other
relevant procedural and format requirements essentially
for aggregation of the plan.
2.1.9 Budgeting and Budget
A budget is a comprehensive, formal plan that estimates the probable

expenditures and income for an organization over a specific period. Budgeting
describes the overall process of preparing and using a budget. Since budgets are such
valuable tools for planning and control of finances, budgeting affects nearly every
type of organization from governments and large corporations to small businesses—as
well as families and individuals. A small business generally engages in budgeting to
determine the most efficient and effective strategies for making money and expanding
its asset base. Budgeting can help a company use its limited financial and human
resources in a manner which best exploits existing business opportunities Fregmen,
(1976) .
Intelligent budgeting incorporates good business judgment in the review and

analysis of past trends and data pertinent to the business. This information assists a
20
company in decisions relating to the type of business organization needed, the amount
of money to be invested, the type and number of employees to hire, and the marketing
strategies required. In budgeting, a company usually devises both long-term and
short-term plans to help implement its strategies and to conduct ongoing evaluations
of its performance. Although budgeting can be time-consuming and costly for small
businesses, it can also provide a variety of benefits, including an increased awareness
of costs, a coordination of efforts toward company goals, improved communication,
and a framework for performance evaluation.
A budget is a comprehensive and coordinated plan expressed in financial term

for the operation and source of an enterprise for some specific period in the future
(Khan and Jain, 1993).
Budget is defined as a comprehensive and coordinated plan, expressed in

financial terms for the operations and resources of enterprises for some specified
period in the future (Fregmen, 1976).
Summary

Fregmen, (1976) Budget is defined as a comprehensive and coordinated
plan, expressed in financial terms for the operations and
resources of enterprises for some specified period in the
future.
Khan and Jain, A budget is a comprehensive and coordinated plan
(1993) expressed in financial term for the operation and source of
an enterprise for some specific period in the future.
2.1.10 Principles and procedure for successful budgeting
To be successful, budgets should be prepared in accordance with the following

principles:
(i) Realistic and Quantifiable
In a world of limited resources, a company must ration its own resources by

setting goals and objectives which are reasonably attainable. Realism engenders
loyalty and commitment among employees, motivating them to their highest
performance. In addition, wide discrepancies, caused by unrealistic projections, have
21
a negative effect on the credit worthiness of a company and may dissuade lenders. A
company evaluates each potential activity to determine those that will result in the
most appropriate resource allocation. A company accomplishes this through the
quantification of the costs and benefits of the activities.
(ii) Historical
The budget reflects a clear understanding of past results and a keen sense of
expected future changes. While past results cannot be a perfect predictor, they flag
important events and benchmarks.
(iii) Period specific
The budget period must be of reasonable length. The shorter the period, the
greater the need for detail and control mechanisms. The length of the budget period
dictates the time limitations for introducing effective modifications. Although plans
and projects differ in length and scope, a company formulates each of its budgets on a
12-month basis.
(iv) Standardized
To facilitate the budget process, managers should use standardized forms,

formulas, and research techniques. This increases the efficiency and consistency of
the input and the quality of the planning. Computer-aided accounting, analyzing, and
reporting not only furnish managers with comprehensive, current, "real time" results,
but also afford them the flexibility to test new models, and to include relevant and
high-powered charts and tables with relatively little effort.
(v) Inclusive
Efficient companies decentralize the budget process down to the smallest

logical level of responsibility. Those responsible for the results take part in the
development of their budgets and learn how their activities are interrelated with the
other segments of the company. Each has a hand in creating a budget and setting its
goals. Participants from the various organizational segments meet to exchange ideas
and objectives, to discover new ideas, and to minimize redundancies and
counterproductive programs. In this way, those accountable buy into the process,
cooperate more, work harder, and therefore have more potential for success.
22
(vi) Successively Reviewed
Decentralization does not exclude the thorough review of budget proposals at

successive management levels. Management review assures a proper fit within the
overall "master budget."
(vii) Formally Adopted and Disseminated
Top management formally adopts the budgets and communicates their

decisions to the responsible personnel. When top management has assembled the
master budget and formally accepted it as the operating plan for the company, it
distributes it in a timely manner.
(vi) Frequently evaluated
Responsible parties use the master budget and their own department budgets
for information and guidance. On a regular basis, according to a schedule and in a
standardized manner, they compare actual results with their budgets. For an annual
budget, managers usually report monthly, quarterly, and semi-annually. Since
considerable detail is needed, the accountant plays a vital role in the reporting
function. A company uses a well-designed budget program as an effective mechanism
for fore-casting realizable results over a specific period, planning and coordinating its
various operations, and controlling the implementation of the budget plans.
Budgeting is a forward planning. It serves basically as a device (tool) for

management, control; it is rather pivot of any effective scheme of control. Budgeting
is the principal tool of planning and control offered to management by accounting
functions (Welsch, 2001).
Summary

Welsch, (2001) Budgeting is a forward planning. It serves basically as a
device (tool) for management, control; it is rather pivot of
any effective scheme of control. Budgeting is the principal
tool of planning and control offered to management by
accounting functions.
2.1.11 Financial Budget
23
The financial budget contains projections for cash and other balance sheet
items assets and liabilities. It also includes the capital expenditure budget. It presents
a company's plans for financing its operating and capital investment activities. The
capital expenditure budget relates to purchases of plant, property, or equipment with a
useful life of more than one year. On the other hand, the cash budget, the budgeted
balance sheet, and the budgeted statement of cash flows deal with activities expected
to end within the 12-month budget period (Adesina, 2016).
Summary

Adesina, (2016) The cash budget, the budgeted balance sheet, and the
budgeted statement of cash flows deal with activities
expected to end within the 12-month budget period.
The capital expenditure budget
A company engages in capital budgeting to identify, evaluate, plan, and

finance major investment projects through which it converts cash (short-term assets)
into long-term assets. A company uses these new assets, such as computers, robotics,
and modern production facilities, to improve productivity, increase market share, and
bolster profits. A company purchases these new assets as alternatives to holding cash
because it believes that, over the long-term, these assets will increase the wealth of the
business more rapidly than cash balances. Therefore, the capital expenditures budget
is crucial to the overall budget process Adesina, (2016).
Capital budgeting seeks to make decisions in the present which determine, to a

large degree, how successful a company will be in achieving its goals and objectives
in the years ahead. Capital budgeting differs from the other financial budgets in that
they require relatively large commitments of resources, extend beyond the 12-month
planning horizon of the other financial budgets, involve greater operating risks,
increase financial risk by adding long-term liabilities, and require clear policy
decisions that are in full agreement with the company's goals. For the most part, a
company makes its decisions about investments by the profits it can expect and by the
amount of funds available for capital outlays. A company assesses each project
24
according to its necessity and potential profitability using a variety of analytical

methods.
The cash budget
In the cash budget a company estimates all expected cash flows for the budget
period by stating the cash available at the beginning of the period, adding cash from
sales and other earned income to arrive at the total cash available, and then
subtracting the projected disbursements for payables, prepayments, interest and notes
payable, income tax, etc.
The cash budget is an indication of the company's liquidity, or ability to meet

its current obligations, and therefore is a very useful tool for effective management.
Although profits drive liquidity, they do not necessarily have a high
correlation. Often when profits increase, collectibles increase at a greater rate. As a
result, liquidity may increase very little or not at all, making the financing of
expansion difficult and the need for short-term credit necessary.
Managers optimize cash balances by having adequate cash to meet liquidity

needs, and by investing the excess until needed. Since liquidity is of paramount
importance, a company prepares and revises the cash budget with greater frequency
than other budgets. For example, weekly cash budgets are common in an era of tight
money, slow growth, or high interest rates.
The budgeted balance sheets
A company derives the budgeted balance sheet, often referred to as the

budgeted statement of financial position, from changing the beginning account
balances to reflect the operating, capital expenditure, and cash budgets. (Since a
company prepares the budgeted balance sheet before the end of the current period, it
uses an estimated beginning balance sheet.
The budgeted balance sheet is a statement of the assets and liabilities the
company expects to have at the end of the period. The budgeted balance sheet is more
than a collection of residual balances resulting from the foregoing budget estimates.
During the budgeting process, management ascertains the desirability of projected
balances and account relationships. The outcomes of this level of review may require
management to reconsider plans which seemed reasonable earlier in the process.
25
Budgeted Statement of cash flow
The final phase of the master plan is the budgeted statement of cash flows.
This statement anticipates the timing of the flow of cash revenues into the business
from all resources, and the outflow of cash in the form of payables, interest expense,
tax liabilities, dividends, capital expenditures, and the like.
The statement of cash flows includes:
The amount of cash the company will receive from all sources, including
nonoperating items, creditors, and the sale of stocks and assets. The company includes
only those credit sales for which it expects to receive at least partial payment.
The amount of cash the company will pay out for all activities, including
dividend payments, taxes, and bond interest expense. The amount of cash the
company will net from its operating activities and investments.
The net amount is a clear measure of the ability of the business to generate
funds in excess of cash outflows for the period. If anticipated cash is less than
projected expenses, management may decide to increase credit lines or to revise its
plans. Note that net cash flow is not the same as net income or profit. Net income and
profit factor in depreciation and nonoperating gains and losses which are not cash
generating items.
2.1.12 Fundamental of PPC
With a view to laying down strong foundation of profit planning in a business

enterprise, the following fundamental principles must be kept in view:
i. Profit Planning is a decision-making process entailing streams of managerial

decisions. Development of inflows and outflows and manipulation of these
flows implies a stream of well-conceived decisions. Fundamentally,
management decision making involves the task of manipulating the
controlling variables and taking advantage of the non-controlling variables
that may influence revenues, costs and investment (Welsch, (2001).
26
ii. Key to success of profit planning lies in the competence of the management to
plan activities of the enterprise. The management must have absolute
confidence in its ability to establish realistic objectives and to devise effective
means to attain these objectives for the enterprise (Welsch, (2001).
iii. Comprehensive profit planning program calls for involvement of all levels of
management. With a view to competently engaging in profit planning,
management of all cadres, especially top management must have proper
understanding of the nature and characteristics of profit planning, be
convinced that this particular technique of management is preferable for their
situation, be willing to devote intense and concerted managerial efforts
required to make it operative and support the program by all means. It must
also have support of each member of management (Kothari, 1997).
iv. The management must recognize that individuals having managerial
responsibilities will have to strive seriously and aggressively to carry out the
tasks assigned to them in every respect which include participation in
developing sub-unit plans and implementing these plans. Profit plans, if
developed through full participation and in harmony with assigned
responsibilities, assure a degree of understanding not otherwise possible.
v. Sound organizational structure and clear-cut delineation of authorities and
responsibilities are pre-requisites to successful profile planning program. This
implies that planned performance must be tailored to and be in harmony with
organizational responsibilities assigned to the various individual managers of
the enterprise. Profit plans should be classified on the basis of organizational
sub-divisions of the enter-price.
The management should refrain from being influenced by undue conservation
and irrational optimism. Profit plan should be based on realistic expectations
so that the management may feel motivated to achieve them.
vi. It is, therefore, advisable that inflows and outflows of the enterprise be
projected in the light of conditions prevailing in the enterprise, viz., scale of
operation and its nature, characteristics of managers, leadership qualities,
maturity of the enterprise, sophistication of management at all levels and
various psychological forces.
27
Profit planning program should be so prepared at to allow sufficient flexibility

in the plans. Flexible profit planning will enable the management to seize
upon favorable opportunities even though they are not covered by the budget.
vii. The fundamental concepts of PPC include the underlying activities or tasks
that must be carried out to attain maximum usefulness from PPC.
Summary
Welsch, (2001) Management decision making involves the task of
manipulating the controlling variables and taking
advantage of the non-controlling variables that may
influence revenues, costs and investment.
Kothari, (1997) Comprehensive profit planning program calls for
involvement of all levels of management.
Welsch, (2001) The management must have absolute confidence in its
ability to establish realistic objectives and to devise
effective means to attain these objectives for the enterprise.
2.1.13 Profit planning and Control Process
After planning profit successfully, an organization needs to control profit.

Profit control involves measuring the gap between the estimated level and actual level
of profit achieved by an organization. If there is any deviation, the necessary actions
are taken by the organization.
Profit control involves two steps, which are as follows:
(i) Comparing estimates with the goal:
Involves comparing the estimated profit with the expected profit. If there
is a large gap between the estimated profits and the expected profits, the measures
should be taken.
(ii) Using alternatives to achieve the desired profit:
Includes the following:
a) Making changes in planned sales volume by increasing sales promotion,

improving product quality, providing better service, and providing after
28
sales support to customers.

b) Reducing planned expenses by minimizing losses, implementing better
control systems, improving product quality, and increasing the
productivity of human resource and machines (Fago and Niraula, 2015).
Periodic plans and project plans are different in feature and functions. It will
be recalled that project plans encompass different time horizons because each project
has a unique time dimension, they encompass such items as plans for
improvements of present, products, view and expanded physical facilities, entrance
in to new industrial unit from products and industries and new technology and
other major activities that can be separately identified for planning purpose. The
nature of projects is such that they must be planned as separate units.
That profit plans strategies should be followed by every level management

is an accepted norm. Implementation of management plans that have been developed
and approved in the planning process, involves the management functions of leading
subordinates in attaining enterprises objectives and goals. Thus, effective
management at all levels requires that enterprises objectives, goals, strategies, and
policy to be communicated and understood by subordinates. There are many facets
involved in management leadership. However, the comprehensive PPC program
may aid substantially in performing this function, plans, strategies and policies
foundation for effective communication.
Summary
Fago and Niraula, Reducing planned expenses by minimizing losses,
(2015) implementing better control systems, improving product
quality, and increasing the productivity of human resource
and machines.
2.1.14 Assumption and Limitations of cost volume profit analysis
Cost-Volume-Profit (CVP) analysis is a method for systematically assessing

the links between selling prices, total sales revenue, and the volume of production,
expenses, and profit. CVP analysis can be critical in providing management with
information about financial results when a specified level of activity or volume
fluctuates, information about the relative profitability of the company’s various
29
products, and information about the likely effects of changes in selling price and other
variables (Harris, 2017).
To be effective in planning and decision-making, management must have

studies that enable reasonably accurate projections of how each of these aspects will
affect earnings. Additionally, management must grasp how revenues, costs, and
volume interact to generate profits. Cost-volume-profit analysis provides all of these
analyses and information. This data can assist management in optimizing the link
between these variables. Similarly, CVP analysis can be used to determine selling
prices, product mix selection, alternative marketing methods, and analyze the
influence of cost increases or decreases on the profitability of a company firm (Harris,
2017).
Summary
Harris, 2017) Cost-Volume-Profit (CVP) analysis is a method for
systematically assessing the links between selling prices,
total sales revenue, and the volume of production,
expenses, and profit.
Harris, (2017) Data can assist management in optimizing the link between
these variables. Similarly, CVP analysis can be used to
determine selling prices, product mix selection, alternative
marketing methods, and analyze the influence of cost
increases or decreases on the profitability of a company
firm
Assumptions
As with all methods of analysis, CVP analysis relies on certain assumptions

and these assumptions might limit the applicability of the results for decision making.
It is important to understand, however, that the limitations are due to the assumptions
that the cost analyst makes; that is, they are not inherent limitations to the method of
CVP analysis itself.
For example, many people point to the assumptions of constant unit variable
cost and constant unit prices for all levels of volume as important limitations of CVP
30
analysis. However, these assumptions are simplifying assumptions that are made by
the analyst. If we know that unit prices are lower for higher volumes, we can
incorporate that relation into the CVP analysis.
The result will be a more complicated relation among costs, volumes, and
profits than we have worked with here and the breakeven and target volume formulas
will not be as simple as those we have derived. But with analysis tools such as
Microsoft Excel we can model the more complicated relations and find the break-even
point (or points) if they exist.
The lesson from this is that CVP analysis is a tool that the manager can use to
help with decisions. The more important the decision, the more the manager will want
to ensure that the assumptions made are applicable. In addition, if the decisions are
sensitive to the assumptions made (for example, those prices do not depend on
volume), the manager should be cautious about depending on CVP analysis without
considering alternative assumptions (Harris, 2017).
Limitations
i. Due to the numerous assumptions, CVP is at best an approximation. CVP

analysis requires estimations and approximations for data collection, and so
lacks accuracy and precision.
ii. In CVP analysis, total revenues and total costs are believed to be linear and
can be represented by straight lines. In some instances, this assumption may be
discovered to be false. For example, if a business firm sells more units, the
variable costs per unit may fall as a result of increased factory efficiency.
iii. CVP analysis is conducted within a meaningful range of operational activity,

with the assumption that operational productivity and efficiency stay constant.
This assumption may be incorrect.
iv. CVP analysis presupposes those expenses may be reliably classified as fixed
or variable. In reality, such categorization can be challenging.
v. The CVP analysis is based on the assumption of no change in inventory levels

over the period. That is, the quantity of opening inventory equals the quantity
of closing inventory. This also implies that the number of units generated
during the period is equal to the number of units sold. When inventory levels
31
fluctuate, CVP analysis gets more complicated.
vi. If pricing, unit costs, sales mix, operational efficiency, or other important
variables change, the overall CVP analysis and linkages must be adjusted as
well. Cost data are of limited value as a result of these assumptions.
vii. Additionally, a number of issues develop when performing a multi-product

analysis in conjunction with a CVP analysis. The first issue is determining the
facilities that unrelated products share. The analysis will be satisfactory if
fixed expenses and facility usages can be directly associated with individual
items.
viii. Another issue arises when the units of measurement have a non-linear
relationship. Typically, different items have varying contribution margins and
are produced in varying volumes at varying costs.
2.1.15 Resources Mobilization plan or Budget
Growth with stability and equity became the focus of economic policy in less
developed countries and banks were assigned an important, if not leading, role in
realizing these objectives. Among the key resources for the growth of an economy,
the financial resources are considered to be the most important. In the wake of the
severe financial resource crunch being faced by most of the less developed
economies, it is essential to have a total picture of the available resources and plans to
mobilize further resources to bridge the gap. The success of an economic
development plan depends on the extent to which the commitments about mobilizing
and utilizing resources are fulfilled. The intense competition among financial
institutions and greater awareness among consumers are leading inevitably to a shift
in power towards the customer. Customers will select financial products and services
on the basis of highest value added and will demand greater convenience and
flexibility. Banks need to be market led, to produce what customers actually require.
The crucial role of bank marketing in resource mobilization and a comprehensive
savings/deposit planning process interlinked with marketing, credit and national
development plans to achieve the objectives. Stable growth is the watchword and
central point of economic policy in developing countries, which assigns banks an
important, if not leading, role in achieving these objectives. Among the key resources
32
for the growth of the economy, financial resources are considered the most important.
In the current situation which sees most developing economies facing a dramatic
decrease in these resources, it is necessary to have a general framework of available
resources and to plan the mobilization of other resources in order to fill the gap. The
success of an economic development plan depends on the extent to which obligations
relating to the mobilization and use of said resources are fulfilled. Fierce competition
among financial institutions and growing consumer awareness will inevitably produce
a shift of power in favor of consumers. It is the consumer who will increasingly
choose financial products and services on the basis of their added value and demand
more convenience and flexibility. Banks must refer to the market, must produce what
customers demand. The crucial role of banking marketing in the mobilization of
resources and a detailed and comprehensive process of planning deposits/savings
linked to national marketing, credit and development plans so as to achieve the
envisaged objectives. Among the capital fund, the equity capital is formed
generally one time during opening of the bank (Bhattacharyay,1997). The central
bank (NRB) may from time to time instruct the bank to enhance the paid-up capital to
improve the capital adequacy of the bank.
Summary
Bhattacharyay, The crucial role of banking marketing in the mobilization
(1997) of resources and a detailed and comprehensive process of
planning deposits/savings linked to national marketing,
credit and development plans so as to achieve the
envisaged objectives.
2.1.16 Planning for Non-funded Business Activities
Other activities of banks where it does not have to invest its fund yet it can
generate other income are called non-funded business activities of the Bank. Some of
these are LOC, bank guarantee where banks take certain percentage as commission on
such transaction. In this bank undertakes payment liabilities which are contingents in
nature. The bank has to fixe annual target for such business and those are allocated to
the branches of the bank.
Expenditure Planning
33
Express planning and controlling are very necessary for segments for
accomplish the target and increment in profit. It is real fact, that the minimization of
cost is maximization profit. So, the expenses must be planned carefully for
developing a profit plan. In a Bank there are generally following types of expenses:
 Interest Expenses
 Personnel Expenses
 Office Operating Expenses
 Expenses meeting the loss in Exchange Fluctuation
 Non-operating expenses
 Expenses for provision for loan loss
 Expenses for provision for staff bonus
 Expenses for provision of income tax
Revenue Plan
Revenue of the bank is generally collected form income yielding activities.

Therefore, while preparing the resources deployment plan and non-funded business
activities plan, the banks make the estimation of the revenue in advance during the
period for which the plan is developed. Revenues of a bank are generated in the
following forms:
i. Interest income
ii. Commission and discounts
iii. Dividend
iv. Other income
v. Foreign exchange income
vi. Non-operating income
Normally, the interest income of a bank holds a major portion in total revenue
collected and it generate major source of earning of the banks. Due to this total
income of bank are classified in two type interest income and other income
2.1.17 Implementation of Profit Plan
Development of an annual profit plan ends with the planned income statement,
the balance sheet and the planned statement of changes in financial position.
These three statements summaries and integrate the details of plans developed by
34
management for the period. They also report the primary impact of detailed plans
on the financial characteristics of the firm. Before redistributing the completed profit
plan, it is general desirable to recast certain budget schedules so that technical
accounting mechanics and jargon are avoided as much as possible.
2.1.18 Performance Report
The Bank Performance Report (UBPR) is an analytical tool created to help

supervise and examine financial institutions. The BPR serves as an analysis of the
impact that management and economic conditions can have on a bank's balance sheet.
A performance report is a document that a company creates to define and measure its
overall success. It provides an overview of how the business is performing. t
examines liquidity, adequacy of capital and earnings, and other factors that could
damage the stability of the bank.
The Bank Performance Report summarizes the effect of economic conditions

and management decisions on the performance of a given bank and the composition
of that bank’s balance sheet. The data therein can be used to evaluate whether the
bank is earning enough money and has enough liquid assets. It can also be used to
manage the bank’s growth, assets, and liabilities. The BPR is a valuable tool for
bankers and bank examiners seeking to understand the financial condition of a given
bank, and as such, can be used to maintain the financial fitness of a bank or to restore
it to good condition.1
Banks traditionally rely heavily on short-term deposits to fund long-term loans

to consumers and businesses. This reliance makes a bank susceptible to major
problems if conditions turn against it, or it sees a sudden mass withdrawal of deposits.
Performance reporting is an important part of a comprehensive PPC
system. Its phase of a comprehensive PPC program significantly influences the
extent to which the organization's planned goals and objectives are attained.
Performance reports deal with control aspect of PPC.
Features of Performance Report
In comprehensive PPC, performance report is very important. The main

objective of performance reports is the communication of performance measurement,
actual results and the related variances. Performance reports offer management
35
essential insights in to all the facts of operational efficiencies. Performance reports

should be:
iv. The performance information should cover all significant services, and be clearly
set within the broader context of the organization’s strategic objectives.
v. A good test of relevance and reliability of the performance information is whether

an organization uses its externally reported results to help it make decisions about
its future services or priorities.
vi. All performance indicators in the forecast document must be reported against, and
the targets presented alongside the results. Any additional significant performance
matters that arise during the course of the year should also be disclosed.
vii. Prior year comparatives help users by providing context to current year
performance. Reporting trends can also provide valuable information, particularly
for indicators on the impacts of services.
viii. The indicators need to be supported by insightful and fair analysis and
commentary, especially where actual performance differs markedly from planned
performance. Also, rich performance reporting is wider than the set of
performance indicators – readers need to be able to understand the performance
story.
2.1.19 Concept of Commercial Banks
The term commercial bank refers to a financial institution that accepts

deposits, offers checking account services, makes various loans, and offers basic
financial products like certificates of deposit (CDs) and savings accounts to
individuals and small businesses. A commercial bank is where most people do their
banking. Commercial banks make money by providing and earning interest from
loans such as mortgages, auto loans, business loans, and personal loans. Customer
deposits provide banks with the capital to make these loans (Gitman, 1990).
Commercial banks provide basic banking services and products to the general
public, both individual consumers and small to mid-sized businesses. These services
include checking and savings accounts, loans and mortgages, basic investment
services such as CDs, as well as other services such as safe deposit boxes. Banks
make money from service charges and fees. These fees vary based on the products,
36
ranging from account fees (monthly maintenance charges, minimum balance fees,
overdraft fees, non-sufficient funds (NSF) charges), safe deposit box fees, and late
fees. Many loan products also contain fees in addition to interest charges (Gitman,
1990).
Banks also earn money from interest they earn by lending out money to other
clients. The funds they lend comes from customer deposits. However, the interest rate
paid by the bank on the money they borrow is less than the rate charged on the money
they lend. Commercial banks have traditionally been located in buildings where
customers come to use teller window services and automated teller machines (ATMs)
to do their routine banking. With the rise in internet technology, most banks now
allow their customers to do most of the same services online that they could do in
person including transfers, deposits, and bill payments (Gitman, 1990).
Summary
Gitman, (1990) These fees vary based on the products, ranging from
account fees (monthly maintenance charges, minimum
balance fees, overdraft fees, non-sufficient funds (NSF)
charges), safe deposit box fees, and late fees. Many loan
products also contain fees in addition to interest charges.
Gitman, (1990) Commercial banks make money by providing and earning
interest from loans such as mortgages, auto loans, business
loans, and personal loans. Customer deposits provide banks
with the capital to make these loans.
2.1.20 Evolution of Commercial Banks
The history of banking began with the first prototype banks which were the
merchants of the world, who gave grain loans to farmers and traders who carried
goods between cities. This was around 2000 BCE in Assyria, India and Samaria.
37
Later, in ancient Greece and during the Roman Empire, lenders based in temples gave
loans, while accepting deposits and performing the change of money. Archaeology
from this period in ancient China and India also shows evidence of money lending.
Many historical understandings position the crucial historical development of

a banking system to medieval and Renaissance Italy and particularly the affluent cities
of Florence, Venice and Genoa. The Bardi and Peruzzi Families dominated banking in
14th century Florence, establishing branches in many other parts of Europe.[1] The
most famous Italian bank was the Medici Bank, established by Giovanni Medici in
1397.[2] The oldest bank still in existence is Banca Monte dei Paschi di Siena,
headquartered in Siena, Italy, which has been operating continuously since 1472.[3]
Until the end of 2019, the oldest bank still in operation was the Banco di Napoli
headquartered in Naples, Italy which had been operating since 1463.
Development of banking spread from northern Italy throughout the Holy

Roman Empire, and in the 15th and 16th century to northern Europe. This was
followed by a number of important innovations that took place in Amsterdam during
the Dutch Republic in the 17th century, and in London since the 18th century. During
the 20th century, developments in telecommunications and computing caused major
changes to banks' operations and let banks dramatically increase in size and
geographic spread. The financial crisis of 2007–2008 caused many bank failures,
including some of the world's largest banks, and provoked much debate about bank
regulation.
Afterward, various commercial banks were opened with foreign joint venture
under private sectors in Nepal which had contributed a lot to bring the commercial
banking at present day position. Nepal Bangladesh Bank has established in the year
2051 B.S.
2.1.21 Role of Commercial Banks in Development of Economy
Commercial Banks have always played an important position in the country’s

economy. They play a decisive role in the development of the industry and trade.
They are acting not only as the custodian of the wealth of the country but also as
resources of the country, which are necessary for the economic development of a
nation.
38
According to Kent “An organization whose principal operations are concerned

with the accumulation of the temporarily idle money of the general public for the
purpose of advancing to the other for expenditure.”
We shall now discuss the contributions made by the banks for the economic
development of the nation.
i. Capital Formation
Banks play an important role in capital formation, which is essential for the
economic development of a country. They mobilize the small savings of the people
scattered over a wide area through their network of branches all over the country and
make it available for productive purposes.
Now-a-days, banks offer very attractive schemes to attract the people to save
their money with them and bring the savings mobilized to the organized money
market. If the banks do not perform this function, savings either remains idle or used
in creating assets, which are low in scale of plan priorities.
ii. Creation of Credit
Banks create credit for the purpose of providing more funds for development
projects. Credit creation leads to increased production, employment, sales and prices
and thereby they cause faster economic development.
iii. Channelizing the Funds to Productive Investment
Banks invest the savings mobilized by them for productive purposes. Capital
formation is not the only function of commercial banks. Pooled savings should be
distributed to various sectors of the economy with a view to increase the productivity
of the nation. Then only it can be said to have performed an important role in the
economic development of the nation.
Commercial Banks aid the economic development of the nation through the
capital formed by them. In India, loan lending operation of commercial banks subject
to the control of the RBI. So, our banks cannot lend loan, as they like.
iv. Fuller Utilization of Resources
Savings pooled by banks are utilized to a greater extent for development

purposes of various regions in the country. It ensures fuller utilization of resources.
39
v. Encouraging Right Type of Industries
The banks help in the development of the right type of industries by extending
loan to right type of persons. In this way, they help not only for industrialization of
the country but also for the economic development of the country. They grant loans
and advances to manufacturers whose products are in great demand. The
manufacturers in turn increase their products by introducing new methods of
production and assist in raising the national income of the country.
vi. Bank Rate Policy
Economists are of the view that by changing the bank rates, changes can be
made in the money supply of a country. In our country, the RBI regulates the rate of
interest to be paid by banks for the deposits accepted by them and also the rate of
interest to be charged by them on the loans granted by them.
vii. Bank Monetize Debt
Commercial banks transform the loan to be repaid after a certain period into
cash, which can be immediately used for business activities. Manufacturers and
wholesale traders cannot increase their sales without selling goods on credit basis. But
credit sales may lead to locking up of capital. As a result, production may also be
reduced. As banks are lending money by discounting bills of exchange, business
concerns are able to carry out the economic activities without any interruption.
viii. Finance to Government
Government is acting as the promoter of industries in underdeveloped

countries for which finance is needed for it. Banks provide long-term credit to
Government by investing their funds in Government securities and short-term finance
by purchasing Treasury Bills.
ix. Bankers as Employers
After the nationalization of big banks, banking industry has grown to a great
extent. Bank’s branches are opened in almost all the villages, which leads to the
creation of new employment opportunities. Banks are also improving people for
occupying various posts in their office.
x. Banks are Entrepreneurs

40
In recent days, banks have assumed the role of developing entrepreneurship

particularly in developing countries like India. Developing of entrepreneurship is a
complex process. It includes the formation of project ideas, identification of specific
projects suitable to local conditions, inducing new entrepreneurs to take up these well-
formulated projects and provision of counseling services like technical and
managerial guidance.
Banks provide 100% credit for worthwhile projects, which is also technically feasible
and economically viable. Thus, commercial banks help for the development of
entrepreneurship in the country.
2.2 Review of Related Studies
2.2.1 Review of Journal and Articles
Shrestha (2008) revealed that Current Profit Planning Premises Adopted and
its Effectiveness in Commercial Banks has included the significance and the
importance of profit planning in Nepal or should say for developing countries. He has
pointed out the fact that profit planning is a very important tool for the economic
development. He has also mentioned the contribution of profit planning to the GNP of
the nation. Year by year the contribution to GNP has been increased. He has
compared profit planning with the foreign direct investment. Researcher has
concluded that profit planning’s and grants are claimed as an important source of
increasing foreign exchange earnings in Nepal, Moreover, profit planning’s may be a
dependable source of national income for economic development if there is job
guarantee for the workers with the wage level equivalent to the residence of the
foreign country.
Karki (2011) revealed that Profit planning of BOK Bank which is one of the
leading banks in Nepal. In this research researcher has concluded that profit has
driven the nation’s economy. Though there was a very difficult situation in Nepal,
profit planning has been able to hold the economy of the country. Because of the huge
increment in the profit planning received by Nepal, GDP of the nation was stable,
moreover say slightly increased at a severe time in the history of Nepal, where there
was an internal dispute in country. Therefore, researched has concluded that profit
planning is a very important tool to drive the nation’s economy. Moreover, they have
mentioned that profit planning is very important tool for the development countries
like Nepal. The trend analysis conducted in term of profit planning received by
41
Nepal clearly showed that the growth rates of profit planning are increasing day by
day. As we can see in the present scenario that many people are migrating. Moreover,
many people age between 18 t0 40 have been migrating abroad in the search of
opportunity. So, day by day the numbers of migrating people are also increasing and
the day by day the amount of profit planning received by Nepal have been increasing.
As per the trend analysis, we expect NPR 110 Bio of profit planning in Nepal.
Looking to the increment of profit planning flow in Nepal, it won’t be a dramatic
word if we say the profit planning would be reached to NPR 200 BIO in fiscal year
2008.
Shakya (2012) revealed that A Comparative Study on Profit Planning in the

context of Particularly Commercial Banks using two rounds of nationally
representative household survey data in this study, the authors measure the impact on
poverty in Nepal of local and international migration for work. They apply an
instrumental variable approach to deal with nonrandom selection of migrants and
simulate various scenarios for the different levels of work-related migration,
comparing observed and counter factual household expenditure distribution. The
results indicate that one-fifth of the poverty reduction in Nepal occurring between
1995 and 2004 can be attributed to increased levels of work-related migration and
profit planning’s sent home. The authors also show that while the increase in work
migration abroad was the leading cause of this poverty reduction, internal migration
also played an important role. The findings show that strategies for economic growth
and poverty reduction in Nepal should consider aspects of the dynamics of
domestic and international migration.
Summary
Shrestha, (2008) Researcher has concluded that profit planning’s and grants
are claimed as an important source of increasing foreign
exchange earnings in Nepal, Moreover, profit planning’s
may be a dependable source of national income for
economic development if there is job guarantee for the
workers with the wage level equivalent to the residence of
the foreign country.
Karki, (2011) The trend analysis conducted in term of profit planning
42
received by Nepal clearly showed that the growth rates of

profit planning are increasing day by day.
Shakya, (2012) The results indicate that one-fifth of the poverty reduction
in Nepal occurring between 1995 and 2004 can be
attributed to increased levels of work-related migration and
profit planning’s sent home. The authors also show that
while the increase in work migration abroad was the
leading cause of this poverty reduction, internal migration
also played an important role.
2.2.2 Review of thesis
Maharjan (2011) conducted a study on the topic “Profit Planning in a

Commercial Bank (With Reference to Standard Chartered Bank Nepal Ltd.)”.
The Major observations were:
The decision-making process is highly centralized however, management

takes the feed forwards for annual planning and strategy building through manager
conferences and strategy building through manager conferences and strategic meeting
organized twice in every year at the head office. Interest expenses amount is the
highest among total expense items of the bank every year. The total deposit of the
bank is found increasing every year corresponding to the increase in interest
expenses the total deposit is perfectly and positively correlated with total interest
expenses.
Pandey (2012) conducted a study on the topic “A Comparative study on Profit

Planning of Commercial Banks (With Reference to BOK and NBL).”
The both banks (NABIL and BOK) are fluctuating rate over the study
period, but in the FY 2010/11 is negative growth of BOK L by -1.54% (on the
basis of FY 2007/08). Comparatively BOK is good position than NABIL. From the
average growth rate i.e., 16.08% > 14.11% respectively. Expenditure of the both
banks are increasing trend but in the FY 2009/10 of BOK and FY 2008/09 of BOK
is decreased. In comparatively more increasing trend in the NABIL than BOK.
43
Bhattrai (2013) conducted a study on the topic "The sales budget of

Manufacturing Public Enterprises".
Actual sales are very below than the budgets sales. Sales forecasting is not
based on realistic ground. HPPCL only use the sales force composite method in sales
forecasting but it has not practice of using statistical techniques in sales forecasting.
Net profit of the bank is the amount, which is obtained by subtracting the amount
of the net burden from the amount of gross interest margin.
Pandey (2015) conducted a study on the topic “Profit Planning of Nabil Bank
Limited.”
The study is conducted on profit planning of Nabil Bank, which is one of

the leading banks in Nepal. NABIL has been maintaining a steady growth rate over
this period. NABIL has earned a net profit of Rs 747 million for the fiscal year
2013/14 and this comes to be 10.83% more as compared to the same period in
the previous fiscal year. Correlation between interest expenses and deposit of
NABIL is negative, it shows there is no relation between interest expenses and
deposit but it is not possible. So, NABIL should increase its cost of deposit rate.
Summary
Maharjan, (2011) Interest expenses amount is the highest among total
expense items of the bank every year.
Pandey, (2012) The both banks (NABIL and BOK) are fluctuating rate
over the study period, but in the FY 2010/11 is negative
growth of BOK L by -1.54% (on the basis of FY 2007/08).
Bhattrai, (2013) Net profit of the bank is the amount, which is obtained
by subtracting the amount of the net burden from the
amount of gross interest margin.
Pandey, (2015) Correlation between interest expenses and deposit of
NABIL is negative, it shows there is no relation between
44
interest expenses and deposit but it is not possible. So,

NABIL should increase its cost of deposit rate.
2.3 Research Gap
Research gap refers to the gap between previous research and this research.
There is research gap between the present study and previous studies. This study has
analyzed the financial position of MBL by applying the tools of ratio analysis and
statistical tools. It concludes the various findings of research and recommendations to
the MBL. Most of the past research studies about profit planning system are
basically related to profit planning system of manufacturing sectors or
production-oriented activities. The researcher found only few studies so far that has
been related to profit planning system of a commercial bank i.e., Machhapuchchhre
Bank Limited Nepal. All the past research has pointed out that there is no proper
profit planning system and recommend for the effective implementation of profit
planning system in the concerned institutions. This study has used latest data for
analysis of profit planning of MBL.
In the financial market have not allowed interest rate structure to evolve through a
perfect market mechanism. Further, there is a great deal difference in the level of
interest rate on loans between formal and informal market. Informal market rate for
borrowing is much higher than the formal market rates. One noteworthy situations of
the Nepalese financial system have been the poor sensitivity of the commercial banks
to changes in bank rate by the NRB. This is because of the excess liquidity in the
banking sector and therefore commercial banks do not resort to the central bank
borrowing for financing their lending activities. (Budha, 2015).
Summary

Budha, (2015) Informal market rate for borrowing is much higher than the
formal market rates. One noteworthy situations of the
Nepalese financial system have been the poor sensitivity of
the commercial banks to changes in bank rate by the NRB.
CHAPTER III
RESEARCH METHODOLOGY
Research methodology is the way to solve systematically about the research
problem (Kothari, 1990). Research methodology is the procedure of planned outline
which deals with research design, data collection procedure, nature of data, identify
the population, making confidence of the sampling method and sampling variables,
data selecting styles, presentation style of collected information data and interpreting
it. Now, no doubtingly it is obvious that the research methodology is helpful to attain
the objectives of the research. This study mainly concentrated on the profit planning
of Machhapuchchhre Bank Ltd. Research methodology, therefore, is designed and
implemented to study about the sources, causes and methods of profit planning. The
analysis is income, expenses, loan, deposit, employee status of MBL.
3.1 Research Design
The study has employed descriptive and causal comparative research designs to deal
with the fundamental issues associated with factors influencing Profit, planning and
control of MBL. The descriptive research design has been adopted for fact-finding
and searching adequate information about the determinants of Profitability.
Descriptive research is a process of accumulating facts. It describes phenomenon as
they exist. Such design involves the systematic collection and presentation of data to
give clear picture of a particular situation. Descriptive research design helps to reduce
data into manageable form. This study is also based on co-relation research design.
This design has been adopted to ascertain and understand the directions, magnitudes
and forms of observed relationship between explanatory variables and bank liquidity.
The first step of the study is to collect necessary information and data concerning the
study. Research design means the definite procedure and techniques which guides the
study and propounds ways or doing research. The research has its basic objective to
highlight the degree of application of profit planning concept in MBL with respect to
planned prediction and actual production, degree of sales realization in respect to
budget figure and examine the cost structure. This study is an examination and
evaluation of the budget process of profit planning program of MBL various related
information. Functional budget and statement of MBL are tools to analysis and
evaluated the profit planning system of MBL. Also, to figure out the problems and
provides them with some recommendation.
46
3.2 The population and sample

This research work is designed with profit planning and control is Nepalese
commercial bank. The total number commercial bank in Nepal is 26 which is
population of the study. Among the total population of Machhapuchchhre Bank
Limited has been selected by using purposive sampling method for case study
purpose. Financial statement of last five year (2015/16 to 2020/21) has been taken as
sample for the comparative analysis of profit plan and control. The recommendation
and suggestions, which are derived from the study, by taking the above commercial
banks as samples, will be equally useful for the other commercial banks in Nepal.
3.3 Period Covered

Profit planning has two-timed dimension long rage and short range. This study
covers a time five year from 2016 to 2021 data are taken from MBL and the analysis
is basically made a based on these 5 years data. To the analysis of short-range tactical
profit plan analysis data are taken from fiscal year 2015/16. Strategic or long-range
trend are taken from fiscal year 2015/16 to 2020/21.
3.3 Nature and source of Data Collection

For any research work, information is the lifeblood. Therefore, it is the major
task to gather the information and data collection. Mostly secondary data has been
used in the study. It has been collected from the following sources:
i. Published annual financial reports of MBL and Publication of Nepal Rastra

Bank, publication of National Planning Central Bureau of Statistics and
related publication.
ii. Books, booklets, articles, magazines, and official records of MBL and
Previous dissertations, electronic media such as websites.
3.4 Instrument of data collection
Secondary data have been collected from the annual published accounting and
financial statement of MBL. Similarly, other necessary data have collected from
publication of the Nepal Rastra Bank publications of national planning commissions
central bureau of statics and related publications.
47
3.5 Research Methodology

This study will be confined to examine the profit planning and control of MBL
bank wherever financial, mathematical, and statistical tools will be used to analysis
the presented data which will includes ratio analysis is percentage, regression
analysis, test of goodness of fit of the regression estimate (r2) correlation mean
standard deviation, coefficient of variance etc.
3.6 Research Framework

A research framework is described as a set of broad ideas and principle taken from
relevant fields of enquiry and used to structure a subsequent presentation (Reichel &
Ramey 1987). When clearly articulated, a conceptual framework has potential
usefulness as a tool to scaffold research and, therefore, to assist a researcher to make
meaning of subsequent findings. A conceptual framework represents the relationship
between variables in the study and shows the relationship graphically. It is a
hypothesized representation identifying the concepts under study and their
relationship (Mugenda & Mugenda 2003).
The conceptual framework shows the relationship between the dependent and
independent variables. The conceptual framework in this study consists of four
dependent variables along with the other independent variables which are to be tested
through the statistical tools. In this study, dependent variable is the Profit planning
and control and independent variables are Cost-volume profit analysis, Top
management support, Accountants qualification and experience and Decision-making
process. Specific determinants include Equity, Size, Cash flow, Investment, Liability,
Credit, Deposit and Profitability. Thus, the following conceptual model is framed to
summarize the main focus and scope of this study in terms of variables included. The
conceptual framework shown below in figure elaborates the relationship among
dependent variables and independent variables.
3.6.1 Financial Tools

Financial analysis is the process of identifying the financial strengths and
weaknesses of the organization by properly establishing relationships between the
items of the balance sheet and the profit and loss account. Ratio analysis is a powerful
tool of financial analysis. A ration is designed as “the indicated quotient of two
mathematical expressions” and as “the relationship between two or more things”. In
48
financial analysis, ratio is used as a benchmark for evaluating the financial position
and performance of a firm. Several ratios, calculated from the accounting data, can be
grouped into various classes according to the financial activity and function to be
evaluated.
(i) Net Profit Margin

The ratio signifies the effectiveness of expenses management and cost control
and gives the direction to the management for service pricing policies. It means how
much of total revenue has been declared as net profit after all the charges are over up.
The higher ratio means the management has been able to control its operational costs
and maintain efficiency.
Net Profit After Tax
Net Profit Margin =
Total Operating income
(ii) Return on total assets ratio (ROA)
The ratio is a primary indicator of managerial efficiency. It indicates how

efficiently the assets were utilized by the bank. The ratio measures how far the
management has utilized all the assets of the bank for profit generating activities.
Higher ROA indicates higher efficiency in the utilization of the total assets and vice
versa.
Net Profit after tax

Return on Total Assets (ROA) =
Total assets
(iii) Return on Equity (ROE)
Equity refers to the owner’s claim of a bank. The excess amount of total asset
over outsiders’ liabilities is known as shareholder’s equity. It is also known as net
worth. This ratio measure how prudently the management has employed shareholder’s
fund keeping the interest of shareholders and maximize their net worth. It is the
measurement of the rate of return available to the bank’s shareholders. The ratio
provides the company to deliver a good return on equity. This ratio is calculated by
dividing net profit by total equity capital.
Net Profit after tax

Return on Equity (ROE) =
Total equity
49
(iv) Operating Efficiency Ratio
To maximize profitability and the value of the shareholder’s investments in

the bank, bank management must maintain efficiency in their operations. This usually
means reducing their operating expenses and increasing the productivity of their
employees. Since banks are to pay huge amount of the interest costs for their funds,
they like to reduce non-interest costs especially, staff costs, wages and overhead costs.
Lower the ratio means greater the success of management.
Total Operating Expenses

Operating Efficiency Ratio =
Total Operating Income
3.6.2 Accounting tools
i. Contribution Margin (CM)
The difference between production amount and variable cost is known as the
contribution margin. In other words, fixed cost plus the amount of profit is equivalent
to contribution margin. Contribution margin can be expressed by
Contribution margin (CM) = Production volume (Sales) – variable cost
ii. Profit Volume Ratio(P/V)
It establishes a relationship between the contribution and production volume.

The factors profit and volume are interconnected and dependent with each other.
Profit depends upon contribution margin and production. It can be expressed by;
Contribution Margin
Profit volume ratio =
Production∨Sales
iii. Break-even Point
The point which breaks the total costs and selling price evenly to show the
level of output or production, at which there shall be neither profit nor loss, is
regarded as break-even point. Through contribution margin approach, breakeven
point can be expressed by;
¿Cost
Break—even Point =
P /V ratio
50
iv. Break-even Ratio
Total sales revenue consists two parts: Break even sales and Margin of Safety.
The proportion of Break-even sales is BE Ratio.
Actual Sales = Break Even Sales + Margin of Safety
Net Profit After Tax

BE Ratio =
Total Operating Income
v. Margin of Safety (MOS)
It is the difference between the actual sales revenue and the break-even sales
revenue. It can be expressed by;
Margin of Safety = Actual Production – Break Even Production
3.6.3 Statical Tools
Data collected from various sources are managed, analyzed and presented in
proper tables and formats. Such formats and tables are interpreted and explained
wherever necessary.
To analyze the collect data financial and statistical tool are used the financial
tools mainly used are financial ratio. CVP analysis and flexible budget similarly the
statistical tools used are mean correlation regression, time series, coefficient of
variance standard deviation, graphs diagrams etc.
Statistical tools are used to analyze the relationship between two or more
variables and to find how these variables are related. In this study, following
statistical tools are used.
i. Arithmetic Mean or Average
The arithmetic means or simple mean of set of observations in the sum of all
the observation divided by the number of observations. It is the best value, which
Represent to the whole group... means is the arithmetic average of a variable.
Arithmetic mean of a series is given by:
51
X 1 + X 2 + X 3 ............................ X n ∑ X
Mean = =
n n
Where, X denotes arithmetic mean, n denotes no. of periods and X 1 , X 2 and X 3 are
individual observations.
ii. Standard Deviation
The standard deviation is the absolute measure of dispersion in which

the drawback presents in other measure of dispersion as it satisfied most of
the requisites of a good measure of dispersion. Standard deviation is defined as the
positive square root of the mean as square of the deviation takes from the arithmetic
mean. It indicates the ranges and size of deviance from the middle or mean. It
measures the absolute dispersion. Higher the standard deviation Higher will be the
variability and vice versa. Dispersion measures the variation of the data from the
central value. In other words, it helps to analyze the quality of data regarding its
variability. It is calculated as:
Standard Deviation (S.D) =

√ ∑ (X −X̅ )2
N
iii. Co-efficient of Variation (C.V)
Standard deviation is the absolute measure of dispersion. The relative measure

of dispersing based on the standard deviation is known as the measurement of
coefficient of standard deviation. The percentage of measure of co-efficient of so
is called co-efficient of variation. Less CV is the more uniformity and consistency and
vice versa. Only standard deviation is not appropriate to compare two pairs of
variables but also CIS capable to compare two variables independently in terms
of their variability. It is calculated as under:
Standard Deviation
Coefficient of Variation (C.V.) =
Mean
iv. Coefficient of Correlation(r)
Correlation is a statistical tool design to measure the degree of association

between two or more variables. In other word if the changes in one variable affects
the changes in other variable, then the variable are said to be co-related when it is
used to measure the relationship between two variables, then it is called simple
52
correlation. The coefficient of correlation measures the degree of relationship between

two sets of figures. Among the various methods of finding out coefficient of
correlation, Karl Pearson's method is applied in the study. The result of coefficient of
correlation is always lying between +1 and -1. The formula for the calculation of
coefficient of correlation between X and Y is given below.
∑ x 1. x 2
Coefficient of Correlation:
√∑ X 2
1 X2
2
v. Least Square Linear Trend Analysis
Trend analysis has been a very useful and commonly applied statistical tool to
forecast the future events in quantitative terms. On the basis of tendencies in the
dependent variables in the past periods, the future trend is predicted. This analysis
takes the historical data as the basis of forecasting. This method of forecasting the
future trend is based on the assumptions that the past tendencies of the variable are
repeated in the future or the past events affect the future events significantly the
future trend is forecasted by using the following formula.
Y= a+bx
Where,
Y = The dependent Variable
a = the origin i. e. arithmetic mean
b = the slope coefficient i. e. rate of change
X = the independent variable

vi. Hypothesis Test
For this study, t-test for significance of an observed and sample correlation
coefficient is used.
Null hypothesis (H₀); ρ = 0 i.e. There is no correlation between
Considered variables.
Alternative Hypothesis (H₁); ρ ≠ 0 i.e. There is significant correlation between the

considered variables.
Test statistic under H₀;

53
r
√1−r 2 √
t= × n−2
Where, r = Sample correlation between two variables
2
r = Sample correlation Coefficient
n = No of Pair of observations
Level of significance: Level of significance ∝ = 5%
Critical Value: Tabulated or critical value of t at ∝ % level of significance for (n -

2) degree of freedom obtains from ‘t’ tables.
Decision: If calculated ‘t’ is less than or equal to tabulated value of ‘t’ it falls in the
accepted region and the null hypothesis is accepted and if calculated ‘t’ is greater than
tabulated ‘t’ null hypothesis is rejected.
3.6 Research Variable
Equity, size, Liability, Cash flow, Investment, Loan disbursements, deposit collection,
capacity utilization, profit and loss, total assets total capital employed, capital
expenditure outstanding balance of letter of credit and bank guarantees and cash flow
relating to short term and long-term periods of MBL are the research variable of the
present study.
Independent Variable
Equity
Size Dependent Variable
Liability
Cash Flow
Profitability
Investment
Credit
a) Equity
Deposit
Equity capital is funds paid into a business by investors in exchange for

common or preferred stock. This represents the core funding of a business, to
which debt funding may be added. Once invested, these funds are at risk, since
investors will not be repaid in the event of a corporate liquidation until the
54
claims of all other creditors have first been settled. Despite this risk, investors
are willing to provide equity capital for one or more of the following reasons:
 Owning a sufficient number of shares gives an investor some degree of

control over the business in which the investment has been made.
 The investee may periodically issue dividends to its stockholders.
 The price of the shares may appreciate over time, so that investors can
sell their shares for a profit.
Equity, typically referred to as shareholders' equity (or owners' equity for

privately held companies), represents the amount of money that would be
returned to a company's shareholders if all of the assets were liquidated and all
of the company's debt was paid off in the case of liquidation. In the case of
acquisition, it is the value of company sales minus any liabilities owed by the
company not transferred with the sale (Fernando 2022).
b) Size
The effect of size on leverage is also ambiguous. On the one hand Titman and
wessele (1998) argue that large firms tend to more diversified and fail less
often. Moreover, since bankruptcy costs consist of a fixed part and a variable
part, they tend to be relatively higher for smaller firms (Warner 1977).
Accordingly, the trade off theory preditcs an inverse relationship between size
and probability of bankruptcy, and hence a positive relationship between size
and leverage.
On the other hand, size can be regarded as a proxy for information asymmetry
between firm insiders and capital markets. For example, large firms are more
closely observed by analysts and, hence they should be more capable of
issuing informationally sensitive equity (Baker and Martin 2011).
c) Liability
A company's obligation to pay money to other people or businesses in the

future is called a liability. This means that the company will not be able to
make money in the future. A liability is a way for a business to get money
different from equity. Also, some obligations, like accounts payable and
55
income taxes payable, are important to how a business works every day. A
liability is an obligation of a company that results in the company’s future
sacrifices of economic benefits to other entities or businesses. A liability, like
debt, can be an alternative to equity as a source of a company’s financing.
Moreover, some liabilities, such as accounts payable or income taxes payable,
are essential parts of day-to-day business operations (Schmidt 2022).
d) Cash Flow
The term cash flow refers to the net amount of cash and cash equivalents being
transferred in and out of a company. Cash received represents inflows, while
money spent represents outflows.
A company’s ability to create value for shareholders is fundamentally

determined by its ability to generate positive cash flows or, more specifically,
to maximize long-term free cash flow (FCF). FCF is the cash generated by a
company from its normal business operations after subtracting any money
spent on capital expenditures (Hayes 2022).
e) Investment
An investment is an asset or item acquired with the goal of generating income

or appreciation. Appreciation refers to an increase in the value of an asset over
time. When an individual purchases a good as an investment, the intent is not
to consume the good but rather to use it in the future to create wealth.
An investment always concerns the outlay of some resource today time, effort,
money, or an asset in hopes of a greater payoff in the future than what was
originally put in. For example, an investor may purchase a monetary asset now
with the idea that the asset will provide income in the future or will later be
sold at a higher price for a profit (Hayes 2022).
f) Credit
The term bank credit refers to the amount of credit available to a business or
individual from a banking institution in the form of loans. Bank credit,
therefore, is the total amount of money a person or business can borrow from a
56
bank or other financial institution. A borrower's bank credit depends on their

ability to repay any loans and the total amount of credit available to lend by
the banking institution (Twin 2020).
g) Deposit
A deposit is a financial term that means money held at a bank. A deposit is a

transaction involving a transfer of money to another party for safekeeping.
However, a deposit can refer to a portion of money used as security or
collateral for the delivery of a good (Kagan 2021).
h) Profitability
According to the trade-off theory, bankruptcy cost, taxes, and agency cost
push more profatibility firms towards higher leverage. First, expected
bankruptcy costs decline when profitability increase. Second, the deductibility
of interest payments for tax purpose includes more profatible firms to finance
with debt. Finally, in agency model of Jensen and Meckling (1976),
Easterbrook (1984), and Jensen (1986), higher leverage helps to control
agency problem by forcing managers to pay out more of the firm's excess
cash. The strong commitement to use a larger fraction of pre-interest earnings
for debt payment suggest a positive relationship between book leverage and
profitability. This notion is also considered with signaling models of the
capital structure, where managers can use higher level of debt to signal an
optimistic future for the firm (Ross 1977).
57
CHAPTER IV
DATA PRESENTATION AND ANALYSIS
This chapter represent analysis of data collection. In this chapter profit
planning of MBL is analyzed. The chapter represent main body of the study. The
main objective of this chapter is to analyze the collected data from various source.
Among the listed commercial banks only one commercial bank is taken as sample i.e.,
MBL. Different tables and figures (diagrams) are drawn to make the result simpler
and more understandable.
4.1 Analysis of Income
4.1.1 Income from Interest
Interest income is the amount of interest that has been earned during a specific
time period. This amount can be compared to the investments balance to estimate the
return on investment that a business is generating. It is the major sources of income of
bank. As income from interest is the main source of income of bank. It has to be very
aware while doing investment. Such income is classified under various heads or
source such as loan, overdraft, agency balance, investment etc.
Table 4. 1: Sector wise Income from interest
(In Lakhs)
Interest Income 2016/17 2017/18 2018/19 2019/20 2020/21
Cash and cash 135.63 328.85 248.81 117.50 139.25
equivalent
Due from Nepal - 6.99 121.71 - -
Rastra Bank
Placement with the 55.16 53.63 979.20 792.32 67.06
bank and financial
Institution
Loan and advance to 631.14 2,100.05 2,607.71 2,030.20 333.41
bank and financial
institution
58
Loans and Advance 48,697.32 71,492.28 93,048.20 103,912.65 101,938.51

to customers
Investment’s 1,631.94 3,131.40 4,007.71 5,699.86 7,513.66
securities
Loan and advance to 379.05 550.36 761.89 976.36 1,562.93
staff
Others - - - - -
Total 51,530.24 77,663.56 101,775.2 113,528.89 111,554.83
3
(Source: Annual Reports of MBL from F/Y 2016/17 to 2020/21)
The table 4.1 presents that the total income from Rs. 51530.24 in F/Y 2016/17, Rs.
77663.56 in F/Y 2017/18, Rs. 101775.23 in F/Y 2018/19, Rs.113528.89 in F/Y
2019/20 and Rs.111554.83 lakhs in F/Y 2020/21. The table 4.1 shows that the main
source of income is Loan and advance to customers and Investment securities.
Figure 4. 1: Total Interest Income
Total Interest Income

120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21
Total Interest Income
The figure 4.1 presents that the income from interest increases in first four
year and decrease in final year i.e., 2020/21 by 1.73% in comparison to previous year.
4.1.2 Income from commission and Discount
It is another source of income generation. All commission’s income is booked

at the time of transaction. Whatever charge or commission has to take for service
59
rendered, customer has to debit at the time of transaction. Commission is received on

LC, remittance, annual fees on cards, etc.
Table 4. 2: Sector wise Income form Commission and Discount

(In Lakhs)
Particular 2016/17 2017/18 2018/19 2019/20 2020/21

Loan administration
fees 1,773 1,807 1,968 2,300 2,937
Service fees 525 636 911 1,007 1,499
Consortium fees - 42 501 454 558
Commitment fees 213 261 230 48 26
DD/TT/Swift fees 104 124 175 175 192
Credit card/ATM
issuance and Renewal
fees 506 545 786 747 1,089
Prepayment and swap
fees 28 16 914 1,223 704
Investment banking
fees - 13 19 24 70
Asset management fees - - - - -
Brokerage fees - - - - -
Remittance fees 261 320 396 479 452
Commission on letter of
credit 292 397 415 814 967
Commission on
guarantee Contracts
issued 302 437 965 1,346 1,973
Commission on share
Underwriting/issue - - - - -
Locker rental 44 53 77 122 96
Other fees and
commission income 459 260 548 736 865
Total fees and
Commission Income 4,508 4,911 7,905 9,475 11,429
60
The table 4.2 shows the income from commission and discount. According to table
the total income from commission and discount are Rs. 4,508, Rs.4911, Rs.7905,
Rs.9475 and Rs.11429 million in F/Y 2016/17, F/Y 2017/18, F/Y 2018/19, F/Y
2019/20 and F/Y 2020/21 respectively. Income from loan administration fee and
commission on guarantee contracts issued was increasing rapidly through out the
study period whereas there are variations on other income source.
Figure 4. 2: Income from Commission and discount
Income form commission and discount

14000
12000
10000
8000
6000
4000
2000
0
2016/17 2017/18 2018/19 2019/20 2020/21
Income form commission and discount
The figure 4.2 shows the income from commission and discount. According to
table and figure the total income from commission and discount are Rs. 4,508,
Rs.4911, Rs.7905, Rs.9475 and Rs.11429 million in F/Y 2016/17, F/Y 2017/18, F/Y
2018/19, F/Y 2019/20 and F/Y 2020/21 respectively. The income form
commission and discount increase rapidly throughout the five years. It is
increased by 20.62% compare to previous year.
4.1.3 Other Operating Income
Bank charge various service charges for providing services. It is also another
source of income such service can be renewable charges, vault and safe charge,
stop payments, Remittance etc. These amounts are little but help in bank’s income.
The following table shows the sundry income of MBL.
61
Table 4. 3: Other Operating Income
Particular 2016/17 2017/1 2018/19 2019/20 2020/21

8
Foreign exchange revaluation 19.48 57.45 228.39 560.62 385.09
gain
Gain/loss on sale of 9.39 - - - 1,083.37
investment securities
Fair value gain/loss on - - - -
investment properties -
Dividend on equity 14.75 17.63 32.07 -
instruments -
Gain/loss on sale of property (7.42) 14.30 20.92 44.81 356.68
and equipment
Gain/loss on sale of 936.51 0.01 - (8.35) (2.85)
investment property
Operating lease income - - - 104.22 141.57
Gain/loss on sale of gold and - - - - -
silver
Locker rent - - - - -
Other - 0.96 - - -
Total 972.71 90.34 281.39 701.29 1,963.87
The table 4.3 depicts the income from other operating income. According to table the
total income from operating income is Rs. 972.71 lakh in F/Y 2016/17 then it
slowly decreases to Rs. 90.34 Lakh in F/Y 2017/18. Similarly, it is Rs.281.39
Lakh in F/Y 2018/19. After that it also increases to 701.29 Lakh in, 2019/20 and in
final year i.e., F/Y2020/21, it increases to 193.87. It indicates that it is increasing
trend in final year.
62
Figure 4. 3: Other Operating Income
Other Operating Income

2500
2000
1500
1000
500
0
2016/17 2017/18 2018/19 2019/20 2020/21
Other Operating Income
The figure 4.3 depicts the income from other operating income. According to figure
the total income from operating income is Rs. 972.71 lakh in F/Y 2016/17 then it
slowly decreases to Rs. 90.34 Lakh in F/Y 2017/18. Similarly, it is Rs.281.39
Lakh in F/Y 2018/19. After that it also increases to 701.29 Lakh in, 2019/20 and in
final year i.e., F/Y2020/21, it increases to 193.87. It indicates that it is increasing
trend in final year.
4.1.4 Non-Operating Income
It is the income generated form non-operating activities of Bank. The following table
shows the non-Operating income of the company.
Table 4. 4: Non-Operating Income
(In Lakhs)
Particular 2016/17 2017/18 2018/19 2019/20 2020/21
Recovery of loan written 179.33 31.20 1,210.5 80.69 97.74
off 2
Other Income - - - -
63
8.51
Total 179.33 31.20 1,219.0 80.69 97.74
3
The table 4.4 reveals that non-Operating gain/loss is in fluctuating throughout the
study period. They are 179.33, 31.20, 1219.03, 80.69 and 97.74 Lakhs in F/Y
2016/17, F/Y 2017/18, F/Y 2018/19, F/Y 2019/20 and F/Y 2020/21 respectively.
Figure 4. 4: Non-Operating Income
Non-Operating Income
1400
1200
1000
800
600
400
200
0
2016/17 2017/18 2018/19 2019/20 2020/21
Non-Operating Income
The figure 4.4 reveals that non-Operating gain/loss is in fluctuating

throughout the study period. The Non-Operating Income raised to 1219.03 lakhs in
year 2018/19 and remain lower on other years.
4.2 Analysis of source of expense
4.2.1 Interest Expense
Bank not only makes income on various heads but also have to expense on it.
Such expenses can be personnel expenses, office expenses, interest etc. As bank
take interest on loan and overdrafts in same way it has to pay interest on deposits.
Such interest can be different according to nature of deposits.
Table 4. 5: Interest Expense
(In Lakhs)
Particular 2016/17 2017/18 2018/19 2019/20 2020/21
64
Due to bank and - - 2918.913 5918.667 738.2017

financial institutions
Due to Nepal Rastra 398.7355 197.4971 369.656 265.6501 348.0518
Bank
Deposits from 27462.96 49878.11 62253.11 65195.17 62881.25
customers
Borrowing 48.66109 189.9551 735.9905 822.4905 992.4654
Debt securities issued - - - 2707.923 3079.936
Subordinated - - - - -
liabilities
Other - - - - -
Total interest 27910.35 50265.57 66277.67 74909.9 68039.9
expense
The table 4.5 describes the total interest expenses of Bank MBL. In the F/Y 2016/17,
it is Rs. 27910.35, in F/Y 2017/18, it increases to Rs. 50265.57. After that it Increases
to Rs.66277.67 in the F/Y 2018/19 and in F/Y 2019/20 it is Rs. 74909.9. Then it
slowly decreases in F/Y 2020/21 i.e., Rs. 68039.9 Lakhs. Interest expenses play vital
role in profit hence it need proper planning to manage profit each year. It indicates
that the trend of interest expenses is in fluctuating trend. Bank has issued debt
securities in the fiscal year 2019/20 and 2020/21. Borrowing and deposit from
customers are the main source of interest expenses.
Figure 4. 5: Interest Expense

65
Interest Expense
80000
70000
60000
50000
40000
30000
20000
10000
0
2016/17 2017/18 2018/19 2019/20 2020/21
Interest Expense
The figure 4.5 describes the total interest expenses of Bank MBL. In the F/Y
2016/17, it is Rs. 27910.35, in F/Y 2017/18, it increases to Rs. 50265.57. After that it
Increases to Rs.66277.67 in the F/Y 2018/19 and in F/Y 2019/20 it is Rs. 74909.9.
Then it slowly decreases in F/Y 2020/21 i.e., Rs. 68039.9. The interest expenses are
increasing trend in first four year and decreased in final year.
4.2.2 Personnel Expenses
Personnel expenses are that for employees of the office. Without employee’s
work cannot be done. These expenses are regarded as fixed cost such as salary,
allowance, uniform, medical and insurance etc.
Table 4. 6: Personnel Expenses
(In Lakhs)
Particular 2016/17 2017/1 2018/19 2019/20 2020/21

8
Salary 2,105.74 2,607.61 3,158.54 3,924.83 4,863.7
1
Allowances 962.65 1,275.86 2,858.25 3,777.33 3,594.2
1
Gratuity expense 275.88 303.60 356.22 350.46 580.35
Provident fund 210.52 260.68 315.86 385.68 486.36
Uniform 106.92 128.79 163.97 102.53 291.23
Training and development 67.51 196.06 267.45 189.12 72.96
66
expense
Leave encashment 500.31 837.71 808.27 1,122.50 1,198.8
6
Medical - - - - -
Insurance 30.97 21.22 23.43 58.29 82.26
Employee’s incentive - - - - -
Cash-settled share-based - - - - -
payments
Pension expense - - - - -
Finance expense under 79.08 123.26 10.54 668.09 1,264.0
NFRS 4
Other expenses related to 738.09 98.59 1,444.30 2,382.48 2,727.3
staff 8
a. Dashain allowance 247.99 293.63 474.67 615.43 696.15
b. Others 490.09 686.96 969.63 1,767.05 2,031.2
3
Subtotal 5,077.69 6,735.3 9,606.82 12,961.3 15,161.
3
Employee’s bonus 1,860.35 2,011. 2,696.99 2,067.80 2,533.7
1 1
Grand total 6,938.04 8,746. 12,303.8 15,029.10 17,695.0
4 1 8
The table 4.6 describe the total personnel expenses are 6,938.04, 8,746.40,
12,303.81, 15,029.10 and 17,695.08 million in in F/Y 2016/17, F/Y 2017/18, F/Y
2018/19, F/Y 2019/20 and F/Y 2020/21 respectively. It shows how much amount
spending on employee salary, allowance, PF, training, etc. Salary and Allowances
expenses increases rapidly through out the study period.
Figure 4. 6: Personnel Expenses
67
Personnel Expenses
25000
20000
15000
10000
5000
0
2016/17 2017/18 2018/19 2019/20 2020/21
Personnel Expenses
The figure 4.6 highlights that the staff expenses are in increasing trend of
MBL. The total personnel expenses are 6,938.04, 8,746.40, 12,303.81, 15,029.10 and
17,695.08 million in in F/Y 2016/17, F/Y 2017/18, F/Y 2018/19, F/Y 2019/20 and
F/Y 2020/21 respectively.
4.2.3 Administrative Expenses
Bank purchase various goods and materials for daily operation and providing
services to the customers. It is also another source of expenses such expenses can be
rent, repair and maintenance, office equipment, stationary, advertisement Etc. The
following table shows the sundry expenses of MBL.
Table 4. 7: Other Operating Expenses
(In Lakhs)
Year Amount Amount

2020/21 890,785,804 8,908
2019/20 888,437,218 8,884
2018/19 723,550,216 7,236
2017/18 419,489,928 4,195
2016/17 472,474,573 4,725
The table 4.7 represents those Operating expenses are Rs. 4725, 4195, 7236, 8884
and 8908 Lakhs for the F/Y 2016/17, F/Y 2017/18, F/Y 2018/19, F/Y 2019/20 and
F/Y 2020/21 respectively.
68
Figure 4. 7:Admin. Expenses
Other Operating Expenses

10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2016/17 2017/18 2018/19 2019/20 2020/21
Other Operating Expenses
The figure 4.7 represents those Other Operating expenses is in increasing.

Other operating expenses decreases in F/Y 2017/18 and again started to increase in
next following years.
Table 4. 8: Net Profit and Operating Profit
Rs In Lakhs
Year Operating Profit Amount
2016/17 17,772.85 12,568.90
2017/18 18,082.58 12,496.88
2018/19 24,002.82 16,970.88
2019/20 19,204.74 12,651.51
2020/21 24,695.33 16,074.73
(Source: Appendix- I)
The table 4.8 shows net profit of the bank are Rs. 12568.90, 12496.88, 16970.88,
12651.51 and 16074.73 million for the F/Y 2016/17, F/Y 2017/18, F/Y 2018/19, F/Y
2019/20 and F/Y 2020/21 respectively. Similarly, the operating profit of the bank are
also increasing trend they are Rs. 17,772.85, Rs.18,082.58, Rs. 24,002.82,
Rs.19,204.74 and Rs.24,695.33 million for the year F/Y 2016/17, F/Y 2017/18, F/Y
2018/19, F/Y 2019/20 and F/Y 2020/21 respectively.
Figure 4. 8: Operating Profit and Net Profit

69
Net Profit and Operating Profit

30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21
Operating Profit Net Profit
The figure 4.8 shows net profit of the bank are Rs. 12568.90, 12496.88,
16970.88, 12651.51 and 16074.73 million for the F/Y 2016/17, F/Y 2017/18, F/Y
2018/19, F/Y 2019/20 and F/Y 2020/21 respectively. Similarly, the operating profit of
the bank are also increasing trend they are Rs. 17,772.85, Rs.18,082.58, Rs.
24,002.82, Rs.19,204.74 and Rs.24,695.33 million for the year F/Y 2016/17, F/Y
2017/18, F/Y 2018/19, F/Y 2019/20 and F/Y 2020/21 respectively. Operating and
Net profit are in increasing trend throughout the study period except the F/Y
2019/20.
Table 4. 9: Fixed cost and Variable cost
Year Fixed Cost Variable Cost

2016/17 8,532.46 31,002.14
2017/18 10,679.74 54,042.94
2018/19 15,127.26 72,693.34
2019/20 18,766.91 82,675.80
2020/21 21,882.76 75,972.51
(Source: Appendix-I)
The table 4.9 shows that the fixed cost is 8532.46, 10679.74, 15127.26, 18766.91
and 21822.76 for F/Y 2016/17, 2017/18, 2018/19, 2019/20 and 2020/21. The variable
cost is 31002.14, 54042.94, 72693.34, 82675.80 and 75972.51 for F/Y 2016/17,
2017/18, 2018/19, 2019/20 and 2020/21.
Figure 4. 9: Fixed cost and Variable cost

70
Fixed and Variable cost

90,000.00
80,000.00
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21
Fixed Cost Variable cost
The figure 4.9 shows that the fixed cost is increasing trend over the study
period and variable cost is also increasing trend except final year. The fixed cost is
8532.46, 10679.74, 15127.26, 18766.91 and 21822.76 for F/Y 2016/17, 2017/18,
2018/19, 2019/20 and 2020/21. The variable cost is 31002.14, 54042.94, 72693.34,
82675.80 and 75972.51 for F/Y 2016/17, 2017/18, 2018/19, 2019/20 and 2020/21.
4.3 Cost Volume Profit Analysis
The cost-volume-profit analysis, also commonly known as breakeven analysis,
looks to determine the breakeven point for different sales volumes and cost structures,
which can be useful for managers making short-term business decisions. CVP
analysis makes several assumptions, including that the sales price, fixed and variable
costs per unit are constant. Running a CVP analysis involves using several equations
for price, cost, and other variables, which it then plots out on an economic graph.
The CVP formula can also calculate the breakeven point. The breakeven point
is the number of units that need to be sold or the amount of sales revenue that has to
be generated in order to cover the costs required to make the product.
4.3.1 Variable Cost Ratio
The variable cost ratio is a cost accounting tool used to express a company's
variable production costs as a percentage of its net sales. The ratio is calculated by
dividing the variable costs by the net revenues of the company.
Table 4. 10: Variable cost Ratio
71
Rs in Lakhs
Year Income Variable cost VC Ratio (%) % Of change
2016/17 58324.45 31002.14 53.15 0
2017/18 84332.62 54042.94 64.08 10.93
2018/19 112995.1 72693.34 64.33 0.25
2019/20 126526.7 82675.8 65.34 1.01
2020/21 127528.6 75972.51 59.57 (5.77)
The table 4.10 shows that VC are 31002.14, 54042.94, 72693.34, 82675.8, 75972.51
for F/Y 2016/17, 2017/18, 2018/19, 2019/20 and 2020/21 respectively and Variable
cost ratio is 53.15, 64.08, 64.33, 65.34, 59.57 for F/Y 2016/17, 2017/18, 2018/19,
2019/20 and 2020/21 respectively. The percentage of change in variable cost is
negative in fiscal year 2020/21.
Figure 4. 10:Variable cost Ratio
Variable cost ratio

70
60
50
40
30
20
10
0
2016/17 2017/18 2018/19 2019/20 2020/21
Variable cost ratio
The figure 4.10 shows that the cost volume ratio is in Fluctuating trend. The
highest VC ratio is 65.33% in fiscal year 2019/20and the lowest ratio is 53.15% in
F/Y 2016/17. The variable cost is in increasing trend throughout the year but
decreased in final year i.e., 2020/21.
4.3.2 Contribution Margin Analysis

72
Contribution margin shows you the aggregate amount of revenue available

after variable costs to cover fixed expenses and provide profit to the company Knight
(2002). You might think of this as the portion of sales that helps to offset fixed costs.
Table 4. 11: Contribution Margin

Rs in Lakhs
Year Income Variable cost CM % Of change

2016/17 58,324.45 31,002.14 27,322.31 -
2017/18 84,332.62 54,042.94 30,289.68 10.86
2018/19 112,995.13 72,693.34 40,301.79 33.05
2019/20 126,526.69 82,675.80 43,850.90 8.81
2020/21 127,528.59 75,972.51 51,556.08 17.57
The table 4.11 exhibits that the highest CM is 27322.31,30289.68, 40301.79,
43850.90 51,556.08 for the fiscal year 2016/17, 2017/18, 2018/19, 2019/20 and
2020/21. The highest percentage change in contribution margin is 33.05 in fiscal year
2018/19 and lowest is 8.81 in fiscal year 2019/20.
Figure 4. 11: Contribution Margin
Contribution Margin
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21
Contribution Margin
The figure 4.11 exhibits that the contribution margin is in increasing throughout the
study period. The highest CM is 51,556.08 lakh in F/Y 2020/21 and the lowest CM is
27322.31 lakh in F/Y 2016/17.
4.3.3 Contribution Margin Ratio Analysis
73
C/M Ratio is also known as PV Ratio. The full form is Profit Volume Ratio. It
is important tool in studying profitability index. It can be obtained as follows.
Table 4. 12: Contribution margin ratio analysis
Year Income CM CM ratio (%) % Of change

2016/17 58,324.45 27,322.31 46.85 -
2017/18 84,332.62 30,289.68 35.92 (10.93)
2018/19 112,995.13 40,301.79 35.67 (0.25)
2019/20 126,526.69 43,850.90 34.66 (1.01)
2020/21 127,528.59 51,556.08 40.43 5.77
The table 4.12 ensures that the Contribution margin ratio are 46.85%, 35.92%,
35.67%, 34.66% and 40.43% for Fiscal year 2016/17, 2017/18, 2018/19, 2019/20 and
2020/21 respectively. The highest percentage change in contribution margin ratio is
5.77 in fiscal year 2020/21 and lowest is (10.93) in fiscal year 2017/18.
Figure 4. 12: Contribution Margin Ratio Analysis
Contribution Margin ratio

50
45
40
35
30
25
20
15
10
5
0
2016/17 2017/18 2018/19 2019/20 2020/21
Contribution Margin ratio
The figure 4.12 ensures that CM ratio or PV ratio is in decreasing trend

initially and again started increasing trend in final year. The highest P/V ratio is
46.85% in F/Y 2016/17 and lowest is 34.66% in F/Y 2019/20.
4.4 Break-even Point (BEP)
74
The break-even point is the point at which total cost and total revenue are
equal, meaning there is no loss or gain for your small business. In other words, you've
reached the level of production at which the costs of production equal the revenues for
a product.
i.e., BEP = No Profit No Loss. BEP can be computed as BEP (U) = TFC/ SPPU-
VCPU
BEP (Rs) = TFC/PV Ratio or TFC/1- VC/SR
Table 4. 13: BEP Income
(In Lakhs)
Year Total fixed CM ratio PV ratio BEP % Change
cost (%) (1-CM) Income
2016/17 8,532.46 46.85 0.53 16,052.14 -
2017/18 10,679.74 35.92 0.64 16,665.47 3.82
2018/19 15,127.26 35.67 0.64 23,513.93 41.09
2019/20 18,766.91 34.66 0.65 28,720.80 22.14
2020/21 21,882.76 40.43 0.60 36,732.73 27.90
The table 4.13 reveals that the highest BEP is 36732.73 in F/Y 2020/21 and the
lowest BEP is 16,052.14 in F/Y 2016/17. The BEP Income is 16052.14, 16665.47,
23513.93, 28720.80 and 36732.73 for fiscal year 2016/17, 2017/18, 2018/19, 2019/20
and 2020/21. The highest percentage change in BEP income is 27.90 in fiscal year
2020/21 and lowest is 3.82 in fiscal year 2017/18.
Figure 4. 13: BEP Income
BEP Income
40,000.00
35,000.00
30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21
BEP Income
75
The figure 4.13 reveals that the BEP is in increasing trend throughout the
study period. The highest BEP is 36732.73 in F/Y 2020/21 and the lowest BEP is
16,052.14 in F/Y 2016/17.
Table 4. 14: BEP ratio
(In Lakhs)
Year Income BEP Income BE Ratio % Change

2016/17 58,324.45 16,052.14 27.52 -
2017/18 84,332.62 16,665.47 19.76 (7.76)
2018/19 112,995.13 23,513.93 20.81 1.05
2019/20 126,526.69 28,720.80 22.70 1.89
2020/21 127,528.59 36,732.73 28.80 6.10
The table 4.14 shows that the BEP ratio is 27.52%, 19.76%, 20.81%, 22.70%, 28.80%
for fiscal year 2016/17, 2017/18, 2018/19, 2019/20 and 2020/21. BEP income is
16052.14, 1665.47, 23513.93, 28720.82, 36732.73 lakhs for fiscal year 2016/17,
2017/18, 2018/19, 2019/20 and 2020/21 respectively. The highest percentage change
in Break event point ratio is 6.10 in fiscal year 2020/21 and lowest is (7.76) in fiscal
year 2017/18.
Figure 4. 14 : BEP Ratio
BEP ratio
35
30
25
20
15
10
5
0
2016/17 2017/18 2018/19 2019/20 2020/21
BEP ration
The figure 4.14 depicts that the BE Ratio is in increasing trend except the F/Y
2017/18. The highest BE ratio is 28.80% in F/Y 2020/21 and the lowest BE ratio is
76
19.76% in F/Y 2017/18. The BEP income decreases in 2017/18 and again started to
increase on rest of the fiscal year
4.5 Margin of Safety (MOS)
Margin of safety is a principle of investing in which an investor only
purchases securities when their market price is significantly below their intrinsic
value. In other words, when the market price of a security is significantly below your
estimation of its intrinsic value, the difference is the margin of safety. Because
investors may set a margin of safety in accordance with their own risk preferences,
buying securities when this difference is present allows an investment to be made
with minimal downside risk.
MOS = Actual Income - B.E. Income
MOS
MOS ratio =
Income
Table 4. 15: Margin of safety
(In Lakhs)
Year Income BEP Income MOS MOS Ratio (%)
2016/17 58,324.45 16,052.14 42,272.30 72.48
2017/18 84,332.62 16,665.47 67,667.15 80.24
2018/19 112,995.13 23,513.93 89,481.19 79.19
2019/20 126,526.69 28,720.80 97,805.89 77.30
2020/21 127,528.59 36,732.73 90,795.86 71.20
The table 4.15 shows that the margins of safety Rs 42272.30, 67667.15, 89481.19,
97805.89, 90795.86 Lakhs for the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y
2020/21 respectively. The highest percentage change in Break event point ratio is
80.24 in fiscal year 2017/18 and lowest is 71.20 in fiscal year 2020/21.
77
Figure 4. 15: Margin of safety
Margin of safety
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21
Margin of safety
The figure 4.15 deals that the margins of safety are in increasing in first four
year and decrease in final year. They are Rs42272.30, 67667.15, 89481.19, 97805.89,
90795.86 Lakhs for the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21
respectively.
4.6 Profitability analysis of MBL
When a company is incepted, one of the sole purposes of it is to make profits.
Basically, to earn more than you spend is what every business owner wants for his
company. Thus, to assess the growth of your business, careful study on profit is
important, and that is pretty obvious. However, the nuances that secretly lie under
various financial statements, will give you the real picture of your company’s profits.
Analyzing of the profits which is basically the money remaining from the
capital after subtracting all the overhead costs, will help you keep a track of your
business’ performance. Profitability analysis allows companies to maximize their
profit. Thus, resulting in maximizing the opportunities that business can take
advantage of, in order to continue growing in an extremely dynamic, competitive, and
vibrant market. Profitability analysis helps businesses identify growth opportunities,
fast/slow-moving stock items, market trends, etc., ultimately helping decision-makers
see a more concrete picture of the company as a whole.
4.6.1 Net Profit Margin Analysis (NPRM)

78
The net profit margin, or simply net margin, measures how much net income
or profit is generated as a percentage of revenue. It is the ratio of net profits to
revenues for a company or business segment. Net profit margin is typically expressed
as a percentage but can also be represented in decimal form.
Table 4. 16: Net Profit Margin Ratio

(In Lakhs)
Year Income Net Profit Ratio (%)
2016/17 58,324.45 12,568.90 21.55
2017/18 84,332.62 12,496.88 14.82

2018/19 112,995.13 16,970.88 15.02
2019/20 126,526.69 12,651.51 10.00
2020/21 127,528.59 16,074.73 12.60
Mean 14.82
S.D. 3.84
C.V. 26%
(Source: Appendix II)
The table 4.16 disclose that the ratio of net profit margin ratio of MBL are 21.55%,
14.82%, 15.02%, 10% and 12.60% in the year 2016/17, 2017/18, 2018/19, 2019/20
and F/Y 2020/21 respectively. The average net profit margin of MBL is 14.80% and
standard deviation and the coefficient of variations are 3.84% and 26% percent
respectively.
Figure 4. 16: Net profit Margin Ratio

79
NPMR
25
20
15
10
0
2016/17 2017/18 2018/19 2019/20 2020/21
NPMR
The figure 4.16 disclose that the ratio of net profit margin ratio of MBL are
21.55%, 14.82%, 15.02%, 10% and 12.60% in the year 2016/17, 2017/18, 2018/19,
2019/20 and F/Y 2020/21 respectively. This ratio is in fluctuating trend over the
study period. The average net profit margin of MBL is 14.80% and standard
deviation and the coefficient of variations are 3.84% and 26% percent
respectively.
4.6.2 Return on total assets
Return on total assets ratio shows the ratio between NP and TA of the bank.
TA includes fixed assets, cash balance, loan and bill purchase, etc. TA can be
obtaining from balance sheet of the company. Higher NP to TA ratio shows the better
performance of the bank.
Table 4. 17: Return on total assets ratio
(In Lakhs)
Year Total Assets Net Profit Ratio
2016/17 691,275.50 12,568.90 1.82
2017/18 847,876.48 12,496.88 1.47
2018/19 1,052,460.46 16,970.88 1.61
2019/20 1,245,195.69 12,651.51 1.02
2020/21 1,582,135.48 16,074.73 1.02
Mean 1.39
S.D. 0.32
80
C.V. 23%
The table 4.17 shows that the ratio of ROA of MBL are 2.11%, 1.47%, 1 . 6 1 %,
1.02% and 1.02% in the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21
respectively. Standard deviation and the coefficient of variations are 0.32 and 23%
percent respectively.
Figure 4. 17:Return on total assets ratio
Return on total assets ratio

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2016/17 2017/18 2018/19 2019/20 2020/21
Return on total assets ratio
The figure 4.17 shows that the ratio of ROA of MBL are 2.11%, 1.47%,
1 . 6 1 %, 1.02% and 1.02% in the year 2016/17, 2017/18, 2018/19, 2019/20 and
F/Y 2020/21 respectively. The above figure shows that return on total assets is in
decreasing trend over the period of study.
4.6.3 Return on Equity (ROE)

Return on equity (ROE) is a measure of financial performance calculated by
dividing net income by shareholders' equity. Because shareholders' equity is equal to a
company's assets minus its debt, ROE is considered the return on net assets.
81
Table 4. 18: Return on Equity ratio

(In Lakhs)
Year Total Equity Net Profit Ratio
2016/17 92,102.06 12,568.90 13.65
2017/18 103,568.72 12,496.88 12.07
2018/19 112,368.72 16,970.88 15.10
2019/20 115,847.03 12,651.51 10.92
2020/21 128,641.32 16,074.73 12.50
Mean 12.85
S.D. 1.43
C.V. 11%
The table 4.18 point out that the ratio of ROE of MBL are 13.65%, 12.07%, 15.10%,
10.92% and 12.50% in the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21
respectively. The average return on equity of MBL is 13% and standard deviation
and the coefficient of variations are 1.43 and 11% percent respectively.
Figure 4. 18: Return on Equity
ROE
16
14
12
10
8
6
4
2
0
2016/17 2017/18 2018/19 2019/20 2020/21
ROE
The figure 4.18 point out that the ratio of ROE of MBL are 13.65%, 12.07%,
15.10%, 10.92% and 12.50% in the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y
2020/21 respectively. Return on equity is on fluctuating trend over the period of
study.
82
4.6.4 Operating Efficiency Ratio

The operational efficiency ratio shows how efficient your business is at
minimizing costs while generating income. It shows the impact of your management
by comparing the total expenses incurred with the net sales or revenue.
Table 4. 19: Operating Efficiency Ratio
(In Lakhs)
Year Operating Income Operating expense Ratio
2016/17 57,307.45 39,534.59 68.99
2017/18 82,805.26 64,722.68 78.16
2018/19 111,823.42 87,820.60 78.54
2019/20 120,647.45 101,442.71 84.08
2020/21 122,550.60 97,855.27 79.85
Mean 77.92
S.D. 4.93
C.V. 6%
(Source: Annexure II)
The table 4.19 shows that the operating efficiency ratio of MBL are 68.99%,
78.16%, 78.54%, 84.08% and 79.85% in the year 2016/17, 2017/18, 2018/19,
2019/20 and F/Y 2020/21 respectively. The average Operating efficiency of MBL is
77.92% and standard deviation and the coefficient of variations are 4.93 and 6%
percent respectively.
Figure 4. 19: Operating Efficiency Ratio
operating efficency ratio

90
80
70
60
50
40
30
20
10
0
2016/17 2017/18 2018/19 2019/20 2020/21
operating efficency ratio
The figure 4.19 shows that the operating efficiency ratio of MBL are
83
68.99%, 78.16%, 78.54%, 84.08% and 79.85% in the year 2016/17, 2017/18,
2018/19, 2019/20 and F/Y 2020/21 respectively. The figure shows that operating
efficiency ratio is increasing trend in the first four year and decrease in final year of
study period.
4.7 Correlation Analysis
To find out the correlation between two continuous variables, Karl Pearson’s
co-efficient of correlation (r) is used. One of the very convenient and useful way of
interpreting the value of coefficient of correlation (r) between the two variables is
coefficient of determination, which is denoted by r². It explains the total variation in
dependent variable is explained by independent variable. The significance of
coefficient of correlation (r) is tested with the help of ‘t’ test. If calculated ‘t’ is less
than or equal to tabulated value of ‘t’ it falls in the accepted region and null
hypothesis is accepted or ‘r’ is not significant, if calculated ‘t’ is greater than
tabulated ‘t’ null hypothesis is rejected or ‘r’ is significant of correlation in the
population.
4.7.1 Correlation between Total cost and profit
Coefficient of correlation measures the degree of relationship between two

variables, Total Cost (TC) and Profit (P). TC is independent variable (X1) and P is
dependent variable (X2). The purpose of computing is to find out the relationship
between TC and P is going to same direction or opposite direction.
Table 4. 20: Relationship between Total cost and profit
Factor Value
Correlation (r) 0.519
Coefficient of Determination (r2) 0.2693
Calculated t – value 1.051
Tabulated t – value 2.201
Remarks Significant
(Source: Appendix III)
The table 4.19 explains the relationship between total cost and net profit
during the period of study. The MBL coefficient of correlation (r) between total
cost and net profit is 0.519. This figure shows the positive association between
total cost and net profit. It means total cost and net profit both move towards same
84
direction. The coefficient of determination (r2) is 0.2693. It shows that 26.93% of

the variation in the dependent variable (i.e., net profit) is explained by the
independent variable (i.e., total cost). The calculated value of ‘t’ is less than the
tabulated value of ‘t’ (i.e., 1.051 < 2.201) therefore true value of ‘r’ is in
significant. It reveals that there is significant relationship between the total cost and
net profit.
4.7.2 Correlation between Income and Profit
Coefficient of correlation measures the degree of relationship between two

variables, Income and Profit. income’s independent variable (x) and Profit is
dependent variable (y). The purpose of computing is to find out the relationship
between Income and Profit is going to same direction or opposite direction.
Table 4. 21: Relationship between Income and Profit
Factor Value
Correlation 0.5738
Coefficient of Determination 0.3292
Calculated t – value 1.21
Tabulated t – value 2.201
Remarks significant
(Source: Appendix IV)
The table 4.20 presents that the coefficient of correlation (r) between operating
income and net profit 0.5738. This figure shows the positive association between
income and net profit. It means total cost and net profit both move towards same
direction. The coefficient of determination (r2) is 0.3292. It shows that 32.92% of the
variation in the dependent variable (i.e., net profit) is explained by the independent
variable (i.e., income). The calculated value of ‘t’ is less than the tabulated value
of ‘t’ (i.e., 1.21< 2.201) therefore true value of ‘r’ is significant. It reveals that
there is significant relationship between the income and net profit.
4.8 Trend Analysis
Under this topic, trend analysis of Income and Net Profit of MBL is studied
during the period. The objective of this topic is to forecast the Income and Net Profit
for the next five years. The projections are based on thes e assumptions; The bank
will run in the present style, Nepal Rastra Bank and the Government of Nepal will not
make any amendments in the guidelines for the operation of commercial banks and
85
other all the things also remain constant.
4.8.1 Trend Analysis of Income
Under this topic, an effort has been made to calculate the trend value of
income of MBL under five years study period and project the trend for next five
years. The following table describes the trend values of income of MBL for five
years.
Table 4. 22: Trend Value of Income
a b 2016/17 2017/18 2018/19 2019/20 2020/21

99,026.83 16,832.85 149525.38 166358.23 183191.08 200023.93 216856.785
(Source: Appendix V)
Figure 4. 20: Trend Line of Income
Trend Line of Income

250,000.00
216,856.79
200,023.93
200,000.00 183,191.08
166,358.23
149,525.38
150,000.00
100,000.00
50,000.00
-
2016/17 2017/18 2018/19 2019/20 2020/21
Trend Line of Income
The table 4.21 and figure 4.20 reveals that the trend of income which shows
that the bank has consistent income throughout the study period. Since, the
calculated value of ‘b’ is positive, it means that income is increasing with time. If
other things remaining the same, MBL in the year 2020/21, income is Rs.
216856.785 Lakh and it will increase by Rs. 16,832.85 lakh in every year.
4.8.2 Trend analysis of Net profit
Net profit is the major objectives of any business. It attracts to invest more
86
in the industry. I encourage entrepreneur to introduce new technology, new product. It

also shows the competence of management to operate in the given business
environment. It also shows the health of the firm or company. Trend analysis is
conducted to predict future net profit.
Under this topic, an effort has been made to calculate the trend value of net
profit of MBL under five years study period and project the trend for next five
years. The following table describes the trend values of net profit of MBL for five
years.
Table 4. 23: Trend value of Net profit
a b 2016/17 2017/18 2018/19 2019/20 2020/21

14152.42 716.62 16302.28 17018.9 17735.52 18452.14 19168.76
(Source: Appendix VI)

Figure 4. 21: Trend Line of Net Profit
Trend line of net profit

19500 19168.76
19000
18452.14
18500
18000 17735.52
17500
17018.9
17000
16500 16302.28
16000
15500
15000
14500
2016/17 2017/18 2018/19 2019/20 2020/21
Trend line of net profit
The table 4.22 and figure 4.21 indicates that the trend of Net profit which
shows that the bank has consistent net profit throughout the study period. Since, the
calculated value of ‘b’ is positive, it means that the bank net profit is increasing
with time. If other things remaining the same, the trend of MBL in the year
87
2020/21 net profit is Rs. 19168.76 lakh and it will increase by Rs. 716.62 lakh
every year.
4.8.3 Trend analysis of Total cost

There are three types of costs from their nature of variability. They are:
variable costs, fixed cost and semi variable cost. Under this topic, an effort has been
made to calculate the trend value of total cost of MBL under five years study period
and project the trend for next five years. The following table describes the trend
values of total cost of MBL for five years.
Table 4. 24: Trend line of total cost
a b 2016/17 2017/18 2018/19 2019/20 2020/21

84,470.20 15,640.85 131,392.76 147,033.62 162,674.47178,315.32 193,956.18
(Source: Appendix VII)

Figure 4. 22: Trend line of Total cost
Trend line of total cost

250,000.00
200,000.00 193,956.18
178,315.32
162,674.47
147,033.62
150,000.00
131,392.76
100,000.00
50,000.00
-
2016/17 2017/18 2018/19 2019/20 2020/21
Trend line of total cost
The table 4.23 and figure 4.22 explain that the trend of total cost which
shows that the bank has consistent total cost throughout the study period. Since, the
calculated value of ‘b’ is positive, it means that total cost is increasing with time. If
88
other things remaining the same, MBL in the year 2020/21, total cost is
Rs.193,956.18 lakh and it will increase by Rs.15,640.85 lakh in every year.
4.9 Major findings of study

i. The total income from interest Rs. 51530.24 in F/Y 2016/17, Rs. 77663.56 in F/Y
2017/18, Rs. 101775.23 in F/Y 2018/19, Rs.113528.89 in F/Y 2019/20 and
Rs.111554.83 lakhs in F/Y 2020/21. It means the income from interest earn is in
increasing trend.
ii. The total income from commission and discount are Rs. 4,508, Rs.4911,
Rs.7905, Rs.9475 and Rs.11429 million in F/Y 2016/17, F/Y 2017/18, F/Y
2018/19, F/Y 2019/20 and F/Y 2020/21 respectively. It has fluctuating trend
during the five years study period.
iii. The total income from operating income is Rs. 972.71 lakh in F/Y 2016/17 then
it slowly decreases to Rs. 90.34 Lakh in F/Y 2017/18. Similarly, it is
Rs.281.39 Lakh in F/Y 2018/19. After that it also increases to 701.29 Lakh in,
2019/20 and in final year i.e., F/Y2020/21, it increases to 193.87. It indicates that
it is increasing trend.
iv. The total interest expenses are in fluctuating trend. In the F/Y 2016/17, it is Rs.
27910.35, in F/Y 2017/18, it increases to Rs. 50265.57. After that it Increases to
Rs.66277.67 in the F/Y 2018/19 and in F/Y 2019/20 it is Rs. 74909.9. Then it
slowly decreases in F/Y 2020/21 i.e., Rs. 68039.9 Lakhs. Interest expenses play
vital role in profit hence it need proper planning to manage profit each year.
v. The total personnel expenses are 6,938.04, 8,746.40, 12,303.81, 15,029.10 and
17,695.08 million in in F/Y 2016/17, F/Y 2017/18, F/Y 2018/19, F/Y 2019/20 and
F/Y 2020/21 respectively. It shows how much amount spending on employee
salary, allowance, PF, training, etc.
vi. Operating expenses is in increasing trend. The expenses are Rs. 4725, 4195, 7236,
8884 and 8908 Lakhs for the F/Y 2016/17, F/Y 2017/18, F/Y 2018/19, F/Y
2019/20 and F/Y 2020/21 respectively.
vii. The income statement shows that the all variables of income statement like
operating income, variable cost, fixed cost, operating profit, net profit are in
increasing trend. The net profit of the bank are Rs. 12568.90, 12496.88, 16970.88,
89
12651.51 and 16074.73 million for the F/Y 2016/17, F/Y 2017/18, F/Y 2018/19,
F/Y 2019/20 and F/Y 2020/21 respectively. Similarly, the operating profit of the
bank are also increasing trend they are Rs. 17,772.85, Rs.18,082.58, Rs.
24,002.82, Rs.19,204.74 and Rs.24,695.33 million for the year F/Y 2016/17, F/Y
2017/18, F/Y 2018/19, F/Y 2019/20 and F/Y 2020/21 respectively.
viii. The Income, VC and CM of five years study period of MBL. CM and VC
variables are in increasing trend throughout the study period. It shows that the CM
of the F/Y 2016/17, F/Y 2017/18, F/Y 2018/19, F/Y 2019/20 and F/Y 2020/21 are
Rs. 27,322.31, 30,289.68, 40,301.79, 43,850.90 and 51,556.08 lakh respectively.
ix. CM ratio or PV ratio is in fluctuating trend throughout study period of five year.
The highest PV ratio is 46.85% in fiscal year 2016/17 and lowest is 34.66 in fiscal
year 2019/20.
x. MBL’s income revenue is higher than BEP income in every year over the study
period. So, it indicates that CVP position of MBL is very good. It means
MBL is earning profit in each fiscal year over the study period.
xi. The margins of safety are in increasing trend except final year. They are
Rs42272.30, 67667.15, 89481.19, 97805.89, 90795.86 Lakhs for the year
2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21 respectively.
xii. The BE Ratio is in increasing trend except the F/Y 2017/18. The highest BE ratio
is 28.80% in F/Y 2020/21 and the lowest BE ratio is 19.76% in F/Y 2017/18.
Similarly, the margins of safety ratios are in fluctuating trend. The highest ratio is
80.24% in the F/Y 2017/18 and lowest ratio is 72.48% in F/Y 2016/17. However,
the trend of MOS ratio is highest than BE ratio over the study period.
xiii. The ratio of net profit margin ratio of MBL are 21.55%, 14.82%, 15.02%, 10%
and 12.60% in the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21
respectively. This ratio is in fluctuating trend over the study period. The average
net profit margin of MBL is 14.80% and standard deviation and the coefficient
of variations are 3.84% and 26% percent respectively.
xiv. The ratio of ROA of MBL are 2.11%, 1.47%, 1 . 6 1 %, 1.02% and 1.02% in
the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21 respectively.
Standard deviation and the coefficient of variations are 0.32 and 23% percent
respectively.
xv. The ratio of ROE of MBL are 13.65%, 12.07%, 15.10%, 10.92% and 12.50% in
the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21 respectively. The
90
average return on equity of MBL is 13% and standard deviation and the
coefficient of variations are 1.43 and 11% percent respectively.
xvi. The operating efficiency ratio of MBL are 68.99%, 78.16%, 78.54%, 84.08%
and 79.85% in the year 2016/17, 2017/18, 2018/19, 2019/20 and F/Y 2020/21
respectively. The average Operating efficiency of MBL is 77.92% and standard
deviation and the coefficient of variations are 4.93 and 6% percent respectively.
xvii. The MBL coefficient of correlation (r) between total cost and net profit is
0.519. This figure shows the positive association between total cost and net
profit. It means total cost and net profit both move towards same direction. The
coefficient of determination (r2) is 0.2693. It shows that 26.93% of the
variation in the dependent variable (i.e., net profit) is explained by the
independent variable (i.e., total cost). The calculated value of ‘t’ is less than the
tabulated value of ‘t’ (i.e., 1.051 < 2.201) therefore true value of ‘r’ is in
significant. It reveals that there is significant relationship between the total cost
and net profit.
xviii. The coefficient of correlation (r) between operating income and net profit 0.5738.
This figure shows the positive association between income and net profit. It
means total cost and net profit both move towards same direction. The coefficient
of determination (r2) is 0.3292. It shows that 32.92% of the variation in the
dependent variable (i.e., net profit) is explained by the independent variable
(i.e., income). The calculated value of ‘t’ is less than the tabulated value of ‘t’
(i.e., 1.21< 2.201) therefore true value of ‘r’ is significant. It reveals that
there is significant relationship between the income and net profit.
xix. The trend of income which shows that the bank has consistent income throughout
the study period. Since, the calculated value of ‘b’ is positive, it means that
income is increasing with time. If other things remaining the same, MBL in
the year 2020/21, income is Rs. 216856.785 Lakh and it will increase by Rs.
16,832.85 lakh in every year.
xx. The trend of Net profit which shows that the bank has consistent net profit
throughout the study period. Since, the calculated value of ‘b’ is positive, it means
that the bank net profit is increasing with time. If other things remaining the
same, the trend of MBL in the year 2020/21 net profit is Rs. 19168.76 lakh and it
will increase by Rs. 716.62 lakh every year.
91
xxi. The trend of total cost which shows that the bank has consistent total cost
throughout the study period. Since, the calculated value of ‘b’ is positive, it
means that total cost is increasing with time. If other things remaining the
same, MBL in the year 2020/21, total cost is Rs.193,956.18 lakh and it will
increase by Rs.15,640.85 lakh in year.
4.10 Discussion
This chapter is devoted to analyze and presenting results derived from the use of
secondary data. The outcome of this research has provided insight into the profit
planning of Machhapuchchhre bank limited. The trend of net profit shows the bank
has consistent profit throughout the study period and the profit will increase by 716
lakhs every year the trend of revenue shows that the bank has consistently sent
revenue throughout the study period. The study demonstrates a coefficient of
correlation (r) between operating income and net profit of 0.5738 This figure shows
the positive association between income and net profit. The trend of the revenue and
expenses shows that the bank has consistent revenue and expenditure throughout the
study period. Since the calculation value of the slope coefficient(b) is positive, it
means that total revenue and expenditure are increasing with time.
Compared to previous research Pandey (2012) Bank of Kathmandu had fluctuating

Profitability rates over the study period and a negative growth rate. However, in this
research MBL has a stable profitability rate and positive growth rate. Maharjan (2011)
found that the total deposit of the bank is found increase every year corresponding to
the increase in interest expenses the total deposit is perfectly and positively correlated
with total interest expenses. In this research, Maharjan (2011) found that the total
deposit of the bank increased corresponding to the increase in interest expenses. As
mentioned by Karki (2011) in his Journal, The trend analysis conducted in terms of
profit planning received by Nepal clearly showed that the growth rates of profit
planning are increasing day by day. In this research, I have found that the growth rate
of profit planning is increasing simultaneously with the profitability of the bank.
Table 4.25: Results of Hypothesis Testing
Hypothesi Statements Results

s
H0 There is a negative relationship between Reject
92
Sales and Profit.

H1 If the loan portfolio is increased, then Accept
Profit of MBL will improve.
CHAPTER V
SUMMARY, CONCLUSION AND IMPLICATION
This is the final chapter of this thesis, which has been divided into summary,
conclusions and recommendations. In this chapter, we examine the processed data to
come into new concluding upon the profit planning of MBL. It also aims to give
forth some suggestion that must be helpful for further enhancement of the operation
of MBL.
5.1 Summary
The economic development of a country depends upon the development of
commerce and industry. And, there is no any doubt; banking promotes the
development of commerce because banking itself is the part of commerce. The
process of economic development depends upon various factors; however, economists
are now convinced that capital formation and its proper utilization plays a paramount
role for rapid economic development.
Every business organization set up with certain objective of providing services
to people and earns profit as income whether that is productive or nonproductive.
But it is not a joke to fulfill that objective easily in this competitive world of
business. As globalization take place it became tougher to sustain in market. So, they
not only just try and see the result also do hard work and provide many
facilities to secure from loss. Hence, they need to think about future course of
action in such a way so that they can accomplish their business objectives. In order to
make profit it is necessary to check business capacity, activities, utilization of
resources and if there is any part to reduce cast because little reduction in expenses a
make profit in income. Hence, profit planning tools helps to assist in analyzing the
situation. Therefore, proper planning and controlling is important to survive and lead
the company successfully. Organization cannot achieve its goal without proper
planning and implementation. People invest huge amount of money in the business to
earn profit.
PPC means the development of objectives, which motivates the
organization to achieve the objectives effectively and efficiently. It is one of the
most important mechanisms for planning and controlling business operations. The
effective operation of a business concern resulting into the excess of income over
the expenditure fully depends upon as to what extent the management follows proper
planning, effective coordination and dynamic control. There are 27 commercial
banks have been operating in Nepal are considered to be the population of the study
and out
92
of them MBL has been taken as a sample of the study and the collected data have
been analyzed by using various financial tools and statistical tools like ratio analysis,
correlation coefficient, regression equation etc.
The main objective of the present research is to examine the profit planning
and control of MBL. So, this study is undertaken to evaluate PPC analysis of the
commercial bank. As per the nature of the study, the secondary data have been used.
This study covers 5 fiscal years data from FY 2016/17 to 2020/21. This study is
divided into five chapters, which consists (1) Introduction (2) Conceptual framework
and Review of literature, (3) Research and Methodology (4) Presentation and
Analysis of Data and (5) Summary, Conclusion and Recommendations.
5.2 Conclusion
Management can effectively achieve organizational objectives through the
efficient use of scarce available resources in a changing environment of business.
Future is uncertain which creates risk and only the good management can reduce it.
Profit planning and control is management technique and it is a written plan in all
aspect of business operation for definite future period. Profit planning is usefulness
and effectiveness for every commercial bank. In fact, profit planning has become
associated with profit.
Comparing the trend of profit earning of MBL for previous five it can be
concluded that MBL has increasing trend for profit over the years. Similarly, Revenue
is also in increasing trend over the years. The main cause of increasing trend of
Revenue is increase in Loan Portfolio of Bank. Also, expenses are also in increasing
trend over the study period. The main portion of expenses is covered by Payroll
expenses of the Bank.
From the above analysis it is found that the profitability ratios, are strong
profitable of MBL. It also found that high contribution margin and low fixed cost of
MBL. Staff expenses has played the key role to increase the administrative fixed cost.
In addition, MBL has been successful in mobilizing their total assets on loans and
advances for the purpose of income generation. The bank is successful to mobilize
its total assets on purchase of shares and debentures of other companies to
generate incomes. All the level of management is not involved in profit planning and
decision making. MOS is higher than BEP income. It means well performance of
MBL. Income from interest is in increasing trend. Sundry income is also increasing
93
each year. Interest expenses are also increasing each year.Net profit increases every
year i.e., it is profit making bank.
5.3 Implications
Recommendations are the final output of the whole study. It helps to convey
positive information and proper way of improvement to concern bank MBL as well
as other interest researcher in upcoming days. Various analyses have been done until
this stage. On the basis of analysis and finding of the study, following suggestion
and recommendation can be advanced to overcome weakness, inefficiency and
satisfactory improvement policy of MBL.
i. Cost should be segregated into fixed and variable.
ii. BEP analysis should be done while planning.
iii. MBL should consider the cost – volume – profit relationship while fixing the price
of its products.
iv. The bank should develop the budgeting practice, which is one of the tools of profit
planning. To improve the financial condition of the industry, it should develop
annual (tactical) and long-term profit plan.
v. MBL should increases interest rate providing in deposits to lure people.
vi. Trend analysis show the operating income is increasing trend. It is better to make
efficient and professional in cost bearing, monitoring and proper risk management
and net profit amount of MBL will increase in future so bank has to train its
employee.
vii. Further studies can be conducted by increasing sample size, no. of observations
econometric and other various tools and techniques.
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APPENDIX
Appendix-I
S.N Particular 2016/17 2017/18 2018/19 2019/20 2020/21
.
1 Interest Income 51,530.24 77,663.56 101,775.23 113,528.89 111,554.83
2 Commission and 4,508.45 4,910.69 7,905.19 9,474.86 11,429.02
Discount
Other Operating 972.71 90.34 281.39 701.29 1,963.87
Income
Net Trading Income 1,313.05 1,668.03 3,033.32 2,821.64 2,580.88
Total Operating 58,324.45 84,332.62 112,995.13 126,526.69 127,528.59
Income
Less: Impairment 1,017.00 1,527.36 1,171.71 5,879.24 4,977.99
Charge/(reversal)
A Net Operating 57,307.45 82,805.26 111,823.42 120,647.45 122,550.60
Income
3 Less: variable Cost
Interest Expenses 27,910.35 50,265.57 66,277.67 74,909.90 68,039.90
Fee and commission 464.73 515.69 699.75 1,006.70 1,310.43
expenses
Variable Expenses 2,627.05 3,261.68 5,715.92 6,759.19 6,622.18
B Total variable Cost 31,002.14 54,042.94 72,693.34 82,675.80 75,972.51
C CM (A – B) 26,305.31 28,762.32 39,130.08 37,971.66 46,578.09
4 Less: Fixed Cost
Staff Expenses 6,938.04 8,746.40 12,303.81 15,029.10 17,695.08
Fixed Expenses 1,594.42 1,933.35 2,823.45 3,737.81 4,187.68
D Total Fixed Cost 8,532.46 10,679.74 15,127.26 18,766.91 21,882.76
E Operating Profit (C – 17,772.85 18,082.58 24,002.82 19,204.74 24,695.33
D)
5
Add: Non-Operating 179.33 31.20 1,219.03 80.69 97.74
Income
97
Less: Non-Operating - 14.48 948.92 675.20 1,989.64

Expenses
F Total Sundry Income 179.33 16.72 270.11 (594.51) (1,891.90)
G NPBT (E +F) 17,952.18 18,099.30 24,272.93 18,610.23 22,803.43
H Less: Tax
Net Tax 5,383.28 5,602.42 7,302.05 5,958.72 6,728.69
I Net Profit (G - H) 12,568.90 12,496.88 16,970.88 12,651.51 16,074.73
(Source: Financial statement of MBL)
Appendix-II
Calculation of Mean, Standard Deviation and Coefficient of Variation of MBL
In %
Net profit Operating

ROA ROE
Margin Ratio Efficiency Ratio
Fiscal Year
(X -
X (X - X̅ )2 X (X - X̅ )2 X (X - X̅ )2 X
X̅ )2
2016/17 21.55 45.58 1.82 0.19 13.65 0.64 68.99 79.86
2017/18 14.82 0.00 1.47 0.01 12.07 0.61 78.16 0.06
2018/19 15.02 0.05 1.61 0.05 15.10 5.09 78.54 0.37
2019/20 10.00 23.03 1.02 0.14 10.92 3.71 84.08 37.93
2020/21 12.60 4.81 1.02 0.14 12.50 0.12 79.85 3.71
Total 73.99 73.48 6.94 0.52 64.23 10.17 389.62 21.93
1. 12. 77.
Mean
14.80 39 85 92
3. 0. 1. 4.
S.D.
84 32 43 93
C.V. 26% 23% 11% 6%
98
Appendix-III
Calculation of Mean value and correlation between Total Cost and Net Profit of MBL
NP x1 = x2 =
Year TC (X1) x1. x2 (X1)2 (X2)2
(X2) X1- X̅ X2- X̅
2016 44,917. 12,56 (39,552 (1,583. 62,638,157 15643872 2508035
/17 87 8.90 .34) 68) .44 69 .476
2017 70,325. 12,49 (14,145 (1,655. 23,420,022 20008391 2741337
/18 10 6.88 .10) 70) .70 6.5 .099
2018 95,122. 16,97 10,652. 2,818. 30,021,793 11347456 7942819
/19 65 0.88 44 30 .17 8.3 .952
2019 107,401 12,65 22,931. (1,501. (34,421,49 52584130 2253225
/20 .43 1.51 23 07) 3.69) 5.2 .861
2020 104,583 16,07 20,113. 1,922. 38,661,675 40456349 3694661
/21 .97 4.73 76 15 .43 7.4 .422
∑X
∑X1 ∑ x1.x2 = ∑x12 = ∑x22 =
Sum 2 =
=42235 120320155 28083505 1914007
(∑) 70762
1.01 .05 56.24 9.81
.91
∑ X 1 422351.01
Mean for TC ( X̅ 1)= = = 84,470.20
n 5
∑ X 2 70762.91
Mean for NP ( X̅ 2)= = = 14,152.58
n 5
∑ x 1. x 2 120320155.05
Coefficient of Correlation: = =
√∑ X 2
1 X 2
2 √2808350556.24 ×19140079.81
r= 0.519
Correlation(r)= 51.9 %
Coefficient of Determination (r2) = r2 = 0.5192 = 0.2693 = 26.93%
Hypothesis test
99
r
√1−r 2 √
t= × n−2
0.519
√1−0.5192 √
t= × 5−2
0.519
t= × 1.732
0.8547
t= 0.607×1.732
t=1.051
Appendix IV
Calculation of mean value and correlation between operating income and Net profit of
MBL
Operating
Year NP (X2) x1 = X1- X̅ x2 = X2- X̅ X1. X2 ∑x12 ∑x22
Profit (X1)
2016/17 57,307.45 12,568.90 41,719.39) (1,583.68) 66,070,072.71 1740507481 2508035.476
2017/18 82,805.26 12,496.88 16,221.57) (1,655.70) 26,858,033.96 263139468.8 2741337.099
2018/19 111,823.42 16,970.88 12,796.58 2,818.30 36,064,618.72 163752512.5 7942819.952
2019/20 120,647.45 12,651.51 21,620.62 (1,501.07) (32,454,165.68) 467451083.4 2253225.861
2020/21 122,550.60 16,074.73 23,523.76 1,922.15 45,216,209.35 553367509 3694661.422
∑X1 ∑X2 = ∑ x1.x2 = ∑x12 = ∑x22 =
Sum (∑)
=495134.17 70762.91 141754769.05 3188218054.7 19140079.80
∑ X 1 495134.17
Mean for OP ( X̅ 1)= = = 99,026.83
n 5
∑ X 2 70762.91
Mean for NP ( X̅ 2)= = = 14,152.58
n 5
∑ x 1. x 2 141754769.05
Coefficient of Correlation: =
√∑ X 2
1 X 2
2 √3188218054.7 × 19140079.81
r= 0.5738
100
Correlation(r)= 57.38%
Coefficient of Determination (r2) = r2 = 0.57382 = 0.3292 = 32.92%
Hypothesis test
r
√1−r 2 √
t= × n−2
0.5738
√1−0.57382 √
t= × 5−2
0.5738
t= × 1.732
0.819
t= 0.7×1.732
t=1.21
Appendix V
Least Square of Linear Trend of Total operating Income
Fiscal Year (t) Operating X2

X = t-2018/19 XY
income
(Y)
2016/17 57,307.45 -2 4 (114,614.89)
2017/18 82,805.26 -1 1 (82,805.26)
2018/19 111,823.42 0 0 -
2019/20 120,647.45 1 1 120,647.45
2020/21 122,550.60 2 4 245,101.20
∑y = 0 10 ∑XY =
Sum (∑)
495,134.17 168,328.50
For MBL
∑y 495134.17 ∑ xy 168328.50
Since ∑X = 0, a = = = 99,026.83 and b = 2 = =
n 5 ∑X 10
16,832.85
101
Substituting these values in the following formula, y = a + bx
Year MBL
2016/17 99026.83 + (16832.85× 3) = Rs. 149525.38
2017/18 99026.83 + (16832.85× 4) = Rs. 166358.23
2018/19 99026.83 + (16832.85× 5) = Rs 183191.08
2019/20 99026.83 + (16832.85× 6) = Rs. 200023.93
2020/21 99026.83 + (16832.85× 7) = Rs. 216856.785
Appendix VI
Least Square of Linear Trend of Net Profit
Fiscal Net profit

Year (t) (Y) X2
X = t-2018/19 XY
2016/17 12,568.90 -2 4 (25,137.81)

2017/18 12,496.88 -1 1 (12,496.88)
2018/19 16,970.88 0 0 -
2019/20 12,651.51 1 1 12,651.51
2020/21 16,074.73 2 4 32,149.46
∑y = 0 10 ∑XY =
Sum (∑)
70,762.91 7,166.28
For MBL
∑y 70762.91 ∑ xy 7166.28
Since ∑X = 0, a = = = 14152.42 and b = 2 = = 716.62
n 5 ∑X 10
102
Year MBL
2016/17 14152.42 + (716.62× 3) = Rs. 16302.28
2017/18 14152.42 + (716.62× 4) = Rs. 17018.9
2018/19 14152.42 + (716.62× 5) = Rs 17735.52
2019/20 14152.42 + (716.62× 6) = Rs. 18452.14
2020/21 14152.42 + (716.62× 7) = Rs. 19168.76
Appendix VII
Least Square of Linear Trend of Total Cost
Fiscal year Total Cost

(t) (Y) X2
X = t-2018/19 XY
2016/17 44,917.87 -2 4 (89,835.74)

2017/18 70,325.10 -1 1 (70,325.10)
2018/19 95,122.65 0 0 -
2019/20 107,401.43 1 1 107,401.43
2020/21 104,583.97 2 4 209,167.94
∑y = 0 10 ∑XY =
Sum (∑)
422,351.02 156,408.53
For MBL
∑y 422,351.02 ∑ xy 156,408.53
Since ∑X = 0, a = = = 84,470.20 and b = 2 = =
n 5 ∑X 10
15,640.85
103
Year MBL
2016/17 84470.20 + (15640.85× 3) = Rs. 131392.763
2017/18 84470.20 + (15640.85× 4) = Rs. 147033.616
2018/19 84470.20 + (15640.85× 5) = Rs 162674.469
2019/20 84470.20 + (15640.85× 6) = Rs. 178315.322
2020/21 84470.20 + (15640.85× 7) = Rs. 193956.175

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PROFIT PLANNING AND CONTROL OF

MACHHAPUCHCHHRE BANK LIMITED

A Dissertation Submitted to the Office of Dean, Faculty of Management Tribhuvan

It is my utmost responsibility to appreciate and acknowledge other people behind the

I am very thankful to members of library management of Nepal Commerce Campus

Profit Planning and Control of Machhapuchchhre

Shanker Dhodary Assoc. Prof. Dr. Jitendra Pd. Upadhyay

Prof. Dhurba Prasad Silwal

REPORT OF RESEARCH COMMITTEE

Mr. Shanker Dhodary

Assoc. Prof Dr. Jitendra Prasad Upadhyaya

3.4 Instrument of data collection.................................................................................

guidelines to the overall managerial task (Fago and Niraula, 2015).

The potentials of comprehensive profit planning and control should not be

type of misconception. Forecasting is a technical activity, usually assigned to

1.2 Problem Statement

The major activities are including in commercial bank to mobilize resources,

Adwerd (2020) revealed that there is significant influence of return on assets,

Every business organization

topeople and earns profit

need to think about future

income. Hence, profit

to people and earns profit

need to think about future

income. Hence, profit

to people and earns profit

need to think about future

income. Hence, profit

to people and earns profit

need to think about future

income. Hence, profit

topeople and earns profit

need to think about future

income. Hence, profit

topeople and earns profit

need to think about future

income. Hence, profit

topeople and earns profit

need to think about future

income. Hence, profit

topeople and earns profit

need to think about future

income. Hence, profit

topeople and earns profit

need to think about future

income. Hence, profit

1.3 Focus of the Study

To compare the short-term planning of Machhapuchchhre Bank Limited some

1.4 Objectives of the study

i. To examine the trend of profit, revenue and expenses.

1.6 Limitation of the study

i. The study is made for partial fulfillment of the requirement of master's in

1.7 Hypothesis Formulation

Improvement of Loan Portfolio can increase the profit of MBL

1.8 Organization of the Study

Introduction section provides an overall description of the study to be carried

Chapter II: Review of Literature