WORKING CAPITAL MANAGEMENT OF

SIDDHARTHA BANK LIMITED

A Project Work Proposal

Submitted By

Prem Rajbanshi
Campus Roll No: 211
Group: Finance
T.U Reg No: 7-2-0003-0769-2019
Mahendra Morang Adarsha Multiple Campus

Submitted To
Research Committee
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Biratnagar, Morang
April, 2024
1.1 Background of the Study
Every business whether big, medium or small, needs finance to carry on its operations
and to achieve its target. In fact fiancé is so indispensable today that it’s rightly said to be
the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly
accomplish its objectives. So this chapter deals with studying various aspects of working
capital management that is necessary to carry out the day-to-day operations. The term
working capital refers to that part of firm’s capital which is required for financing short
term or current assets such as cash, marketable securities, debtors and inventories funds
invested in current assets keep revolving fast and are being constantly converted into
caash and this cash flows out again in exchange for other current assets. Hence it is
known as revolving or circulating capital. On the whole, working capital management
performs a key function and is of top priority for every finance manager. All manager
must, however, keep in mind that in their pursuit to liquidity, they should not lose sight of
there basic goal of profitability. They should be able to attain a judicious mix of liquidity
and profitability while managing their working capital.

Working capital management deals with the most dynamic fields in finance, which needs
constant interaction between finance and other functional managers. The finance manager
acting alone cannot improve the working capital situation. In recent times a few case
studies regarding management of working capital in selected companies have been in
order to make in-depth analysis of the several experts of working capital management.
The finding of such studies not only throws new light on the technical loopholes of
management activities of the concerned companies, but also help the scholars and
researchers to develop new ideas techniques and methods for effective management of
working capital.

In simple terms working capital means is that the amount of funds that a company require
finance for its day-to-day operations. Working capital states that the period of debtors,
receivables etc for a company to raise finance from them at the earliest. Finance manager
should develop sound technique of managing current assets.

Liquidity refers to the firm’s ability to meet the short term obligations or commitments
from current and liquid assets. To measure the liquidity of any firm’s liquidity ratio can
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be used as an important analytical tool. Liquidity ratio measure the firm’s ability to meet
its current obligations. It compares short term obligations to short term resources
available to meet those obligations. So, it reflects the short term financial strength of
business concern profitability refers to the organization ability to earn profit. Profit
simply means excess of income and expenditure incurred over a period of time.
Profitability ratio measures overall efficiency of the business enterprises in terms of profit
from its operation and also shows the combined effects of liquidity, assets management
and working capital policies on operating results. The profitability ratio measures the
earning capacity of the business and used to analyze the financial strength and weakness
of the firm (Brigham, 2004).

Profitability is assessed relative to costs and expenses, and it is analyzed in comparison to

assets to see how effective a company is in deploying assets to generate sales and
eventually profits. The term return in the ROA ratio customarily refers to net profit or net
income, the amount of earnings from sales after all costs, expenses and taxes. The more
assets a company has amassed the more sales and potentially more profits the company
may generate. As economies of scale help lower costs and improve margins, return may
grow at a faster rate than assets, ultimately increasing return on assets.

1.2 Profile of the Organization

SIDDHARTHA BANK – Relationship Forever, Established in the year 2002, Siddhartha

Bank Limited (SBL) is recognized as one of the most efficient and professional banks in
Nepal. A core philosophy of the bank lies in nurturing relationships with customers and
clients.

To ensure convenient access to services, SBL integrates digital banking in most

operations. Using online banking or Siddhartha BankSmart App, SBL services can be
accessed by customers from anywhere in the world. The technology used is continuously
improved for enhanced customer experience. Earning confidence of its customers
through these facilities and prompt services, SBL is one of the most trusted commercial
banks in Nepal. SBL follows all rules, processes and laws, ensuring due diligence in its
operations, as directed by the governing body.
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In addition to benefiting its clients, customers and stakeholders, SBL contributes to

developing Nepal. As a responsible corporate, SBL supports innumerable CSR activities
throughout the country. Siddhartha Bank runs with a vision to be the digital first Bank for
sustainable growth. Siddhartha Bank focuses on customer delight by offering diverse
products and services digitally for stakeholder's prosperity and sustained growth.

1.3 Statement of the Problem

The statement of the problem are as follows:

 What will be the working capital and liquidity position of the bank?
 What will be the working capital and profitability position of the bank?
 What will be the management of working capital?

1.4 Objective of the Study

The main objective of the study is to examine the analysis of working capital of
Siddhartha Bank Limited. The specific objectives of the study are as follows:

 To analysis the working capital and liquidity position of the bank

 To analysis the working capital and profitability position of the bank.
 To analysis the management of working capital

1.5 Rationale of the Study

This study will focus on analysis of working capital of Siddhartha Bank Limited. After
the study of this research it will be valuable for shareholders, stakeholder and
management of Siddhartha Bank Limited that helps in developing the strategies for
management of working capital. These studies also provide good insight about the
working capital of commercial bank in Nepal, who wants to do further study in the field
of working capital of the bank. Moreover, this study will be helpful for the researcher
who wants to conduct research in Siddhartha Bank Limited.
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1.6 Review of Literature

The literature review section of the study cover the overview of the banking system of
Nepal and liquidity, the theoretical and empirical studies review in the areas of financial
performance of commercial banks of Nepal. Moreover, it presents the variable and
conceptual framework as well as main theories and research relating.

Conceptual framework

Financial Variables

Dependent Variables
Independent Variables

Working Capital Profitability Position

Quick Ratio
Return on Assets
Return on Equity

Independent variables such as current assets, quick assets and current liabilities and
dependent variables such as return on assets return on equity. Various researchers has
concluded after studying in details on these topics. The reviews of previous work on
liquidity and profitability of the bank by different researchers are summarized below:

Liquidity reflects the short-term financial strength of the organization. In other words, it
is the ability of the firm to meet its short term obligation. Thus, a liquidity ratio shows the
relationship of the firms current assets to its current liabilities, and thus its ability to meet
maturing debts. It indicates whether the firm would be in a position to meet its short term
obligations in time.

Chandra (2001) states that the normally a high liquidity is seen as a sign of financial
strength. However, some authors like believe that a high liquidity can be as undesirable
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as a low one. This would be a consequence of the fact that current assets are usually less
profitable than fixed ones. Money invested in assets generates less revenue than fixed
assets, thus representing an opportunity cost.

Investopedia (2005) states that, explains liquidity ratios as common liquidity ratio
includes the current ratio, quick ratio and operating cash flow ratios. Bankruptcy analysts
and mortgage originators frequently use the liquidity ratios to determine whether a
company is able to continue as a going concern.

Shim and Jeff (2000) refers to liquidity is the company’s capacity to liquidate maturing
short-term debt (within one year). Maintaining adequate liquidity is much more than a
corporate goal is a condition without which it could not be reached the continuity of a
business. Solvency and liquidity are two concepts that are closely related and reflect upon
the actions of company’s working capital policy. A low liquidity level may lead to
increasing financial costs and result in the incapacity to pay its obligations.

Western and Brigham (2004) states that, liquidity ratios shows the relationship of firms’
current assets to its current liabilities, and thus its ability to meet maturing debts, liquidity
refers to the ability of a firm to meet its obligations in short runs, usually one year. Profit
is the reward of uncertaintly bearing, like risk of competition and customer behavior.

Review of Previous Works

Over the past several decades’ corporate finance researchers have devoted considerable
efforts to transform rationalism of liquidity management into empiricism. The various
theories are still unresolved. The review of previous works on liquidity management of
Machhapuchchhre Bank Limited has Produced mixed results are as presented.

Chaudhary (2013) in the study of the efficacy of liquidity management and Banking
performance in Nepal found that there is significant relationship between efficient
liquidity management and banking performance and that efficient liquidity management
enhance the soundness of bank. The objective of this study is to find relation between
liquidity management and banking performance which helps to find out the position of
these banks.
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Pandey (2013) was conducted profit analysis of Nepal SBI Bank used multiple regression
analysis and correlations by employing ROA and interest income as performance proxies
which represented as the dependent variables, and bank size, asset management and
operational efficiency as independent variables. Found that, there is strong positive
correlation between profit analysis and operational efficiency and a moderate correlation
between ROA and bank size, while, ANOVA analysis; results indicated that, there exists
an impact of those independent variables on profit analysis as the F-stat was significant
and below the 5%.

Sharma (2014) states that has studied the topic about profit analysis of Laxmi Bank with
the objective of analyzing the liquidity and profitability position of the bank and
identified that the liquidity position of the bank is a good because the current ratio of the
bank is equal to 2:1 and the firm is utilizing its assets in a better way. This indicates the
bank is making plan and policy effectively.

Shrestha (2015) was conducted liquidity position of Sangrila Development Bank Ltd,
with the objective of profit may come to exist as a result of monopoly on monopoly, as a
reward for innovation as a reward for the correct estimate of uncertain factors, either
particular to the industry or general to the whole economy. The objective of this study is
to identify the liquidity position of the banks and the finding of this research is ratio of
current and quick is increasing trend.

Saru (2015) states that have studied about the profitability analysis of Prabhu Bank
Limited with the objectives of measuring the firm’s capacity in utilizing its assets and
identified that the firm is making a better portfolio assets in order to increase its
profitability. This indicates that the firm is improving its productive use of assets because
the return on assets for later year is greater than that in the earlier year.

Sharma (2016) states that has studied the topic about liquidity management of Bank of
Kathmandu Limited with the objective of analyzing the liquidity position of the bank and
identified that the liquidity position of the bank is a good because the current ratio of the
bank is equal to 2:1 and the firm is utilizing its assets in a better way.
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1.7 Methods of the Study

Research methodology is the research method used to test the hypothesis. It sequentially
refers to the various steps to be adopted by a researcher in studying a problem with
certain objectives in review. Generally, it refers to the numerous processes adopted by the
researcher’s during the research period. The purpose of the research methodology section
is to describe the nature of the research design, sampling, gathering and procedure and
data collection and analysis procedures. This section includes the following information.

1.7.1 Research design

This research will follow the descriptive research design. Research design that is
developed with the aim of studying the subject of details and explain the facts and
characteristics related to research problem is known as descriptive design. The main goal
of this report is to describe the data and characteristics about what is being studied.

1.7.2 Population and sample

The population refers to the industries of the same nature and its services and product in
general. Population is the entire collection of interest i.e People, Objects or events as
defines by the reseacher and sample is the entire collection of all observations of the
interest for the researcher. Currenly, there are 20 commercial banks in Nepal. Out of total
20 commercial banks of Nepal, Siddhartha Bank Limited will be selected as a sample for
this study.

1.7.3 Data collection procedure

While preparing the data in collected from secondary sources. Secondary data refers to
data that was collected by someone other than the user. It is originally collected from
different sources. So, in the course of preparing this report the necessary data and
documents are collected only from secondary sources.
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1.7.4 Method of data collection

While preparing this report, data will be collected from secondary sources. The
researchers have used quantitative data. Data collection techniques used by secondary
data collection methods, which are presented below:

 Previous research report

 Annual report
 Books
1.7.5 Method of data presentation and analysis

In this report, the researchers have used the following presentation and analysis tools:

 Tables
 Trend lines
 Percentage
 Financial tools
- Working Capital Ratio
- Quick Ratio
- Return on Assets
- Return on Equity

1.8 Limitation of the Study

The present study is tried to analyze and to examine the working capital management of
Siddhartha Bank Limited. The main limitations of study are as follows:

 The study will cover the period of five financial year starting from 2075/76 BS to
2079/80 BS.
 The information data and facts regarding the financial performance will be based
on secondary data.
 Presentation & analysis are conducted through financial and statistical tools.
 Only one sample will be taken.
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REFERENCES

Brigham, E. (2004). Financial management theory and practice (4th ed.). Bangalore:
Eastern Press.
Chandra, M. (2001) Fundamental of financial management. Kathmandu: Asmita
Publication & Distributors P. Ltd.
Chaudhary, A.K. (2013). Liquidity Management and Banking Performance in Nepal.
An Unpublished Master Degree Thesis, Tribhuvan University, Kathmandu.
Marshall, H. (1980). Accounting for financial performance & planning. Kathmandu:
Asmita Publication & Distributors P. Ltd.
Saru, K. (2015). Profitability Analysis of Prabhu Bank Limited. An Unpublished Master
Degree Thesis, Tribhuvan University, Kathmandu.
Sharma, D. (2016). Liquidity Management of Bank of Kathmandu Limited. An
Unpublished Master Degree Thesis, Tribhuvan University, Kathmandu.
Sharma, P. (2014). Profit Analysis of Nabil Bank Limited. An Unpublished Master
Degree Thesis, Tribhuvan University, Kathmandu.
Shim, W. & Jeff, S. (2000). Financial procedure (2nd ed). California: Zenith
Enterprises
Shrestha, R. (2015). Liquidity Position of Sangrila Development Bank Limited. An
Unpublished Master Degree Thesis, Tribhuvan University, Kathmandu.
Western, H.M & Brigham, E. (2004). Financial management theory and practice (4th
ed.). Bangalore:Eastern Press.