A CASE STUDY ON LIQUIDITY ANALYSIS OF

AGRICULTURE DEVELOPMENT BANK

LIMITED

A Project Work Proposal

By
Priya Sarki
Kanya Campus, Pokhara
T.U. Regd. No: 7-2-295-61-2019
Campus Roll No: 101/076

Submitted to

Research Committee
Faculty of Management
Kanya Campus, Pokhara
Tribhuvan University

In Partial Fulfillment of the Requirements for the Degree

of BACHELOR OF BUSINESS STUDIES (BBS)

Pokhara
April, 2024
 TABLE OF CONTENTS

Title Page

1 Background 1
2 Profile of the Organization 2
3 Objectives of the Study 3
4 Rational of the Study 3
5 Review of Literature 3
6 Methods of the Study 5
6.1 Research Design 5
6.2 Sources and Nature of Data 6
6.3 Population and Sample 6
6.4 Data Collection Methods 6
6.5 Data Analysis Tools 6
7 Limitation of the Study 6
8 Work Schedule (Gant Chart) 7
Bibliography 8
1. Background of the Study
A bank is a financial institution that accepts deposits from the public and creates credit.
Lending activities can be performed either directly or indirectly through capital markets. Due
to their importance in the financial stability of a country, banks are highly regulated in
most countries. Most nations have institutionalized a system known as fractional
reserve banking under which banks hold liquid assets equal to only a portion of their current
liabilities. In addition to other regulations intended to ensure liquidity, banks are generally
subject to minimum capital requirements based on an international set of capital standards,
known as the Basel Accords. The word bank was borrowed in Middle English from
Middle French banque, from Old Italian banca, meaning "table", from Old High German
banc, bank "bench, counter". Benches were used as makeshift desks or exchange counters
during the Renaissance by Jewish Florentine bankers, who used to make their transactions
atop desks covered by green tablecloths.
The definition of a bank varies from country to country. See the relevant country pages
under for more information.
Under English common law, a banker is defined as a person who carries on the business
of banking, which is specified as:
 conducting current accounts for his customers,
 paying cheques drawn on him/her, and
 Collecting cheques for his/her customers.
The analysis of liquidity focuses on the measure in which the companies have the ability to
honor their obligations having an eligibility term less than a year, current debts that must be
covered from the assets with a similar term of transformation in liquidity. Among the factors
that influence the liquidity are the domain of the activity, the degree of maturity of the
company and its size, the season of the business, the economic circumstances, the structure of
the assets, the structure of the current assets, the rotation speed of the current assets, the
financial structure

A liquidity ratio is an indicator of whether a company's current assets will be sufficient to

meet the company's obligations when they become due. The liquidity ratios include the
current ratio and the acid test or quick ratio. The current ratio and quick ratio are also
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referred to as solvency ratios. Working capital is an important indicator of liquidity or

solvency, even though it is not technically a ratio.

Liquidity ratios sometimes include the accounts receivable turnover ratio and the inventory
turnover ratio. These two ratios are also classified as activity ratios.

In accounting, liquidity (or accounting liquidity) is a measure of the ability of a debtor to pay
their debts as and when they fall due. It is usually expressed as a ratio or a
percentage of current liabilities. Liquidity is the ability to pay short-term obligations.
The liquidity position is the difference between the sum of liquid assets and incoming cash
flows on one side and outgoing cash flows resulting from commitments on the other side,
measured over a defined period, being the measure of the liquidity risk.

2. Profile of the Organization

The Agricultural Development Bank, Nepal was established in 1968 under the ADBN Act
1967, as successor to the cooperative Bank. The Land Reform Savings Corporation was
merged with ADBN in 1973. Subsequent amendments to the Act empowered the bank to
extend credit to small farmers under group liability and expand the scope of financing to
promote cottage industries. The amendments also permitted the bank to engage in commercial
banking activities for the mobilization of domestic resources. The bank has 51% share of
Government of Nepal and 49% of general public. Most of its shareholders are customers and
employees. The bank has been working as a public limited company registered under the
Companies Act, 2006 and is licensed as "A class financial institution" by Nepal Rastra Bank
from 2006.
Having glorious history of more than 53 years, the bank is one of the leading commercial
banks of the country. With its investment in agriculture, industry, trade, commerce and
households, the bank has above 1.2 million happily satisfied customers. it is spread all over
the 7 provinces & 77 districts of the nation with its 278 offices. While providing
comprehensive services with complete banking solution, the bank has main motto of
promoting rural agriculture, productive and deprived sectors. The bank is committed to
provide best banking services through its widespread network and help the government from
its part, to achieve the aim.
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3.Objectives of the Study

A study becomes a pathless without designing the objective at first. The basic objective of
this study is to analyze the liquidity position of Agriculture development bank which is
followed by other general objective. They can be listed as below.
 To analysis the cash reserve ratio.
 To assess the credit to deposit ratio.
 To analysis the non-performing loan to loan ratio.
 To analysis the cash to deposit ratio.

4. Rationale of the Study

This research work will be supplementary unit to measure the Liquidity Position of
Agriculture development bank limited. It is also aimed to measure the efficiency of the funds
used and evaluate the financial resources. This research work will study the financial aspects
of the Bank in micro level. So the required data and information concerns to the financial
aspects can be acquired and studies by its stakeholders. This study will be helpful to everyone
from every aspect. The businessmen, taxpayers, donor parties and central government can be
beneficial from the study. The findings and the conclusions drawn from the study will be
helpful for the officials to take corrective measures.

5. Literature Review
This section provides knowledge about the development and Progress made by the earlier
scholar on the concerned project of the study, review existing books, published and
unpublished articles, review of policy documents to provide readers background,
familiarity in order to fill the gap of research. Literature theory is a process of learning
and understanding the concept of related area thoroughly. It assures readers that are
familiar with important research that has been carried out in similar areas. In addition, it
also summarizes the findings of previous literature to provide knowledge about the
background of the work done by earlier research work and to stop duplicate of the
previous work. Thus, this work may be valuables component of research work. This
section present the theoretical concept of financial analysis meaning and definition of
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Bank, Types, historical background, concept of etc. have been included under the
conceptual review

5.1. Conceptual Review

Conceptual review provides knowledge about some theoretical aspects related to the
subject matter of the research this study discusses differences in financial management
and goals between the Investor-oriented firms and banks. It briefly reviews what bankers
look for when appraising potential borrowers. A summary of standard financial ratios
used to analyze a variety of business structures is included, along with other modified
ratios to address deficiencies evident in standard ratios
Liquidity ratios measure a company's ability to pay debt obligations and its margin of
safety through the calculation of metrics including the current ratio, quick
ratio and operating cash flow ratio. Current liabilities are analyzed in relation to liquid
assets to evaluate the coverage of short-term debts in an emergency.

5.2. Review of Previous Works

Das (1997) in his paper on “Technical allocation and Scale Efficiency of the Public
Sector Banks in India” The study found that there is decline in overall efficiency due to
fall in technical efficiency which was not offset by an improvement in allocative
efficiency. However, it is pointed out that the deterioration in technical efficiency was
mainly on account of few nationalized banks.

Sen, (2018) has conducted study on the topic of liquidity analysis of Machhapuchchhre
Bank Limited. Her major objective was to analyze the current ratio of the bank during the
Fiscal Year 2069/070 to 2073/074, to determine the quick ratio of the bank. and to study
the cash to current assets of the bank. Her major findings were As a convention rule,
current ratio of 2:1 current assets twice of current liabilities or more is considered to be a
more satisfactory. The current ratio of NIC ASIA is fluctuating situation. It is maximum
(i.e. 39.60) in the second year among those five years. All other year are also above the
standard, current ratio of 1 or less are typically considered very low and indicate financial
difficulties. But all those five years are performing well and highly liquid stock and
quality debtors. It only looks at the company's most liquid short-term assets cash and cash
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equivalents – which can be most easily used to pay off current obligations. The cast to
current ratios of different year are in fluctuating situation.

Malla (2020) has conduct liquidity analysis of Nepal bank limited. The objective of this
study is to analyze the liquidity position of Nepal Bank Limited to analyze loan to deposit
ratio to analyze the estimated liquidity needs to analyze the liquidity assets to total
deposit ratio of the bank. liquidity to cover any unforeseen fund requirement in FY
2075/076. But from FY 2071/072 to 2074/075, the bank have enough liquidity fund to
cover any unforeseen fund requirement. The negative liquidity need implies that the
bank is expected to have surplus liquidity which needs to reinvested shortly. the bank the
ratio is below the standard ratio i.e. 20% in FY 2071/072 and 2074/075. In other fiscal
year the ratio is above the standard ratio prescribe by NRB. The bank is performing well
in other fiscal year than in FY 2071/072 and 2074/075.

Sunar (2020) has conducted a study on liquidity positon of Gandaki Bikas Bank Limited.
The major objectives of the study is to analyze the current ratio, quick ratio and cash to
current ratio. The data were collected through secondary sources from annual reports of
the bank and research is based on descriptive form. The major findings of the study were
The quick assets of the bank is same as the current assets because the bank does not have
inventory amount and also does not have prepaid expenses. Current liabilities of the bank
is less than the current assets. The bank can fulfill its current assets with the current
liabilities. The current ratio of the bank is fluctuating situation. It is maximum (i.e. 2.7) in
the FY 2074/075 among those five years. The bank has face difficulty in to cover it
current liabilities by its current assets. GBBL is in sound liquidity position because it is
able to meet the standard in every extent. To do the analysis accountants weight current
assets of the company against the current liabilities which result in the ratio that
highlights the liquidity of the company.

6. Methods of the Study

This study has intense relation with the Liquidity position of Agriculture development
bank limited. The research methodology includes, research design , data collection
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procedures and research variables and tools use. The following step provides useful
procedural guidelines, So far as research methodology is concerned.

6.1. Research Design

A research design is a framework or plan for the activities to be undertaken during the
course of study. The study is concerned single unit thus will be followed the case study
research design. Under the case study research design, descriptive research approach will
be applied.

6.2. Nature and Sources of Data

This research will be based on secondary sources. The secondary data will be gathered
from annual reports. Moreover, other necessary data and information can be collected
from websites.

6.3. Population and Sample

The objective of the study is to find the liquidity of the organization. There are 20
commercial bank. Out of them Agriculture development bank is taken as sample. I would
like to select this Bank because this is the commercial bank, a reputed bank of the
country, having good management system and earning high profit. The Agriculture
development bank is the population for the research works and convenience sampling
method will be used.

6.4. Data collection Methods

Data collection is the main part to complete these report. Without data a report cannot be
completed. The data will be collected through the secondary sources from websites
previous reports.

6.5. Data Analysis Tools

Various mathematical and statistical tools are used for data presentation. The data was
processed tabulated and graphed to analyze achieve the objective of the study. Some of
financial tools are cash reserve ratio, credit to deposit ratio, non-performing loan to total
loan ratio and cash to deposit ratio. The basic statistical tools are: bar diagram, Pie chart
and line graph and percentage etc.
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7. Limitation of the Study

This study particularly involves the financial aspects of Agriculture development bank
limited. It is also trying to examine overall performance in terms of revenue collections,
allocation and utilization. So the limitations of the study are:
 This study is only concentrated to financial analysis of the organization; it does
not focus of other analysis, which also measures the performance of Agriculture
development bank Bank.
 The accuracy and reliability of findings will be based on the accuracy of the
figures and information in annual budget, reports and published documents.
 This study is just for academic propose.
 This study based on Secondary data.
 This study analyzes the data of 5 years from fiscal year 2075/76 to 2079/80 B.S.
only.
 Time and cost constraints are also short to the area of the study.

8 Work Schedule
Time work Schedule
S.N Tasks Weeks
1 2 3 4 5 6
1 Topic selection, proposal development
and literature review
2 Data collection and entering data
3 Data presentation and analysis
4 Report writing
5 Finalization and report printing
6 Report submission and presentation
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BIBLIOGRAPHY

Agriculture Development Bank Limited, Annual Reports (2075/76-2079/80),

Das A. (1997). Technical allocation and Scale Efficiency of the Public Sector Banks
in India. Journal of banking and financial institutions, New Delhi:
Bibek Publications.
Malla, S. (2020) A study on Liquidity liquidity analysis of Nepal bank limited.
[Unpublished BBS Report]. Kanya Campus, Tribhuvan University, Pokhara,
Nepal.
Pant, P.R. (1998). Field work Assignment and Report writing. Veena
Academic Enterprise Pvt. Ltd.
Sen, A. (2018). A study on Liquidity Analysis of Machhapuchchhre Bank Limited,
[Unpublished BBS Report]. Faculty of Management, Kalika Multiple
Campus, Tribhuwan University, Pokhara, Nepal.
Sunar, S. (2020). A study on Liquidity analysis of Gandaki Bikas Bank Limited
[Unpublished BBS Report]. Faculty of Management, Kanya Campus,
Tribhuvan University, Pokhara, Nepal.

Websites
https://www.myaccountingcourse.com/fin
ancial-ratios https://www.adbl.com.np