A CASE STUDY OF FINANCIAL PERFORMANCE

OF
KUMARI BANK LIMITED
DAMAULI BRANCH

Submitted by:
Deepak Bdr Kumal
T. U. Registered No.: ………………
Symbol No. :

A Field Work Report

Submitted to:
Shree Chij Kumar-Bishnu Kumari Campus
Faculty of Management
TRIBHUVAN UNIVERSITY

In partial fulfillment of the requirement for the degree of

Bachelor of Business Studies

Tanahun

May, 2015

Faculty of Management
 Tribhuvan University

RECOMMENDATION

This is to certify that the fieldwork assignment report.

Submitted by:
Deepak Bdr Kumal
T. U. Registered No.: ………………..
Symbol No. :

Entitled
A CASE STUDY OF FINANCIAL PERFORMANCE OF
KUMARI BANK LTD
(DAMAULI BRANCH)
has been prepared as approved by this department.
This fieldwork assignment report is forwarded for examination.

…………………..                                                          …………….………………..
     Supervisor                                                                          (Campus Chief)
                                                                       Shree Chij Kumar-Bishnu Kumari Campus
                                                                                                  Piple, Tanahun
Date:  May, 2015

Acknowledgement
            I am very much grateful to the Tribhuvan University authorities to include this Field work
Programme in the syllabus of B.B.S. 3 rd year, which, I think is very much helpful in development
practical knowledge of the students.

            I am, of course deeply indebted to our teacher Umesh paudel instructor to this assignment of
Shree Chij Kumar-Bishnu Kumari Campus for providing necessary guidance and instructions in
writing of this report.

            I would like to express may heartfelt thanks to all the staffs of Kumari Bank Ltd. Especially to
the honorable Manager for providing necessary data, documents and information.

            Lastly, my extend sincere thanks goes to my friend Mr. Mahesh Sharma for computer typing
and printing of this report.

Thank you,

                                                                                …..………………………..
                                                                                      (Deepak Bdr Kumal)
Date : May, 2015                                                Shree Chij Kumar-Bishnu Kumari Campus
                                                                                                        Symbol No.
                                                                                                       BBS 3rd Year

Table of Contents
Page No.
Recommendation
Acknowledgement
CHAPTER-I : INTRODUCTION                                                                                1-11
1.1        Background of the Project
1.2        Introduction to Kumari Bank Limited
1.3        Statement of the Problem
1.4        Objectives of the Study
1.5.       Research Methodology/Review of Related Study
2.1        Data Presentation and Analysis
2.1.1         Financial Analysis
(i)          Liquidity Ratio
(ii)         Current Ratio
(iii)        Cash and Bank balance to Total Deposit Ratio
(iv)        Cash and Bank balance to Current Deposit Ratio
(v)         Cash and Bank Balance to Current Assets Ratio
(vi)        Loan and Advance to Total Deposit ratio
2.1.2         Profitability Ratio
(i)          Net Profit to Total Assets Ratio
(ii)         Net Profit to Total Deposit Ratio
(iii)        Return on Shareholders Equity
(iv)        Return on Investment
(v)         Earning Per Share
(vi)        Dividend Per Share
(vii)       Dividend Payout Ratio
2.1.3 Leverage Ratio
(i)          Long-term debt to shareholder fund ratio
(ii)         Total long-term debt to Total assets ratio
(iii)        Total Debt to Shareholders fund Ratio
(iv)        Interest Coverage Ratio
2.1.4           Activity Ratio
(i)          Total Investment to Total Deposit Ratio
(ii)         Loan and Advances to Total Deposit Ratio
(iii)        Non-Performing Loans to Loan & Advances Ratio
(iv)        Loan and Advances to Fixed Deposit Ratio
(v)         Loan Loss Provision to Total Loans and Advances Ratio
(vi)        Interest Expenses to Total Deposit Ratio
(vii)       Interest Expenses to Total Expenses Ratio
2.2        Major Findings of the Study
3.1        Summary and Conclusion
3.2        Recommendation
BIBLOGRAPHY
Reference:

List of Tables
Page No.
Table 1: Current Ratio
Table 2: Cash & Bank Balance to Total Deposit Ratio
Table 3: Cash and Bank Balance to Current Deposit Ratio
Table 4: Cash and Bank Balance Assets Ratios
Table 5: Loans and Advances to Total Deposit Ratio
Table 6: Net Profit to Total Assets Ratio
Table 7: Net Profit Total Deposit Ratio
Table 8: Return on Shareholder's Equity
Table 9: Return on Investment
Table 10: Dividend Per Share
Table 11: Dividend Payout Ratio
Table 12: Long-term debt to shareholders fund ratio
Table 13: Total debt to Total Assets ratio
Table 14: Total Debt to Shareholders Fund Ratio
Table 15: Interest Coverage Ratio
Table 16: Total Investment to Total Deposit Ratio
Table 17: Loan and Advances to Total Deposit Ratio
Table 18: Non-Performing Loan to Loan & Advances Ratio
Table 19: Loan loss Provision to Total Loans and Advances Ratio
Table 20: Interest Expenses to Total Deposit Ratio
Table 21: Interest Expenses to Total Expenses Ratio

CHAPTER-I
                                        
INTRODUCTION

1.1  
Background of
the Project
            The circular flow of money in a
modern economy is maintained smoothly by
the national financial machine having now
main wheels.
           
i)       Money Market :
Mainly for short-term Finance to
provide working capital to industry and
commerce; and

ii)      Capital Market :

 Primary for long-term finance to provide block or fixed capital to business. These two
markets work together and are closely inter dependent. In fact, money market and capital market are
the components of one market called market of credit.

The growth of industries and planned industrialization depends upon the development of
both capital market which satisfies long-term finance and money market, which fulfills short-term
finance. Banks provide both short-term finance as well a long term finance. The development of
banking system is a must for the overal development of the economy of country. Banking system
can be considered as the life blood of the economy. In short banks are extremely necessary for the
healthy and prompt progress of country, its citizens and the societies it has. Banks create and
mobilized the capital, render several financial service that help boost the domestic and international
trade. Banks exercise considerable influence on the level of economic activity through their ability to
create money in the economy.

Banking system is necessary to offer institutional service of promotion undertaking,

finance & investment for the economy utility functions performed by banks of great economic
significance for the  economy which can influence the course and direction of economic activity
within the economy. The pool together the saving of he community and arrange of their productive
use by providing short as well as long term loans in different forms necessary for the trade and
commerce. They discharge various functions on behalf of their customers and in turn they paid for
services.
Modern commercial banks perform various functions like the payment of subscriptions,
insurance premium, rent etc. and collections of cheques, bills, salaries, pensions, dividends, interest
etc. on behalf of their customers by charging certain amount of commission for the services. In
addition, they purchase and discount bill of exchange promissory notes and exchange foreign
currency. Further more, commercial banks also arrange to remit money from a place to another at
very low fees by means of cheques, drafts, SWIFT, etc. They buy and sell shares and securities on
behalf of the customers act as the custodian of the valuable such as jewellery, documents of title to
goods, securities etc. belongings to the customers.

1.2   Introduction to Kumari Bank

Limited
            Kumari Bank Limited is a one of the Commercial ban in Nepal established under the
Commercial Bank Act 2031. This bank is established as limited company. So, the liability of the
Shareholders of this bank will be limited up to value of Share of the bank.

            The head office of Kumari Bank Limited is situated in Putalisada, Kathmandu. This bank was
established in Mangsir 24, 2056 B.S. and started its service on 2057 B.S. Chaitra 17. This bank
claimed to give modern, standard banking service to the customers.
             This bank has branches in Biratnagar, Birgunj, Pokhara, Dharan & New Road, Kathmandu.
At the initial stage of the stage of the bank's establishment, it was started with 35,00,000. Later on, in
the year 2060/2061 B.S. it raised its capital from 35,00,000 to 5,00,000 shares @ Rs. 100 each by
selling 1,50,000 additional shares to the general public.

            From the very beginning of its establishment the bank is providing good service to the
general public. Up to now the bank has attempted 5 annual general meeting.

            From the year review, it is seen that the bank has achieved tremendous growth and success
in all areas of it's operations due to the patronage, trust and confidences of its customers.

            The bank has continued to remain committed to maximize the return of the shareholders
investment in the bank have been pursuing actions and strategies for steady growth and increase
return while closely monitoring the quality of assets.

            The bank is also contributing for the development of country from it side by investing it's fund
to the various sectors related to investment.

1.3   Statement of the Problem

            A sound banking system with wide spread branch throughout the country with varieties of
banking service to fulfills commerce, trade industry and agriculture needs of the country is of crucial
importance for Nepal. It can be visualized that the banking development in Nepal is in its infants
stage.

            In Nepal, private commercial banks have shown a good financial performance, people
believe that the productivity and profitability position of commercial banks are strong. In these
circumstances, it is highly useful to make the study on Kumari Bank Ltd. This study enables us to
see clear picture of the status of the bank.

            The real evaluation has not been made to judge the performance of Kumar Bank Ltd. Its
profitability position and stock prices are generally considered to the yard sticks of its better
performance but one can raise the question whether it is enough to reflect the performance of
Kumari Bank Limited.
           
            The main problematic of the study is to inquire into the financial performance of the Kumari
Bank Ltd. This study has aimed to find out to the following questions:

(a)       Kumari Bank Limited is considered to be operationally efficient. But how far it is efficient ?
(b)       What is the financial performance of Kumari Bank Limited ?
(c)        Do Kumari Bank Limited utilize its assets efficiently ?
(d)       Does the overall financial statement analyze the financial position indicating any special strength and
weakness of the Bank ?
(e)       Are they maintaining sufficient liquidity position ?
             In this context, the main purpose of the study is analyzing the financial performance of the
Kumari Bank Limited in terms of profitability, liquidity, turnover, and efficiency in operation as well as
other related dimensions.

1.4   Objectives of the Study

            The core objective of the study is to analyze the financial performance of Kumari Bank Ltd.
The specific objectives of this research study are as follows:
(a)       To evaluate the financial performance of Kumari Bank Limited
(b)       To identify the profitability position of the bank.
(c)        To identify the liquidity turnover efficiency of assets management.  

1.5.  Research Methodology/Review of

Related Study
            Research methodology refers to the various segmental steps along with the rationale of each
step to be adopted by a researcher in studying a problem with certain objectives in view. In other
words research methodology describes the methods and process applied in the entire aspects of the
study.

            The basic objectives of this study is to analyze the financial performance of Kumari Bank
Limited. An appropriate research methodology has to be followed to achieve the desired objectives
of the study. It would be appropriate to mention here that research study is not meaningful to any
unless they are sequential in order which will be determined by the particular problem at hand. This
project focuses and deals with the following parts of methodology.

1.         Data collection

2          Data analysis

1.      Data Collection

            The annual report of Kumar Bank Limited was obtained from the Bank itself. Moreover,
monthly and economic bulletin banking and financial statistics, economic report etc. have been
collected. The data collection of primary and secondary sources.

2.      Data Analysis

            The following tools are used to analyze the data presented in the study.

            (i)      Ratio Analysis

A ratio is simply one number expressed in terms of another and on such it express the
quantitative relationship between any two numbers. Ratio can be expressed in terms of percentage,
proportion and as a coefficient.
           
 (ii)      Liquidity Ratio
                        Liquidity ratios are used measure a firm's ability to meet short-terms obligations. They
compare short terms obligations to short-term (current) resources available to meet these
obligations. From these ratios, much insight can be obtained into the present cash solvency of the
firm and the firm's ability to remain solvent in the event of the adversity.

            The following ratios are evaluated under liquidity ratio:

                  Current Ratio
                  Cash & Bank balance to Current deposit ratio
                  Cash & Bank balance to Current asset ratio

Current Ratio
            It measures the short-term solvency position of firm by the current assets. It is derived by
dividing current assets by current liabilities as follows:

Current Ratio =

            Current assets are those assets that can be converted into cash within a year, such as cash
& Bank balance, Investment, Debtors, Inventories, Prepaid expenses, Money at call and short
notice, Overdrafts etc.

            Higher current ratio indicates better liquidity position and 2:1 or more is considered
satisfactory. But all times this standard cannot be followed blindly, it depends upon quality of assets.

Cash and Bank balance to Current Deposit Ratio

            This ratio measures the ability of bank's current  assets to fulfills the current deposit. High
levels of liquidity is not good as idle assets earn nothing. This ratio is calculated as under:

Cash and Bank balance to Current Deposit ratio = 

Cash and Bank balance to Total Deposit Ratio

            This ratio shows the percentage of liquid assets held on compared to the total deposit. High
ratio shows the strong liquidity position of the bank. But very high ratio is not favorable for the bank,
as it does not produce appropriate profit to bear the high interest.
            The total deposit consists of current deposit, savings deposit, fixed deposit, money at call
and short notice and other deposits. This ratio is calculated as:

Cash & Bank balance to Total Deposit Ratio =

Cash & Bank balance to Current assets ratio

            Cash & Bank balance is the most liquid form of current assets. This ratio measures the
proportion of cash and bank balance held by the bank. Current assets includes: Cash & Bank
balance, Money at call and short notice, Loans and Advances including, Bill discounted and
Purchased, Investments in government securities and other securities, Interests receivable and
miscellaneous current assets shown under used head other assets.

The ratio is calculated as follows =

Loan and Advances to Total Deposit ratio:

            This ratio measures the banks ability to utilize the via fixed, savings, current call and margin
deposit to earn profit by providing loans and advances. Higher ratios indicates higher utilization of
funds and lower ratio is the signal of balance remained un utilize or remaining idle. The ratio can be
computed by using following formula:

Loans and Advances to total deposit ratio=

iii.      Profitability Ratio

            Profitability ratio measures the efficiency and searches the degree of success in achieving
desired profit. Any firm should earn satisfactory profit to survive and grow over a long period in the
competitive environment profitability ratio can be determined on the basis of either sales investment.
Through this ratio the investor decides whether to invest in a particular business or not. Some of the
important profitability ratio have been calculated and interpreted in this study which is presented
below:

Net profit to total assets ratio

            This ratio measures the banks ability to earn as rate of return on the total assets invested. It
measures the return on assets. The ratio is calculated by dividing the net profit after tax by total
assets.

Net profit to total assets ratio=

Net profit to Total deposit ratio

            It is used fro measuring the internal rate of return from deposits. Here net profit means profit
after tax and deposit, total deposits including savings, current, fixed, call, margin and other deposits.
Higher ratio indicates the return from investment on loan and advances are better utilized and
mobilized. It is computed by dividing the net profit by total deposit.

Net profit to total deposit ratio=

Return on Shareholders equity

            It is the most vital to judge whether a concern has earned a satisfactory return to its owner or
not. Here, return refers to net profit after tax. This ratio is expressed by dividing net profit after tax to
ordinary shareholder's equity.

Return on Shareholder's Equity=

Return to Investment
            Return on investment measures the company's return from investment or the capacity to
generate profit from its investment. It can be computed by dividing net profit after tax to total
investment.

Return on Investment =

Earning Per Share

            It measures the profit available to the common shareholders as per share basis i.e. the
amount they get from every share. This division will automatically after the earning per share. The
earning per share is calculated by dividing net profit after tax to the shareholders by number of
outstanding shares.

Earning Per Share =

Divided Per Share

            Divided implies that portion of net profit, which is allocated to shareholders as return on either
investment on cash. The net profit after tax belongs to shareholders. However, the income which
they really received is the amount of earning distributed as such dividend. The dividend per share is
that portion of earning which is allocated to shareholders divided by the total no. of shares
outstanding. Thus, dividend per share is computed by dividing the total amount of dividend paid by
the no. of outstanding share.

Dividend per share =

Dividend Payout Ratio

            Dividend payout ratio indicated the percentage amount of dividend paid to shareholders out
of earnings per share i.e. this ratio reflects at what percentage of net profit is to be distributed in
terms of dividend and what percentage is to be retained by company as retained earning. This
earning is needed for business to grow and to expand. From the shareholders point of view, the
dividends are more desirable to increase their current wealth and retained earning are the must
sufficient internal sources of financing for the earning per share. Therefore, where there are not
dividends paid, there is not dividend payout ratio. The share holder of company always expects a
higher dividend payout ratio.

Dividend Payout Ratio =

Leverage Ratio
            Leverage ratio is known as capital structure ratio or solvency ratio. It is calculated to measure
the long term financial position of a firm. Debt and equity are long-term obligation. This ratio
indicates the fund provided by owners & creditors. Leverage ratio measures the overall financial risk
as well the ability of the bank in using debt for the benefit for the share holders. Thus, there should
be appropriate mix of debt and owners equity in financing the firm's assets. To find out the long
solvency of the bank several ratio are calculated. This ratio helps to find out the proportions of
outsiders fund and owners fund.

Long-term debt to Shareholders fund ratio

            Long-term debt means total amount of fixed and loan from banks and share holders fund
consists of general reserve, share premium other reserves, general loans, loss provision, retained
earnings and proposed capitalization. The ratio shows the proportion of outside long-term liabilities
to shareholder's total funds. The ratio can be calculated by using following formula:

Long-term debt to shareholders fund ratio=

Total debt to Shareholders fund ratio

            Total debt refers to the sum of long-term debt and short-term debt. Debenture or bands,
differed payment arrangements for buying capital equipment and bank borrowing public deposits
and any other interest bearing loan. Total debt to fund ratio can be calculated by dividing total debt
by the shareholders fund.

Total debt to shareholders fund ratio= 

Total debt to total assets ratio

            This ratio implies a bank's success in exploiting debts to be more profitable as well as its
riskier capital structure to assess the proportion of total funds short-term and long-term, provided by
outsider to finance assets the following ratio may be calculated :

Total debt to Total assets ratio=

Interest coverage ratio

            Other debt ratio describes above is state in nature and fail to indicated the firm's ability to
meet interests obligations. The interest coverage ratio is one of the most conventional. Coverage
ratio is computed by dividing earnings before interest and tax by interest charges:

Interest Coverage Ratio=

Activity Ratio
            Activity ratio measures efficiency of an organization from various angles of its operations.
This ratio indicates the efficiency of activity of an enterprise to utilize available funds, particularly
short-term funds. The following activity ratios measure the performance, efficiency of an organization
to utilize its short-term funds. These ratios are used to determine the efficiency, quality and the
contribution of loans and advances in the total profitability.

Total Investment to Total Deposits Ratio

            This ratio reveals now efficiency the resources of the banks have been mobilized. High ratio
shows the managerial efficiency regarding the utilization of deposits and vice-versa.

Total Investment to Total Deposit Ratio=

Loan and Advances to Total Deposit Ratio

            This ratio indicates the proportion of total deposit investment in loan and advances. Higher
ratio indicates the proper use of total deposit where as lower ratio indicates less use of deposit or
idle cash. The ratio is calculated as:

Loan and Advances to Total Deposit Ratio=

Non-Performing Loans to Loan and Advances Ratio

            This ratio indicates the percentage of non-performing loans out of total loans and advances.
Higher ratio shows the inefficiency of the banks in lending and vice-versa. The ratio is calculated as:

Non-Performing loans & Loan and Advances Ratio=

Loans & Advances to Fixed Deposit Ratio

            This ratio indicates the proportion of expenses incurred interest out of total deposit of the
bank. The ratio is calculated as under:

Loan and Advances to Fixed Deposit Ratio=

Loan loss Provision to Total Loans & Advances Ratio
            This ratio indicates the percentage of provision for loan loss out of total loans and advances.
Banks to provisioning as per the guidance of Nepal Rastra Bank. Loan loss provision is interlinked
with non-performing loans. Higher the Non-performing loans, higher will be loan loss provision. The
ratio is calculated as:

Loan loss Provision to total & advances ratio= 

Interest Expenses to Total Deposit Ratio

            This ratio indicates the proportion of expenses incurred interest out of total deposit of the
bank. The ratio is calculated as under:

Interest Expenses to Total Deposit Ratio=

Interest Expenses to Total Expenses Ratio

            This ratio shows the percentage of interest of interest expenses out of total expenses. High
ratio indicates that the major portion expenses has been spent for interest. The ratio is calculated as:

Interest Expenses to Total Expense Ratio=

CHAPTER-II

DATA ANALYSIS & MAJOR FINDINGS

2.1   Data Presentation and Analysis

            The main purpose of analyzing the financial performance and interpretation is to highlight the
strength and weakness of the business enterprises. Therefore, this chapter includes the analysis
and result of gathered with a view to assessing financial performance of the bank for the period of 3
years. Consequently, this analysis help the management take benefits of strategic management
technique by providing the information regarding the strength and weakness of Kumari Bank Limited
to exploit the opportunities lying in the environment and manage the threat posed by the
environment.

            In this chapter, the data are presented, calculated and analyzed. The secondary data is used
for the purpose and for the data presentation of three years (2011/12, 2012/13, 2013/14).

2.1.1        Financial Analysis

 Ratio Analysis
            As mentioned in the earlier chapter, various ratios are applied to judge the financial viability
of the Kumari Bank Limited. The following ratios are used to analyze and check the financial position
of the bank.
(i)      Liquidity Ratio

            Profitability of a bank is more closely related to liquidity of a commercial bank than
any other business firm. since it has to gain confidence from depositors and customers which is the
largest sources of fund as well as earning. Liquidity ratio measures the firm's ability to pay its short-
term obligations. It also assets the solvency of the company and its ability to retain solvent even in
difficult times. In case of commercial banks, short-term obligations are current deposit, saving
deposit, short-term loans and source of meeting these obligations are cash and bank balance,
money at call and short-term notice, investments in government securities and bill discounted and
purchased. There is compulsion in banking sector to maintain cash and bank balance as directed by
the Nepal Rastra Bank. From legal perspective cash and bank balance to total deposit ratio shows
actual liquidity position of the bank whereas other liquidity ratio are also useful.
            The liquidity ratio can be analyzed under the following four classifications:
(ii)     Current Ratio
            This ratio is applied to test solvency as well as in determining short-term financial strength of
the bank. The current ratio indicates the availability of current assets in rupees for very one rupee of
current liabilities. This ratio more than 2.1 is satisfactory. It is computed as dividing current assets by
current liabilities. The current ratio of the bank for this report is calculated as follows:

Current Ratio=

Table 1: Current Ratio

Year Current Assets Current Liabilities Ratio
2011/12 2945750832 2625142306 1.120
2012/13 5437024355 4960773398 1.096
2013/14 7354897975 6792440589 1.083

Assets =       Cash & Bank balance + Money at call & short notice + Loans and Advances + other assets

            Generally, higher current ratio indicates better liquidity position and 2:1 or more is considered
satisfactory. But here in the context of bank this ratio is less than 2:1 but we considered it
satisfactory because bank always have more liquid current assets than other types of organization.
Here in the context of Kumari Bank Limited the current ratio of 2011/2012 is 1.120, 2012/13 is 1.096
and 2013/14 is 1.083. It indicates that the liquidity position of the bank has decreased with
comparison to the year 2011/2012.
(iii)    Cash and Bank balance to Total Deposit Ratio
            This ratio shows the percentage of liquid assets held as compared to the total deposit. High
ratio shows the strong liquidity position of the bank. It can be calculated as follows:
 Cash & Balance to Total Deposit Ratio= 

Table 2: Cash & Bank Balance to Total Deposit Ratio

Year Cash & Bank Balance Total Deposit Ratio
2011/12 291705250 2513144223 0.117
2012/13 658477911 4807936964 0.143
2013/14 443371369 6268954481 0.070

            The cash and bank balance to total deposit ratio of the bank in the fiscal year 2011/2012 is
0.116, in the fiscal year 2012/2013 is 0.143 & in the fiscal year 2013/14 is 0.070. It shows that the
bank has more strong liquidity position in the fiscal year 2012/2013 as compare to the fiscal year
2011/2012 but the bank has not strong liquidity position in fiscal year 2013/14 as compare to
2012/2013. The high ratio also indicates the idle portion of the total deposit amount which cannot
generate income.
(iv)    Cash and Bank balance to Current Deposit Ratio
            This ratio measures the ability of banks current assets to fulfill the current deposit. It is
calculated as follows:

Cash and Bank balance to Current Deposit Ratio=

Table 3: Cash and Bank Balance to Current Deposit Ratio

Year Cash & Bank Balance Current Deposit Ratio
2011/12 291715250 135081020 2.519
2012/13 685477911 251045213 2.730
2013/14 443371369 279361097 1.588

            The bank's cash and bank balance to current deposit ratio is higher because it is more than 2
times in the fiscal year 2011/12 and 2012/13 but the ratio in the fiscal year 2013/14 is less than
previous years. It indicates that there is high level of idle assets in the year 2011/12 and 2012/13,
which earn nothing. But bank tires to minimize the idle cash by investing it to the productive sectors.
This shows by its lower ratio. The ratios are 2.519 in fiscal year 2011/2012, 2.730 in the fiscal year
2012/2013 and 1.588 in the year 2013/14.
(v)     Cash and Bank Balance to Current Assets Ratio
            This ratio measures the proportion of cash and bank balance held by the bank to compare
with current assets. It can be calculated as follows:

Cash and Bank Balance to Current Assets Ratio=

Table 4: Cash and Bank Balance Assets Ratios
 Year Cash & Bank Balance Current Deposit Ratio
2011/12 291715250 2945750832 0.099
2012/13 685477911 5437024355 0.125
2013/14 443371369 2354897975 0.060

            This ratio shows that the bank is not able to repay its current obligation by cash and bank
balance. In other words, cash and balance is very low with compare to its current assets. In the fiscal
year 2011/12 is 0.126 and in the fiscal year 2012/13 is 0.60. This means that the bank has increased
its cash and bank balance in the year 2012/13 but decrease in 2012/13. This ratio of the bank is
somehow satisfactory because high cash and bank balance increase cost as it is idle. So the bank
should maintain its cash and bank balance by analyzing its liquidity factor.
(vi)    Loan and Advance to Total Deposit ratio
            This ratio measures the banks ability to utilize the amount that has been collected through
saving, current & fixed deposit account. High ratio indicates the higher utilization of amount and vice-
versa. It can be calculated as follows:

Loans and Advances to Total Deposit Ratio=

Table 5: Loans and Advances to Total Deposit Ratio

Year Cash & Bank Balance Current Deposit Ratio
2011/12 2105736522 2513144223 0.838
2012/13 3649008723 4807936964 0.759
2013/14 5590925658 6268954481 0.982

            The loan and advances to total deposit ratio of the Kumari Bank Limited in the fiscal year
2011/12 is 0.838 means about 83% of its deposit is utilized in the loan and advances. In fiscal year
2012/13 is 0.759 means about 75% of its total deposit is utilized in loan and advances and in the
fiscal year 2012/13 is 0.892 means about 89% of its total deposit is utilized. This ratio decreased in
the fiscal year 2012/13, thus 2011/12 by about 13% that means the banks ability to utilize its fund is
decreased which is not good but in the year 2012/13 ratio increased by 14% which shows bank is
trying to utilize its fund. This is good.

2.1.2        Profitability Ratio

            It measures the efficiency and searches the degree of success in achieving desired profit.
Any firm should earn satisfactory profit for survive and grow over a long period in the competitive
environment. Moreover, through this ratio the investor can decide whether to invest or not. Under
this ratio the following ratio are calculated.
(i)      Net Profit to Total Assets Ratio
            This ratio measure the firm's ability to earn return on total assets invested. It measures the
return on assets. The higher rate of return is considered good and vice-versa. This ratio can be
calculated as follows:
 Net profit to total assets ratio=

Table 6: Net Profit to Total Assets Ratio

Year Net Profit Total Assets Ratio
2011/12 12474065 2686175754 0.00918
2012/13 48685822 5494176578 0.00886
2013/14 87880557 7437885125 0.01182

            The net profit to total assets ratio of the bank is very low in fiscal year. It indicates that the
bank is not in good position to earn profit. In the latest year bank's profit and ratio of net profit to total
assets is increased, this factor is good, but the increasing pattern is as the race of tortoise. Bank
should accelerate it speed to increase its profit ratio in the coming year.
(ii)     Net Profit to Total Deposit Ratio
            This ratio is used to measure the internal rate of deposit. Here net profit means profit after tax
and deposit means total deposit including saving, current and fixed. Higher ratio indicates the return
from the loan and advances is better. It can be calculated as follows:

Net Profit to Total Deposit Ratio=

Table 7: Net Profit Total Deposit Ratio
Year Net Profit after Tax Total Deposit Ratio
2011/12 12474065 2513144223 0.00496
2012/13 48685822 4807936964 0.01013
2013/14 87880557 6268954481 0.0141
            The net profit to total deposit ratio of the bank in fiscal year 2011/12 is 0.00496, in 2012/13 is
0.01013 and in 2012/13 is 0.0141. It indicates quite low rate of return on deposit. But the bank is
also increasing its rate return as compared to increasing in total deposit. This ratio is low because
here the net profit is taken after deducting bonus to staff and provision for losses.
(iii)    Return on Shareholders Equity
            This ratio is very important tool to judge whether the concern has earn satisfactory returns to
its over or not. Here return refers to the profit after tax. This ratio is calculated as follows:

Return on Shareholder's Equity=

Table 8: Return on Shareholder's Equity
Year Net Profit after Tax Total Deposit Ratio
2011/12 12474065 392883373 0.03175
2012/13 48685822 570147056 0.0854
2013/14 87880557 533801337 0.1647
            The return on shareholders equity measures the performance of the bank. The above table
reveals that Kumari Bank Limited has used very properly the shareholder's fund which is
represented by increasing trend of net profit. Ratio is also increasing pattern. The Owners of the
Kamari Bank Ltd. are satisfied by seeing above table.
(iv)    Return on Investment
            Return on investment measures the company's return from investment or the capacity to
generate profit from investment. This ratio is considered to know the investment generates income
from investment. The high ratio is considered as good performance of company. This ratio is
calculated as under:

Return on Investment = 
Table 9: Return on Investment
Year Net Profit after Tax Total Investment Ratio
2011/12 12474065 423154880 0.029
2012/13 48685822 983504403 0.049
2013/14 87880557 1190271012 0.074

            The above table reveals that the ratio of increasing total investment is less than the increase
percentage of the ratio. It indicates that the bank has used its fund to generate its income. From the
increasing ratio of return on investment, we can confidently say that the performance of the bank is
in good condition
(v)     Earning Per Share
            It measures the profit available to the common shareholders as per share basis. If one
forgets to calculate the return on shareholders equity, his performance analysis cannot be
completed. Common shareholders are entitled to the residual profit. The rate of common dividend is
not fixed, the earning many be distributed to them or retained in the business. This ratio indicates
how well the firm utilizes the resources of owners. In fact, this ratio of great interest to present as
well as prospective shareholders is also of great concern to the management, which has the
responsibility of maximizing the owner's welfare. This can be calculated as under:

Earning Per Share=

            By studying the above table, we can say that the bank has increased the shareholder's
equity by (9.74-3.56) i.e. 6.18 in the fiscal year 2012/13 and in the latest fiscal year 2012/13 bank
has also increased its earning per share by (17.58 - 9.74) i.e. 7.84. However, the bank has
increased its shareholders equity or common stock by 15,00,000 in the year 2013/14. The above
figure shows that bank is in dynamic motion to increase its shareholder's earning per share at the
high rate. So, we can say that the performance of the bank is a very good; it makes the common
shareholders satisfied.
(vi)    Dividend Per Share
            Dividend implies that portion of net profit, which is allocated to shareholders return on either
investment on cash. It is the net profit after tax belongs to shareholders. However the income which
they really received is the amount of earning distributed as cash dividend per share is that portion of
earning per share that is distributed to common shareholder. It can be calculated as follows:

Dividend Per Share=

Table 10: Dividend Per Share

Year Earning Paid to Shareholder No. of common stock D.P.S.
2011/12 ---- 3500000 ----
2012/13 26300000 5000000 5.26
2013/14 ------ 5000000 -----

            The Kumari Bank Limited has not distributed cash dividend on the fiscal year 2012/13 and
2012/13 but it paid the cash dividend on fiscal year 2012/13 is 5.26 per share. It means the bank has
earned more in the fiscal year 2012/13. This factor is very good from the view point of shareholder. It
makes shareholders satisfied.
(vii)   Dividend Payout Ratio
            It indicates the percentage amount of dividend paid to shareholders out of earning per share.
It means it refers to what percent of earning is distributed to shareholders as cash dividend and what
percent of earning is n the form of retained earning. That is needed for business to grow and
expand. From the shareholders point of view more cash dividend is desirable however from
business point of view or organization's point of view more retained earning is desirable for internal
financing. It is calculated as follows:

Dividend Payout Ratio=

Table 11: Dividend Payout Ratio

Year Dividend Per Share Earning Per Share Ratio
2011/12 ---- 3.56 ----
2012/13 5.26 9.74 0.54
2013/14 ------ 17.58 -----

            The bank has not distributed cash dividend in the fiscal year 2011/12 and 2012/13 but in the
fiscal year 2012/13 the bank distributed 0.54 or 54% of its earning to the shareholders. The rest
portion of the earning of the bank is taken is retained earning which is useful for internal financing.
From the above table we know that 46% of the earning is taken as retained earning in the fiscal year
2012/13. All the earnings is retained in the fiscal year 2011/12 & 2013/14.

2.1.3 Leverage Ratio

            Leverage ratio is also called structure ratio. It is the solvency ratio too. It is calculated to
measure the long-term financial position of a firm, debt & equity. This ratio measures the solvency of
long-term debt from equity.

            But in the context of Kumari Bank Limited there is not long-term. So, fixed deposit is taken as
its long-term liability. And here we have calculated the solvency of fixed deposit by its equity under
leverage ratio. The following ratios are calculated:
(i)      Long-term debt to shareholder fund ratio
            This ratio shows that the total amount of fixed deposit and long-term bank loan and
shareholders fund consists of general reserve, share premium, other reserves and share capital.
Here in the context of Kumari Bank Limited long-term loan is taken as fixed deposit and loan
advance from bank other institutions. This ratio is calculated as under:

Long-term debt to shareholders fund ratio=

Table 12: Long-term debt to shareholders fund ratio
Year Long-term Debt Shareholder's Fund Ratio
2011/12 798402962 392883373 2.024
2012/13 1292449200 570147056 2.267
2013/14 2703848950 533801337 5.066

            The long-term debt to shareholder fund ratio of the bank in the fiscal year 2011/12 is 2.024
which mean the bank has more than double shareholders fund than the fixed deposit. So it can
cover the fixed deposit by shareholder fund. In the fiscal year 2012/13 the ratio is increased than the
fiscal year 2011/12. And in the fiscal year 2012/13 the ratio is increased as double as 2013/14. This
means there is no risk to deposit in this ban from the depositor point of view. 
(ii)     Total long-term debt to Total assets ratio
            This ratio implies banks success in exploiting debts to be more as well as its riskier capital
structure. For the requirement fund to the firm the management should financed the proper mix of
fund from the debt and others. This ratio is calculated as under:

Total debt to Total assets ratio=

Table 13: Total debt to Total Assets ratio

Year Long-term Debt Total Assets Ratio
2011/12 798402962 2986178454 0.267
2012/13 1292449200 5495176578 0.235
2013/14 2703848950 7437882125 0.364

            The total debt to total assets ratio of the bank in the fiscal year 2011/12 is 0.267, 2012/13 is
0.235 and 2013/14 is 0.364. It indicates that 0.267 times in fiscal year 2011/12, 0235 times in fiscal
year 2013/14 and 0.364 times in the fiscal year 2012/13 of total assets is total debt. Total ratio is
decreased in the fiscal year 2012/13 than fiscal year 2011/12 but increased in fiscal year 2013/14 as
compare to earlier.
(iii)    Total Debt to Shareholders fund Ratio
            This ratio shows the relation between total debt and shareholder's equity. It shows the ratio
between total debt and shareholder's equity. It measures the solvency of total debt from the
shareholders equity. Here, in the context of Kumari Bank Limited total debt is taken as fixed deposit
and other short-term liabilities. This ratio is calculated as follows:

Total Debt to Shareholders Fund Ratio=

Table 14: Total Debt to Shareholders Fund Ratio

Year Total Debt Shareholder's Fund Ratio
2011/12 2625142306 392883373 6.682
2012/13 4960773398 570147056 8.701
2013/14 6937882125 533801337 12.99

            The total debt to shareholder's fund ratio of the bank is very high. It indicates that in the fiscal
year 2011/12 the bank has used 6 times more debt than equity. In the fiscal year 2012/13 it has
used 8 times more than shareholders equity. And in the fiscal year 2013/14 it has used 12 times
more than shareholders equity. The bank is increasing its debt portion as compared to equity
portion. It is risky for the creditor.

(iv)    Interest Coverage Ratio

            Interest coverage ratio measures the interest coverage power to the debt. It shows that the
bank is able to cover the interest on the debt others by earning before tax or not. This is calculated
as under:

Interest Coverage Ratio=

Table 15: Interest Coverage Ratio

Year EBIT Interest Ratio
2011/12 114298128 92945310 1.23
2012/13 201517886 163902663 1.23
2013/14 294529943 240130179 1.23

            The interest coverage ratio of the bank is also strong. It's interest coverage ratio is more than
one means that it can easily pay the interest to it's creditors from earning before tax.

2.1.4         Activity Ratio

            It measures efficiency of an organization from various angles of its operations. It indicates the
efficiency of activity of an enterprise to it's utilizing available funds. The following ratios measures the
performance efficiency of an organization to utilize the available funds.
(i)      Total Investment to Total Deposit Ratio
            This ratio reveals that the resources of the bank have been mobilized less efficiency. High
ratio shows the managerial efficiency regarding the utilization of deposit and vice-versa. This ratio
can be calculated as follows:

Total Investment to Total Deposit Ratio=

Table 16: Total Investment to Total Deposit Ratio

Year Total Investment Total Deposit Ratio
2011/12 423154880 2513144223 0.168
2012/13 983504403 4807936964 0.205
2013/14 1190271012 6268954481 0.189

            The investment to total deposit ratio of the bank is very low in the fiscal year 2011/12 as
about 17% in the fiscal year 2012/13 it is about 21% and in the fiscal year 2013/14 as about 19% of
the deposit has been invested means that the mobilization of the fund is very low. From the
comparison of first two fiscal years, the ratio has been increased in the fiscal year 2012/13 which is
acceptable to some extent but decrease in the latest fiscal year.
(ii)     Loan and Advances to Total Deposit Ratio
            This ratio indicates the proportion of total deposit invested in loan and advances. Higher ratio
indicates the proper use of deposit whereas the low ratio indicates the low use of deposit. This ratio
is determined as under:

Loan and Advances to Total Deposit Ratio=

Table 17: Loan and Advances to Total Deposit Ratio

Year Loan & Advances Total Deposit Ratio
2011/12 2105736822 2513144223 0.838
2012/13 3649008723 4807936934 0.759
2013/14 5590925658 6268954481 0.892

            Loan and Advances to total deposit ratio of Kumari Bank Limited is greater in fiscal Year
2011/12 than that of the fiscal year 2012/13 (i.e. 0.838 Vs 0.759) and also greater in fiscal year
2012/13 than that of fiscal year 2013/14 (i.e. 0.759 Vs 0.892). It indicates that the utilization of
deposit in loan and advances of the bank is decreased in the fiscal year 2012/13 but increased in the
fiscal year 2013/14. It indicates that the bank's performance is fluctuating in the context of utilization
of deposit in loan and advances.
(iii)    Non-Performing Loans to Loan & Advances Ratio
            This ratio indicates the performance of non-performing loans out of total loan and advances.
Higher ratio shows the inefficiency and lower ratio shows the efficiency of the firm. This ratio is
calculated as follows:
 Non-Performing Loans to Loan & Advances Ratio=

Table 18: Non-Performing Loan to Loan & Advances Ratio

Year Non-Performing Loans Loan & Advances Ratio
2011/12 36323814 2105736822 0.017
2012/13 28189656 3649008723 0.008
2013/14 53988537 5590925658 0.009

            From the above table, we can say that the efficiency performance of Kumari Bank Limited in
context of non-performing loan is efficient because its ratio of non-performing loans is low.
(iv)    Loan and Advances to Fixed Deposit Ratio
            This ratio indicates the utilization of fixed deposit in loans and advances.  High ratio shows
the efficiency in utilization of fixed deposit amount in loan and advances and vice-versa. This ratio
can be calculated as follows:

Loan and Advances to Fixed Deposit Ratio=

Year Loan & Advances Fixed Deposit Ratio
2011/12 2105736822 795402962 2.64
2012/13 3649008723 1292449200 2.82
2013/14 5590925658 2302087622 2.42

            This table shows that the loan and advances of Kumari Bank Limited is two times more than
fixed deposit and in increasing trend in both the fiscal year. So, it shows the bank's efficiency and
better performance.
(v)     Loan Loss Provision to Total Loans and Advances Ratio
            This ratio indicates the percentage of Provision for loan loss out of total loans and advances.
Banks do make such provisions as per the guidance and direction of Nepal Rastra Bank. This ratio
can be calculated as follows:

Loan Loss Provision to Total Loans and Advances Ratio=

Table 19: Loan loss Provision to Total Loans and Advances Ratio

Year Loan Loss Provision Loan & Advances Ratio
2011/12 16805159 2105736822 0.0080
2012/13 17125580 344008723 0.0049
2013/14 41111258 559092568 0.0074
 The loan loss provision to loan advances ratio of the bank has decreased in the fiscal year
2012/13. In this context, the performance of the bank is quite weak. But ratio is increased in the
latest year, which is quite satisfactory.
(vi)    Interest Expenses to Total Deposit Ratio
            This ratio indicates the proportion of expenses incurred for interest out of total deposit of the
bank. This ratio is calculated as follows:

Interest Expenses to Total Deposit Ratio=

Table 20: Interest Expenses to Total Deposit Ratio

Year Interest Expenses Total Deposit Ratio
2011/12 92945310 2513144223 0.037
2012/13 163902663 4807936964 0.034
2013/14 240130179 6268954481 0.038

            By evaluating the above table, we came to know that the interest expenses to total deposit
ratio of the bank is 0.037 in the fiscal year 2011/12, 0.034 in the fiscal year 2012/13 and 0.038 in the
fiscal year 2013/14. The ratio has slightly decreased in the year 2013/14 and slightly increased in the
latest year. The deduction of expenses is favorable for the bank. It should be considered as efficient
performance of the bank.
(vii)   Interest Expenses to Total Expenses Ratio
            This ratio indicates the proportion of the interest expenses to the total expenses. Higher ratio
indicates that the major portion has been spent on interest expenses. This ratio is calculated as
follows:

Interest Expenses to Total Expenses Ratio=

Table 21: Interest Expenses to Total Expenses Ratio

Year Interest Expenses Total Deposit Ratio
2011/12 92945310 161703002 0.575
2012/13 163902663 258920112 0.658
2013/14 240130179 354337190 0.677

            From the above table, we can say that the bank's interest expense to total expenses is
higher than 50%. Which means about 58% of its total expenses are interest expenses and the rest
are other expenses in the fiscal year 2011/12, about 66% of the total expenses are interest
expenses in the fiscal year 2012/13 and about 68% of the total expenses are interest expenses in
the fiscal year 2013/14. The ratio has increased in the latest years.

2.2   Major Findings of the Study

             This assignment work report has been prepared as per the format prescribed by the subject
lecturer and entitled 'A Study of Financial Performance of Kumari Bank Limited." This report has
been divided into three chapters as 'Introduction', 'Data Analysis and Presentation' and Summary
and Conclusion' this main chapter contains various subjects. The main part of this report is
Presentation and Analysis of Data. For the data analysis purpose Ratio Analysis tools have been
used to evaluate the performance of the bank. The major findings of the study are as follows:

                  From the study, we found that Kumari Bank Limited is overall beneficial Commercial Bank in the
Nation and profitability position of the bank is much satisfactory.
                  From the Liquidity Ratio, we found that the Bank is in strong position to its Short-term obligations
and moreover the bank is increasing it's short-term solvency power for short-term liabilities from
current assets.
                  From the Leverage Ratio, we fond to conclude that the bank has taken some long-term loans from
central banks. So, by using fixed deposit and loan from bank as long-term liability, we found that the
financial structure of the bank is satisfactory.
                  From the Activity Ratio, we found that the bank has utilized it's deposits efficiently in the productive
sector. The bank has invested high percent of available funds to generate income.
                  From the profitability Ratio, we found that the bank is in profitable condition. In the fiscal year
2011/12 and 2012/13, the bank has not distributed any cash divided but in the fiscal year 2012/13, it
has distributed cash dividend to it's shareholders. Because of it's good financial performance, the
bank has generated profit the financial activities.

Some other findings of this study are listed below:

                  The earning per share of the bank has in increasing pattern. In the year 2011/12 it's earning per
share is Rs. 3.56, in the year 2012/13 it increased to Rs. 9.74 and in the year 2013/14 it increased to
Rs. 17.58.
                  In the fiscal year 2011/12 and 2013/14, the bank has not paid any dividend but in the fiscal year
2012/13 it paid 5.26% of share capital as dividend.
                  The interest income on loan and advances of the bank in fiscal year 2011/12 is 8.79%, in the year
2012/13 is 8.51% and in the year 2013/14 is 8.95%. Which is the result of inefficient performance of
the bank ?
                  The net profit on loan advances of the bank is 0.059% in the year 2011/12, in the year 2012/13 is
1.32% and in the year 2013/14 is 0.16%, which is the indicator of good financial performance of the
bank.  

CHAPTER-III
                           
SUMMARY, CONCLUSION & RECOMMENDATION

3.1   Summary and Conclusion

             This field work report has been prepared for the fulfillment of the internal assessment of BBS
programme. From this purpose, here we have analyzed the financial performance of Kumari Bank
Limited. To evaluate the financial performance of the bank, we have divided the whole report to
different chapters. In every chapter, there are several sub-chapter. The first Introduction chapter
gives background information about the project work, introduction of Kumari Bank Limited, Review
related studies etc. The second chapter called Presentation and Analysis of Data, we tried to
analyze it's financial performance through Ratio Analysis. By using this financial tool, we computed
different ratios to evaluate it's Liquidity position, Management Position, Profitability Position and
overall Financial Position.

            Ratio analysis is a very significant tool to financial performance analysis. It is one of the
means by which financial stability, wealth, viability and performance of a firm can be judged. Current
ratio of Kumari Bank Limited is how than it's theoretical norm that is 2:1. Its current ratio are 1.12,
1.096 and 1.083 in the year 2011/12, 2012/13 and 2013/14 respectively. But, there is not matter to
worry about because the bank has kept more liquid assets than other types of organization. Other
solvency power of bank to the different deposit by its cash is also in increasing trend. Moreover, it
should manage cash properly because cash on hand doesn't generate any income. In aggregate,
there is nothing to be worried about the liquidity position of the bank since it's quality of current
assets is very good which can be easily converted into cash within short period without any loss of
it's assets.

            The debt position is unfavorable to the management because it has not borrowed
loan from banks and institutions in the earlier years. But is the latest year bank has borrowed some
amount of money from central banks which is good symptom. By borrowing loans at low rate of
interest from other banks, the institution may generate lots of income by investing such loans on
highly profitable sectors. The profitability position of the bank is much satisfactory. The net profit of
the bank has increased as compared to it's increment in investment.

3.2   Recommendation
            However, we are not authorized person to recommend the management of Kumari Bank
Limited but here we attempt to recommend the management of Kumari Bank Limited. Here under we
have given some recommendation which may be useful to the management:

                  To raise the total capital of Kumari Bank Limited by long-term debt and minimize the use
shareholders equity.
                  To maintain the idle cash or cash equivalents minimum.
                  The bank should finance the maximum fund in external assets.
                  The bank should take maximum advantage by maintaining minimum cash holding and should
finance in riskier assets that is Loan and Advances to earn high interest.
                  For the better utilization of Shareholders fund, the bank should conduct research frequently.
                  Kumari Bank should maintain Liquidity to meet current obligations easily.
                  The bank should identify better investment opportunity to get high rates of return.
                  Management of the bank should be effective.
                  Personnel should be trained and motivated by giving incentives.
                  The bank needs to adopt new technologies, which is very helpful to work effectively and efficiency.
                  Loans Programs should be made attractive.
                  Customer Satisfaction should be the Bank's motto.

BIBLOGRAPHY

Testbooks:

I.M. Pandey, "Financial Management" Tata MC Graw-Hill Bup. New Delhi.

J. Fred Weston1983, Thomas E. Copeland, "Managerial Finance, Addison Wesley 1983.

Khan, M.Y. and Jain P.K. (1992), "Financial Management" Tata MC Graw-Hill, India.
P.R. Panta (1998), Fieldwork Assignment and Report Writing, Veena Academic Enterprises, Ktm.

Paul A. Samuelson Economic (New York M.C. Graw-Hill Company)

S.J. Khadka and H.B. Singh (2056), Banking and Principles, Lesgislation and Practice, Nabin
Prakashan, Bhotahity, Ktm.

Ronald Grywinshki, The New Fashoned Banking. (Harvered Business Review, May-June 1993)

Reference:
1.         The Nepal Commercial Bank Act 23031 B.S.

2.         Tiwari Netra, "A Comparative Study of Financial Performance of Commercial Banks Unpublish"
(Thesis of MBA)

3.         Shrestha M.K. "Commercial Banks Comparative Performance Evaluation" Kosh, Ktm, Karmachari
Sanchaya Kosh Publication, Year 16,2047.