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CHAPTER ONE
INTRODUCTION

1.1 Background of the Study

Finance is the life blood of trade, commerce and industry. Development of any country
mainly depends upon the banking system.
The term bank is either derived from Old Italian word banca or from a French word
banque both mean a bench or money exchange table. In olden days, European money
lenders or money changers used to display (show) coins of different countries in big heaps
(quantity) on benches or tables for the purpose of lending or exchanging. A bank is a
financial institution which deals with deposits and advances and other related services. It
receives money from those who want to save in the form of deposits and it lends money to
those who need it (www.imnepal.com).

“Bank is such a financial institution which collects money in current, savings or fixed
deposit account; collects cheques as deposits and pays money from the depositors‟ account
through cheques”- Samuelson

1.2 Statement of the Problems

The banking sector has become one of the growing sectors in Nepalese economy. But the
development is not as smooth as in the developing countries. So banks such as NMB bank
should take every step carefully to stabilize the economy. Cash management is the crucial
part of overall planning and control system of management. It has applied several tools and
established mechanism for proper planning and control of cash. Some of the issues to be
examined are stated as below.
 What are the sources of cash of NMB bank?
 What is the liquidity position of NMB bank Ltd?
 What is the cash position of NMB bank Ltd?
 What is the profitability position of NMB Bank Ltd?

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1.3 Objectives of the Study

 To know the sources of cash of NMB Bank Ltd.
 To analyze the liquidity position of NMB bank Ltd.
 To find the cash position of NMB bank Ltd.
 To insure about the profitability position of NMB bank Ltd

1.4 Significance of the Study

In every organization, the availability of the resources is scarce and out of this resources,
the objective of the organization are to be accomplished. The financial performance of the
organization depends prominently on the use of its resources. So that the study of cash
management tells us how to generate, utilize and manage cash properly. Globally, the
concept of zero working capital has got more emphasisze. The study of cash management
of NMB Bank Ltd provides crucial information about the existing cash management
system .It helps to determine the strength and weakness of the particular part of cash
management on which the objective of the study is based. The management and other
stakeholders of the bank will be benefited by the assessment of the cash and liquidity
position of the bank. The Study helps other managerial person to have reference about the
better cash management potential and practices.

1.5 Limitations of the Study

The area of the study is very limited in terms of investigation. Overall study of cash
management is not possible in this thesis due to its deadline of completion and availability
of data and information. The limitations of the study are as follows:
 The study covers the analysis of recent five years only.
 The study is totally based on secondary data collected from NMB Bank Ltd.
 The accuracy of this study is based on the data available from management of NMB
Bank Ltd and various published documents of bank.

1.6 Literature Review

Review of literature is a stocktaking of available literature in the field of research. It
supports the researcher to explore the relevant and true facts for the reporting purpose in

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the field of research study.. One can find what study has been conducted and what remains
to go with. Review of literature is vital while doing research work as it gives the finding of
the previous study. It can be used as a secondary data and gives the valuable information
about the subject. This chapter highlights the literature available related to present study.
This chapter has been divided into three main sections. First sections encompasses the
conceptual framework .The second sections presents the review of previous research work.
The third sections explain the research gap (www.rlf.org).

1.6 Conceptual Framework

1.6.1 Meaning of Cash Management
The term cash management is concerned with the management of current assets and
current liabilities of the business which is necessary for the day to day operation. It is the
process of managing cash inflows and outflows to maintain optimal investment in cash and
to reduce the cost of holding cash. The most important aspect of cash flow management is
avoiding the extended cash shortages, caused by having too great gap between cash
inflows and outflows. The firm needs to perform a cash flow analysis on regular basis and
use cash forecasting so it can take the step necessary to head off cash flow problems.

1.6.2 Functions of Cash Management

There are various functions of cash management and they are as follows:
 Cash planning:
 To design and manage cash flow:
 To maintain cash and marketable securities on amount to close to optimum level:
 To place the cash and marketable securities in the proper intuitions and in the proper
forms:

1.6.3 Importance of Cash Management

Cash management involves managing cash efficiently, the proper usage of cash while
assessing liquidity and the cash flow and investment. Every business tends to focus on both
short term stability and long term survival and growth and strive to maintain accordingly.

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Cash management necessitates speeding cash inflows while slowing down cash outflows,
but it may not be considered in isolation.It would thus lead to the maximization of
collectability.
Precisely, cash management enables to process cash receipts and payments efficiently. If
done in an efficient way, cash management leads a business towards the desired level of
success while enabling it to maintain both short term stability and long term survival and
growth with sound financial health and flexibility. The importance of cash management
with these regards can be listed as following:
1. Allows adequate cash for purchases and other purposes.
2. Ability to meet cash flow.
3. Allows planning for capital expenditure.
4. Allows for financing at better terms.
5. Enables you to make special purchases and take advantage of business opportunities.
6. Facilitates invest.

1.6.4 Efficiency of Cash Management

Cash management is concerned with the management of cash inflow and outflow of a firm.
It also concerned with financing of deficit cash and investment of surplus cash.The firm
should increase the efficiency of cash management to overcome the uncertainty about cash
flow prediction and to maintain consistency in cash inflow and outflow. This section deals
with some of the techniques for increasing the efficiency of cash management.

a) Speeding Collection
One way of increasing efficiency of cash management is to speed up cash collection. By
speeding up collections, a firm can reduce its balance requirements. There are several
factors that delay the cash collection the first is the firm itself. The next is the buyer who
generally takes more time than allowed to pay the bill. For example, customers can be
motivated for making quick payment of accounts receivable by offering cash discount for
early payments. Customers must be well informed in advance about payment periods.
When customers pay through cheques, it takes time both to receive the cheques from
customer and deposit them into bank for collection. This time consumed in between
receiving a cheque and converting it into cash is known as 'Float'.

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b) Lock-box System
The lock-box system requires for establishing a number of collection centers, considering
location of customers and their frequency of payments. A firm can install lock-box system
to accelerate cash collection. At each centers, a lock-box is provided to drop the cheques.
This eliminates the time taken between collections of cheques and depositing them into
bank. The firm's local banker collects the cheques from lock-boxes several times in a day.
The local bank provides the details about cheques picked up each day for firm's recording
purpose. This system avoids the time that otherwise would have been spent on collecting
and depositing cheques. By using this system the firm will be able to reduce the delay in
receiving cheques from customers and depositing them in banks. It involves a cost in terms
of fee payable to bank for providing lock-box arrangement.

c) Concentration banking
Concentration banking, also known as decentralized collection system requires for
establishing several collection centers at different places instead of a single center at the
firm's central office. To adopt this system, a firm may open bank accounts at different
collections centers. Each collection center collects local cheques and deposits them in a
local bank. This reduces the time in gap in mailing the cheques to the firms, and again to
its local bank.
d) Funds transfer mechanism
In the process of managing collections effectively, the transfer of funds among the bank
are considered to be a crucial factor. We have three widely used methods for transferring
funds through banks: DTC, automated clearing house and wire transfer.
DTC is a nonnegotiable, unsigned document, which can be either paper or electronic. It is
used like any other cheque to transfer funds from one bank to another. An electronic DTC
is transferred with the help of computerized networking system known as automated
clearinghouse (ACH). It is an electronic communication network that provides a means of
sending data of fund transfers from one bank to another.
1.6.5 Cash Management Models
The firm should maintain optimal cash balance to avoid the opportunity costs and enhance
the firm's profitability. Now the question is how do we determine optimum balance of
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cash? In the world with certainty about future cash flow, the matter of determining optimal
cash balance would be easier one.. There are two popular models that help us to determine
optimal cash balance.

A. Baumol Model
Baumol Model, also known as inventory model, is one of the simplest models to determine
optimal cash under the condition of certainty. According to this model, the carrying cost of
holding cash (i.e. the interest foregone on marketable securities) is balanced against the
fixed costs of transferring marketable securities into cash or cash into marketable
securities. It consists of the cost of the time it takes to place an order with investment
banker, the cost of time consumed in recording the transactions, the cost of time consumed
for typing the transactions and the purchase order along with the fixed components of
transactions costs. Considering, these two components of costs, Baumol model is presented
as

Where,
C = the optimal cash balance
b = fixed costs of transaction
T = total demand for cash for the period
i = interest rate on marketable securities for the period.
However, this model has some serious drawbacks. First, it assumes that cash payment is
steady over the time. If cash payment are fluctuating, the period for calculation should be
reduced to bring the cash payment to the steady state. Another, drawback of this model is
that it assumes the cash payment are predictable.
B.Miller-Orr Model
The inventory model discussed in previous section is not applicable if the cash payment is
uncertain. In case when cash balances fluctuate unpredictably, we use control theory to
determine optimal behavior regarding cash holding. Among them we explain the Miller-
Orr model, which is relatively simple. Miller and Daniel Orr propounded this model,
which specifies two control limits – 'h' rupees as the upper limit and 'L' rupees as the lower
limit. If the cash balance reaches to upper limit (h), the firm should convert the cash equal

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to 'h-z' rupees into marketable securities by purchasing them, so that cash balance declines
to 'z' rupees. Conversely, if the cash balance declines to 'L' the marketable securities equal
to 'z' rupees are sold return to point 'z'. If the cash balance fluctuates somewhere between
upper limit (h) and lower limit (L), no cash or marketable securities are converted. Under
this approach, the point 'z' is regarded as the balance of cash to which the level of cash has
to be returned if it touches either of the two extremes- upper or lower limits. The optimal
value of z is determined using

3bσ2
Z=3
√ 4i
+L
Where,
Z = the optimal point of cash to return
b = fixed cost of transaction
σ² = variance of daily net cash flows
i = interest rate per day on marketable securities
L = lower limit or minimum balance
This model has a valuable element of flexibility. It is because the expectations that cash
balances are more likely to either increase or decrease over a given period can be
incorporated into the calculation of the optimal values for decision variables.

1.6.2Review of Previous Research

1.6.2.1 Review of Journals and Articles:
Vernimmen, et. al. (2017) in the journal entitled "Corporate finance" aimed to discuss
about cash management which stated cash management is the traditional role of the
treasury function. Cash management based on value dates, in countries where this system
is used, is built on an analysis from the treasurer's standpoint. Company bank current
accounts are intended simply to cover day‐to‐day cash management. The cash budget is a
forward‐looking management chart showing supply and demand for liquidity within the
company. The problems arising with cash pooling are particularly acute in an international
environment. International cash management techniques are exactly the same as those used
at national level, i.e. pooling on demand, notional pooling, and account balancing.
Technological developments have resulted in greater integration and automation in the
management of a company's cash, and have also facilitated the centralization of the
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process. The corporate treasurers role in investing the company's cash is nevertheless
somewhat specific, because the purpose of the company is not to make profits by engaging
in risky financial investments.

John (2014) in his article, "Effect of cash management on profitability of Nigerian

manufacturing firms" stated that the success of any business venture is predicated on how
the management has planned and controlled its cash flows. Cash shortage will disrupts the
firm’s smooth operation and can even lead to insolvency. Excessive cash will tie down
unnecessarily long-term capital with a result that the return on capital employed will be
low. Thus, cash management assumes more significance than other current assets because
cash is the most important asset that a firm holds. However, literature revealed that only
limited studies have investigated the relationship between cash management and
profitability in Nigeria. Therefore, this study examined the relationship between cash
management and profitability in the Nigerian manufacturing firms. Correlation and
regression analysis were carried out. The results reveal a positive and significant
relationship between CCC and ROE on one hand and a non significant negative
relationship between CCC and ROA. From the results of the study, it is recommended that
future researchers should expand the scope of their studies to include multiple sectors of
the economy.

Saleem (2011) in the journal entitled "Impacts of liquidity ratios on profitability" aimed to
discuss about the relationship between liquidity ratios and profitability which are the major
part of study of cash management. The study aimed to reveal the relationship between
liquidity and profitability so that every firm has to maintain this relationship while in
conducting day to day operations. The results show that there is a significant impact of
only liquid ratio on ROA while insignificant on ROE and ROI; the results also show that
ROE is no significant effected by three ratios current ratio, quick ratio and liquid ratio
while ROI is greatly affected by current ratios, quick ratios and liquid ratio. The main
results of the study demonstrate that each ratio (variable) has a significant effect on the
financial positions of enterprises with differing amounts and that along with the liquidity
ratios in the first place. Profitability ratios also play an important role in the financial
positions of enterprises. Every stakeholder has interest in the liquidity position of a
company. Suppliers of goods will check the liquidity of the company before selling goods
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on credit. Employees should also be concerned about the company’s liquidity to know
whether the company can meet its employee related obligations–salary, pension, provident
fund, etc. Thus, a company needs to maintain adequate liquidity so that liquidity greatly
affects profits of which some portion that will be divided to shareholders. Liquidity and
profitability are closely related because one increases the other decreases.

1.6.2.2 Review of Thesis

Kumar (2016) had written thesis on “Cash management of standard chartered bank”, it
has studied about cash management practices of standard chartered bank. The major
objectives of his thesis were:
 To learn about the various aspects of standard chartered bank.
 To gain about the insight functioning of standard chartered cash management.
 To explore the future prospects of standard chartered cash management.
The major findings of the thesis were as follows:
 A large number of customers call the branch frequently to handle the banking issues,
this shows the keenness of the customers to call branch for almost of every single
issue.
 The cash management services cover border payments, information management, and
liquidity management for both corporate and institutional customers.
 Maximize interest income on surplus balances and minimize interest expenses on
deficit. It centralizes information management on consolidated account balances.
 The absolute cash ratio for the five year was 0.03 on an average. It was found that the
cash position was very strong over the study period.
 Under liquidity analysis, current ratio and liquidity ratio were used. A current asset of
the company over the study period was good enough to meet the current liabilities.
The major portion of liquid assets comprised of cash
The bank is able to earn profit that helps to reduce the huge accumulated cumulative loss
and financial statement of bank quite to be sound

Babil (2015) had written thesis on “Improving the Liquidity for Jonsons Byggnads AB with
Cash Management”, had studied about the cash management of Jonsons Byaggands AB
which is a construction firm. The major objective of thesis was:

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 To analyze how the liquidity is managed in Jonsons Byggnads AB.

 To analyze the factors with in cash management that can strengthen the liquidity
position for Jonsons Byaggands AB.
 To examine the firm liquidity with focus on liquidity management and short term
financing

The major findings of the thesis were as follows:

 Jonsons Byggnads AB have good liquidity position even though the company does not
have anyone employed to manage the liquidity.
 The liquidity position is healthy and there are some areas that can be improved.
Improvements in the payment routines can be done by computerizing the sales ledger
system completely and therefore be more efficient and profitable

 The quick ratio and cash to cash cycle demonstrate that such firm has a healthy
liquidity position. The cash to cash cycle is minus 12 which is impressive.
 The quick ratio is calculated to be 107.5% which is quite good.

Bajracharya (2010) had written thesis on “A Study of Cash Management in Nepalese

public Enterprise”, it had studied the cash management practices in Nepalese public
Enterprises. He had taken 18 enterprises as a sample.
His major objectives of this thesis were:
 To know the Cash management practices in public enterprises.
 To analyze the liquidity position.
 Effect of inflation rate on cash balance

The major findings of the thesis were as follows:

 Cash management in public enterprises of is primarily based on the traditional Practices.
Lacking in a scientific approach, more serious aspects of cash
 Management has been the any formalized system of cash planning and cash budgeting in
many of enterprises, although the executive of some enterprises do have the practices
of forecasting cash requirements on a formal basis.

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 Modern practices with respect to debt collection, monitoring the payment Behavior of
customers and relevant banking arrangement in connection with collection of
receivables has been virtually ignored in many enterprises.
 Majority of the enterprises didn't face any serious liquidity problem. However, this was
not because of the effectiveness of cash planning and budgeting. The problem of
liquidity actually didn't arise due to the coincidence of delay in payment to creditors.
 By and large most enterprises have periodic accumulation of surplus cash and
Corresponding cash shortage from time to time. However, on of the enterprises
considered the implication of holding idle cash balance and few took on to account the
potential benefit of investing surplus in marketable securities. These which failed to
consider the cost of administering such investments.
 There had been wide variations overt-time in the state of financial health of enterprises
in terms of the composition of current assets to current liabilities as revealed by the
relevant financial ratios.
 Neither interest rate nor the rate of inflation had any effect on the cash balance. Further
there was very little evidence of effect on the cash balance holding in most case. Further
he recommended for developing appropriate strategies for cash management. He
stressed on cash planning and budgeting to cash project cash surplus and cash deficit.
Firm can accelerate the inflows as far as possible to decelerate to decelerate outflow. He
also stressed to maintain optimal level of cash and at last, it can be better to invest idle
fund in marketable securities.

1.7 Research Methodology

Research methodology is the specific procedures or techniques used to identify, select,
process, and analyze information about a topic. In a research paper, the
methodology section allows the reader to critically evaluate a study’s overall validity and
reliability. The methodology section answers two main questions: How was the data
collected or generated? How was it analyzed?

1.7.1 Research Design

The research design refers to the conceptual structure within which the research is
conducted. A well set of research design is necessary in order to make any type of research

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which fulfills the objectives of the study. A research design is the arrangement of
conditions for the collection and analysis of data in a manner that aims to combine
relevance to the research purpose within the economy in procedure. The research study
attempts to analyze the cash management system adopted by NMB. Hence descriptive as
well as analytical research design have been employed. Descriptive research is used to
obtain information regarding the current status of the research topic whereas analytical
research uses the secondary data to analyze the phenomena and is the process of micro-
analysis and appraisal of the data.

1.7.2 Sources of Data

The sources of data basically refer to the places or means from where the data are
collected. Basically there are two types of data they are primary and secondary data.
Primary data refers to the first hand data that are collected by the researcher himself for the
very first time whereas secondary data refers to those data that are already collected in the
past and are used by the researcher as references. The data used in this study are mainly
secondary data and are collected from the following sources
 Annual report of NMB Bank Ltd.
 National newspaper, journals, magazines
 Internet and various websites.

1.7.3 Population and Sample

Population refers to the broader group of units to whom the result of the research will
apply where as sample can be defined as the specific unit within the population on which
the actual research is done. Here in this research the commercial banks of Nepal are the
population whereas NMB bank is the specific sample on which the researcher does the
research.

1.7.4 Method of Data Analysis

After the collection of the data through above mentioned sources the data are stored for
easier analysis. Various tools such as financial tools and statistical tools are used to analyze
the data.

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1.7.4.1 Financial Tools

Financial tools are those instrument and technique which helps in analysis of financial
position of the enterprise. The various financial tools are used in the study as per the
requirement to fulfill the targeted objective of the study.
I. Ratio Analysis
Ratio analysis is the quantitative way of gaining insight into the company's liquidity,
operational efficiency and profitability by comparing the information contained in its
financial statement. (www.investopedia.com)

A. Cash Position Analysis

A cash position represents the amount of cash that a company, investment fund, or bank
has on its books at a specific point in time. The cash position is a sign of financial strength
and liquidity. The total ratios which determine the cash position are as follows:
Cash∧Bank
I. Absolute cash ratio =
Current liabilities
Cash∧bank
II. Cash and bank to current assets ratio =
Current assets
Cash∧bank
III. Cash and bank to Total assets ratio =
Total assets
Cash∧bank
IV. Cash and bank to Total deposit ratio =
Total deposit
All the above mentioned ratios shows the relationship between cash available and current
liabilities, current assets, total assets and total deposit respectively. It shows the position of
cash for meeting current liabilities, amount of cash investment in current and total assets
etc. Higher the ratio better position the company has.(Gitman and L.J; 2001: 100)

B. Cash Turnover Ratio

Cash turnover ratio indicates the number of times cash is turned to generate a revenue. The
ratio of cash in hand and at bank to net sales is termed as cash turnover ratio or cash
velocity. It indicates the efficient use of cash to generate sales. Cash balance should be
kept within the reasonable limits just as debtors and stock. (Mittal; 2003)
Revenue
Cash turnover ratio =
Cash∧cash equivalents

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C. Liquidity Ratio
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. Liquidity is the ability to convert assets into cash quickly
and cheaply. Liquidity ratios are most useful when they are used in comparative form. This
analysis may be internal or external. (www.investopedia.com).
Curent assets
I. Current ratio =
Curent liabilities
The current ratio measures a company's ability to pay off its current liabilities
(payable within one year) with its current assets such as cash, accounts receivable
and inventories.
Current assets−inventory − prepaid expenses
II. Quick ratio =
Current liabilities
The quick ratio measures a company's ability to meet its short-term obligations
with its most liquid assets and therefore excludes inventories from its current
assets.

D. Profitability Ratio
Profitability ratios show a company's overall efficiency and performance. Profitability
ratios are divided into two types: margins and returns. Ratios that show margins represent
the firm's ability to translate sales dollars into profits at various stages of measurement.
Ratios that show returns represent the firm's ability to measure the overall efficiency of the
firm in generating returns for its shareholders (www.thebalance.com).

It includes the study of the following ratios:

Net profit after tax
I. Return on total assets =
Total assets

Net profit after tax

II. Return on shareholders’ equity (net worth) =
Net worth

Interest earned
III. Interest earned to total assets =
Total assets
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Net profit
IV. Return on total deposit ratio =
Total deposit
1.7.4.2 Statistical Tools
Statistical methods involved in carrying out a study include planning, designing, collecting
data, analyzing, drawing meaningful interpretation and reporting of the research findings.
The statistical analysis gives meaning to the meaningless numbers, thereby breathing life
into a lifeless data. The results and inferences are precise only if proper statistical tests are
used. Some of the statistical tools that can be examined the financial data of NMB Bank
Ltd are as follows.
a. Arithmetic mean: Arithmetic mean can be defined as the ratio of sum of total
observation divided by total number of observation. Arithmetic mean is also simply
known as mean but is stated as arithmetic mean to distinguish it from geometric mean
and harmonic mean. From the above definition the formula to calculate arithmetic
mean is as follows:

X́ =
∑X
N
Where,
X́ = Arithmetic mean
N = Number of observations
∑ X = Sum of observations

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CHAPTER TWO
DATA PRSESENTATION AND ANALYSIS

The presentation and analysis of data section is the main text of the study of cash
management practices in the NMB Bank Ltd. It provides insight into the predetermined
objectives of the study. For the purpose of presentation of data, the most recent published
financial statements and annual budget reports are used. The collected and tabulated data
have been analyzed using different statistical and financial tools.
2.1 Organization Profile
NMB Bank Limited licensed as “A” class financial institutions licensed by Nepal Rastra
Bank in May 2008 has been operating in the Nepalese financial market for over twenty
years and is one of the lending commercial banks in the banking industry. NMB Bank Ltd
(Nepal Merchant Banking & Finance Ltd) had been financially institutionalized in the year
1996 A.D. in Durbarmarg, Kathmandu. Currently it has its head office situated in
Babarmahal, Kathmandu near the CDO office.
The Bank has a Joint Venture Agreement with Nederlandse Financierings-Maatschappij
voor Ontwikkelingslanden (FMO), wherein FMO holds 20% of the Bank’s shares and is
the largest shareholder of the Bank. In September 2016, the Bank signed a Joint Venture
Agreement with Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden
(FMO), the Dutch development bank following which FMO became the single largest
share holder of the Bank. The products are developed to suit both urban and rural
population of the country from Corporate to micro- finance with equal zest. In the time of
globalization, the Bank continuously works towards efficient services with the help of
latest technology. The customers' satisfaction is the prime goal of the Bank (Annual
Report).

2.1.1 Mission of NMB Bank Ltd

The mission is to gain supremacy in growth, profit , customer care and social response in
banking by way of:
 Leveraging and integrating the existing strengths of the institution.

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 Reaching out and serving wide range of customers within and outside the country.
 Developing internal and external efficiencies by prudent use of technology.
 Placing high priority on stakeholders’ interest and statutory compliance.
 Acting responsibly for making contributions to the society at large.
 Building operational efficiency through smarter processes and controls.

2.1.2 Vision of NMB Bank Ltd

The of the bank is to establish as a leader in banking by providing a range of financial
services suitable to the needs of the market with high priority on customer care while
simultaneously embracing the interests of all stakeholders and value of a good corporate
citizen.. NMB strives to remain close to its customer and understand their needs. Advisory
services attached to the packaging of products and services have been the focus of the
Company in servicing its clientele. Its strategic plan guides the building of relationship that
deliver enduring value of customers, shareholders, staff and communities (Annual Report).

2.2 Analysis of Sources of Cash

2.2.1 Internal Sources of Cash
The internal sources of cash are those sources generated by the NMB bank itself. The basic
source of the cash in the banking sector is deposits from the depositors. The basic internal
source of cash in NMB bank also is the deposits from the depositors which is evaluated by
dividing the total deposits into current, saving and fixed deposits. The below shown table
shows the percentage of each of them with respect to the total deposits.

Table 1
Table showing Total Deposits along with Current, Saving and Fixed Deposits
(Rs. in millions)
Years 2014/15 2015/16 2116/17 2017/18 2018/19

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Current 1457.61 2669.76 4911.25 5040.42 5911.001

Saving 7827.77 18618.72 16972.89 20281.71 29555.01

Fixed 11196.23 26975.14 41192.59 46478.92 50243.51

Total 36722.91 64781.46 73224.01 84507.14 98516.68

(Source: Annual Report)

Table 2
Table showing Percentage of Total Deposits

Years 2014/15 2015/16 2016/17 2017/18 2018/19

Current(%) 3.969212 4.121179 6.707158 5.96449 6

Saving(%) 21.31577 28.74082 23.17941 24 30.00001

Fixed(%) 30.48841 41.64022 56.25558 54.99999 51

(Source: Annual Report)

Table 1 shows the total amount of deposit which is classified into current deposit, saving
deposit and fixed deposit. The total deposit seems to be increasing every year with the
latest amount of deposit being Rs 98516.68 million. Also table no. 2 shows what
percentage of current, saving and fixed deposit is being contributed in the total deposit. For
the year 2018/19, 6% of the total deposits is current deposit, 30% is saving deposit whereas
51% is fixed deposit in the total deposits.

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Figure 1 Trend of Total Deposits along with Current, Saving and Fixed Deposits

120000

100000
AMOUNT IN MILLIONS

80000

60000 Current
Saving
40000 Fixed
Total

20000

0
2014/15 2015/16 2116/17 2017/18 2018/19
FISCAL YEAR

Figure 1 is the graphical representation of the data presented in the table. As we can see
from the figure 2018/19 has the highest total deposit with increasing trend on total deposit.
The fixed deposit is also in the increasing trend.

2.2.2 External Sources of Cash

The external source of cash was financed by international agencies, World Bank through
NMB Bank Ltd under financial sector reform project. The foreign management team is
working since last 4 years for improving the bank and the output is very positive till now.
The external source of financing was very nominal in total source of financing. From the
study of actual collection of cash, it shows that the company could fulfill it fund needs by
its own internal source. The amount of loan which was borrowed from external parties is
only for temporary period.

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2.3 Analysis of Loan Sector

For the analysis of loan sector of the NMB bank we compare he total loan and investment
of the bank as follows:

Table 3
Table for Analysis of Loan Sector
(Rs in millions)

Years Investment % Loan

2014/15 5983.87 21.92786 27288.89

2015/16 8504.12 15.61552 54459.41

2016/17 10597.55 17.09022 62009.45

2017/18 10018.72 13.32111 75209.34

2018/19 10985.29 11.95523 91886.96

(Source: Annual report)

Table 3 shows the percentage of loan covered by the investment. Investment refers to the
investment done by the bank where as loan refers to the loan given by the bank to the
burrowers. These are the basic source of income to the bank. The recent data suggest that
NMB bank is more focused on loan sector rather than investment for income generation. In
2018/19 only about 12% of the loan amount is invested compared to 22% of 2014/15
which is significantly lower.

2.4 Cash Position Analysis

2.4.1 Absolute Cash Ratio
Absolute cash ratio can be computed by total cash dividing by total current liabilities
which shows the bank's ability to pay its current liabilities when they due. The cash ratio is
generally a more conservative look at a company's ability to cover its liabilities than many
other liquidity ratios because other assets, including accounts receivable.
Cash∧bank
Absolute cash ratio =
Current liabilities

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Table 4
Table Showing Absolute Cash Ratio
(Rs in millions)
Cash and Bank Current Liabilities
Year (Rs. in millions) (Rs. in millions) Ratio(times)

2014/15 817.58 37063.79 0.02

2015/16 1491.27 65709.86 0.02

2016/17 1703.49 74463.86 0.02

2017/18 5183.93 86746.52 0.06

2018/19 8096.35 100662.6 0.08

Mean 0.04
(Source: Annual Report)

Figure 2 Trend of Absolute Cash Ratio

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Absolute cash ratio

0.09
0.08
0.07
0.06
0.05 Ratio
0.04
0.03
0.02
0.01
0
2014/15 2015/16 2016/17 2017/18 2018/19

On the basis of Table 4 and Figure 2, the cash to current liabilities ratio has increasing
trend up to fiscal year 2018/19 . The average mean is 0.04. So the cash ratio shows that
bank's ability to pay its current liabilities when they due. This figure shows that only cash
was not sufficient to pay its current liabilities.The ideal ratio is considered to be above 1 so
the bank is operating below ideal condition
2.4.2 Cash and Bank to Current Assets Ratio
It can be obtained by dividing cash and bank balance by current assets. Large ratio
Shows idle cash and bank balance while small ratio shows the utilization of deposit in
point of view of bank.
Cash∧bank
Cash and bank to current assets ratio =
Current assets

Table 5
Table Showing Cash and Bank to Current Assets Ratio

Cash and Bank Current assets

Year (Rs. in millions) (Rs. in millions) Ratio(times)

2014/15 817.58 31497.71 0.03

2015/16 1491.27 60903.23 0.02

2016/17 1703.49 72103.29 0.02

2017/18 5183.93 87510.17 0.06

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2018/19 8096.35 107410.5 0.08

Mean 0.042
(Source: Annual Report)

Figure 3 Trend of Cash and Bank to Current Assets Ratio

Cash and bank to Current assets ratio

0.09
0.08
0.07
0.06
0.05 Ratio

0.04
0.03
0.02
0.01
0
2014/15 2015/16 2016/17 2017/18 2018/19

Table 5 and Figure 3reflects the relation between cash and bank to total current assets. The
figure shows that the cash is the major part of the current assets. The ratio is increased
gradually up to 2016/17 and rapidly increased afterwards..The average mean is 0.042.
Higher ratio suggests that there is highly liquidity and idle cash in the organization. It
indicates that when increasing in the ratio the bank has lowest cash in hand and investing
inventories and other current assets rather than holding cash balance.
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2.4.3 Cash and Bank to Total Assets Ratio

This ratio shows what portion of total assets is constituted by the most liquid assets of the
company – cash and cash equivalents and marketable securities. The ratio of NMB bank
can be tabulated as following:

Table 6
Table Showing Cash and Bank to Total Assets Ratio

Cash and bank Total Assets

Years (Rs. in millions) (Rs. in millions) Ratio(times)

2014/15 817.58 41337.46 0.019778

2015/16 1491.27 75682.34 0.019704

2016/17 1703.49 86816.98 0.019622

2017/18 5183.93 104913.9 0.049411

2018/19 8096.35 135470.4 0.059765

Mean 0.033656
(Source: Annual report)

Table 6 shows the cash and bank to total assets ratio. The ratio in the year 2014/15 is
0.019778 times whereas the ratio for the recent year 2018/19 is 0.059765 times. The mean
ratio over the five years time is 0.033656 times. The ratio is in increasing trend along with
the years.

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Figure 4 Trend of Cash and Bank to Total Assets Ratio

Cash and bank to Total assets ratio

0.07

0.06

0.05

0.04 Ratio

0.03

0.02

0.01

0
2014/15 2015/16 2016/17 2017/18 2018/19

Here we can see from the line graph which is the graphical representation of the data in the
table shows that the line is sloping upwards which indicates as the years increase the ratio
also increases.

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2.4.4 Cash and Bank to Total Deposit Ratio

The ratio shows the proportion of total deposits held at most liquid assets. The ratio
computed by dividing the cash and bank balance by total deposits.

Cash∧bank
Cash and bank to Total deposit ratio=
Total deposit

Table 7
Table Showing Cash and Bank to Total Deposit Ratio

Years Cash (in millions) Deposit (in millions) Ratio(Times)

2014/15 817.58 36722.91 0.022

2015/16 1491.27 64781.46 0.023

2016/17 1703.49 73224.01 0.023

2017/18 5183.93 84507.14 0.061

2018/19 8096.35 98516.68 0.082

Mean 0.0422
(Source: Annual Report)

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Figure No. 5: Trend of Cash and Bank to Total Deposit Ratio

Cash and bank to total deposit ratio

0.09
0.08
0.07
0.06
0.05 Ratio

0.04
0.03
0.02
0.01
0
2014/15 2015/16 2016/17 2017/18 2018/19

The large ratio shows the idle cash and bank balance in banks while small ratio shows the
utilization of deposit from banking perspective. The table and figure above shows the
increasing trend in the ratio which thus indicates the more idle cash and bank balance in
banks. The ratio has rapidly grown in the current years because of the rapid increment in
the cash and cash equivalents. The average of the five years is 0.0422.

2.5 Liquidity Analysis

Liquidity ratio analysis refers to the use of several ratios to determine the ability of
an organization to pay its bills in a timely manner. This analysis is especially
important for lenders and creditors, who want to gain some idea of the financial
situation of a borrower or customer before granting them credit.
(www.accountingtools.com)
Liquidity ratio includes the following ratios:

2.5.1 Current Ratio

This ratio shows the relationship between current assets and current liabilities. In other
words, banks' ability to pay current liabilities. It is calculated by dividing current assets by
current liabilities.

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Current assets
Current ratio =
Current liabilities
The widely accepted standard of current ratio is 2:1, i.e. current assets for each rupee of
current liabilities is Rs. 2. it indicates that the ratio of current assets and liabilities should
be double range that means if assets is more and liabilities is less.
Table 8
Table Showing Current Ratio

Current assets Current Liabilities

Year (Rs. in millions) (Rs. in millions) Ratio(times)

2014/15 31497.71 37063.79 0.85

2015/16 60903.23 65709.86 0.93

2016/17 72103.29 74463.86 0.97

2017/18 87510.17 86746.52 1.01

2018/19 107410.5 100662.6 1.07

Mean 0.966
(Source: Annual Report)
Figure 6 Trend of Current Ratio

Current ratio
1.2

0.8
Ratio
0.6

0.4

0.2

0
2014/15 2015/16 2016/17 2017/18 2018/19

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From the table 8 and figure 6 we can see that the trend of current ratio is increasing. Every
year from 2014/15 with ratio of 0.85 times to 2018/19 with ratio of 1.07 times the current
ratio has increased which is a good sign for the company. The ideal current ratio is
considered to be 2 times but the bank has average ratio of 0.966 times so it is failing to
meet the idle scenario which indicates the bank is unable to pay its obligations when due.

2.5.2 Loan and Advance to Total Deposit Ratio

The loan and advance to total deposit ratio shows whether the total deposits received in the
bank are utilized properly in other purposes or not mainly in form of loans and advances.
Higher ratio indicates the higher amount of higher ability of the bank to cover the deposit
amount with loans and advances.

Table 9
Table Showing Loan and Advance to Total Deposit Ratio

Loan and advances Total Deposit

(Rs. in millions) (Rs. in millions) Ratio(%)

27288.89 36722.91 74.31

54459.41 64781.46 84.07

62009.45 73224.01 84.68

75209.34 84507.14 89

91886.96 98516.68 93.27

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Mean 85.07
(Source: Annual Report)

The table 9 shows the ratio in percentage of loans and advances to total deposit It shows
what percentage of the total deposit obtained from the depositors are utilized through loan
and advances. The ideal ratio is considered to be 80% to 90%. So we can see that the
average of the five years is 85.07% which is ideal scenario. This implies that the bank is
able to utilize the deposits is efficient manner.

Figure 7 Trend of Loan and Advance to Total Deposit Ratio

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Loan to Total deposit ratio

100
90
80
70
60 Ratio
50
40
30
20
10
0
2014/15 2015/16 2016/17 2017/18 2018/19

2.6 Profitability Ratio

Profitability ratios are a class of financial metrics that are used to assess a business's ability
to generate earnings relative to its revenue, operating costs, balance sheet assets,
and shareholders' equity over time, using data from a specific point in time. The
profitability ratio includes the study of the following ratios:

2.6.1 Return on Total Assets

Return on assets (ROA) is an indicator of how profitable a company is relative to its total
assets. ROA tells us what earnings were generated from invested capital.In this case, the
company invests money into capital assets and the return is measured in profits
It is calculated by:
Net profit after tax
Return on total assets =
Total assets

Table 10
Table Showing Return on Total Assets
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Net profit Total Assets

Year (Rs. in millions) (Rs. in millions) Ratio (%)

2014/15 500.99 41337.46 1.21

2015/16 1115.065 75682.34 1.47

2016/17 1467.347 86816.98 1.69

2017/18 1853.793 104913.9 1.77

2018/19 2257.276 135470.4 1.67

Mean 1.562
(Source: Annual Report)

The table 10 shows the return on total assets of NMB Bank. The mean return on total
assets is 1.562 % which shows that the ratio is not in satisfactory level and the earning
generated from invested from general capital(assets) were not so good. The mean return on
total assets of 1.562% indicates that only 1.562% of the total assets is able to generate
profit. The highest return on total assets in the five years is 1.77% in the year 2017/18.

Figure 8 Trend of Return on Total Assets

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Return on Total assets

2
1.8
1.6
1.4
1.2
Ratio
1
0.8
0.6
0.4
0.2
0
2014/15 2015/16 2016/17 2017/18 2018/19

The figure 8 shows the trend of return on total assets which shows the increasing trend
from year 2014/15 to 2017/18 and in the year 2018/19 the curve is sloping downwards
because of the decrement in the return on total assets from 1.77% to 1.67%.

2.6.2 Return on Shareholder Equity

Return on equity (ROE) is the amount of net income returned as a percentage of
shareholders equity. Return on equity measures a corporation's profitability by revealing
how much profit a company generates with the money shareholders have invested. It is
calculated by:
Net profit after tax
Return on shareholder’s equity (net worth) =
Net worth

Table 11
Table Showing Return on Shareholder's Equity
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Net profit Equity

Year (Rs. in millions) (Rs. in millions) Ratio(%)

2014/15 500.99 3290 15.23

2015/16 1115.065 6860 16.25

2016/17 1467.347 10627 13.81

2017/18 1853.793 16238 11.42

2018/19 2257.276 17594 12.83

Mean 13.908
(Source: Annual Report)

Figure 9 Trend of Return on Shareholder's Equity

Return on Equity
18
16
14
12
10 Round
8
6
4
2
0
2014/15 2015/16 2016/17 2017/18 2018/19

The table 11 and graph 9 show the trend of return on shareholder's equity. The average
return on equity for the five years period is 13.908% which is below the ideal return on
equity of 15-20%. The NMB bank had been performing ideally in the year of 2014/15 and
2015/16 with the ratio percentage of 15.23 and 16.25. In the recent years the ROE seems to
be increasing in the year 2018/19 from 11.42% to 12.83%.
2.6.3 Interest Earned to Total Assets Ratio
Banks use the Earning Assets to Total Assets Ratio to shorthand the percentage of the
balance sheet that is working to generate income.
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It is calculated by:
Interest earned
Interest earned total assets =
Total assets

Table 12
Table Showing Interest earned to Total Assets Ratio

Interest Total Assets

Years (Rs. in millions) (Rs. in millions) Ratio (%)

2014/15 967.368 41337.46 2.34

2015/16 2013.282 75682.34 2.66

2016/17 2568.174 86816.98 2.96

2017/18 2904.014 104913.9 2.77

2018/19 4244.021 135470.4 3.13

Mean 2.77
(Source: Annual Report)

Figure 10 Trend of Interest earned to Total Assets Ratio

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Interest earned to Total assets ratio

3.5

2.5

2 Ratio

1.5

0.5

0
2014/15 2015/16 2016/17 2017/18 2018/19

From the table 12 and graph 10 we can see the increasing trend in interest earned to total
assets ratio except for the year 2017/18. The average percentage of the ratio is 2.77%. This
symbolizes that the bank is not able to generate high amount of interst from its total assets.

2.6.4 Return on Total Deposit Ratio

The collected deposits are mobilized in investment and loans to get profit. This ratio
indicates the percentage of profit earned by using the total deposit. It is calculated by:
Net profit
Return on total deposit ratio =
Total deposit

Table 13
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Table Showing Return on Total Deposit

Profit Deposit
Years (Rs. in millions) (Rs. in millions) Ratio (%)

2014/15 500.99 36722.91 1.36

2015/16 1115.065 64781.46 1.72

2016/17 1467.347 73224.01 2

2017/18 1853.793 84507.14 2.19

2018/19 2257.276 98516.68 2.29

Mean 1.912
(Source: Annual Report)

Figure 11 Trend of Return on Total Deposit

Return on Total Deposit

2.5

1.5
Ratio

0.5

0
2014/15 2015/16 2016/17 2017/18 2018/19

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2.7 Major Findings and Discussions

 The basic internal source of cash in NMB bank is deposits. From the research made it
is concluded that total deposit of the bank is in increasing trend where the total deposit
in the has increased from Rs 84507.14 to Rs 98516.68 from year 2017/18 to 2018/19.

 The total deposit is divided in current deposit, saving deposit and fixed deposit. the
data of 2018/19 shows that current deposit is 6% of total deposit, saving deposit is 30%
of total deposit and fixed deposit is 51% of the total deposit which constitutes the
internal sources of cash in NMB Bank.

 The external source of cash was financed by international agencies, World Bank
through NMB Bank Ltd under financial sector reform project. The foreign
management team is working since last 4 years for improving the bank and the output
is very positive till now. The external source of financing was very nominal in total
source of financing.

 The loan sector analysis consists of the analysis of investment done by the bank with
respect to loan provided by the bank. In 2018/19 only about 12% of the loan amount is
invested compared to 22% of 2014/15 which is significantly lower.

 Due to the rapid increase in cash, the cash to current liabilities ratio has increased as
well. With the average ratio of 0.04 times the ratio has significantly increased from
0.02 times in 2014/15 to 0.08 times in 2018/19.

 The research has shown same trend in cash and bank to current assets ratio as well. The
average ratio for the five year was 0.042 times where the ratio, with significant
increase in cash, has increased from 0.03 times in year 2014/15 to 0.08 times in year
2018/19.

 The cash and bank to total assets ratio in the year 2014/15 is 0.019778 times whereas
the ratio for the recent year 2018/19 is 0.059765 times. The mean ratio over the five
years time is 0.033656 times. The ratio is in increasing trend along with the years.
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 The cash and bank to total deposit ratio is in increasing trend in each of the five year
period. The average ratio is 0.0422 times and the ratio of the recent year i.e. 2018/19 is
highest among the five years with 0.082 times.

 The trend of current ratio is increasing. Every year from 2014/15 with ratio of 0.85
times to 2018/19 with ratio of 1.07 times the current ratio has increased which is a
good sign for the company. The ideal current ratio is considered to be 2 times but the
bank has average ratio of 0.966 times so it is failing to meet the idle scenario which
indicates the bank is unable to pay its obligations when due.

 The loan and advances to total deposit ratio shows what percentage of the total deposit
obtained from the depositors are utilized through loan and advances. The ideal ratio is
considered to be 80% to 90%. So we can see that the average of the five years is
85.07% which is ideal scenario. This implies that the bank is able to utilize the deposits
is efficient manner.

 ROA is in the increasing trend from year 2014/15 to 2017/18 and in the year 2018/19
the curve is sloping downwards because of the decrement in the return on total assets
from 1.77% to 1.67%

 The average return on equity for the five years period is 13.908% which is below the
ideal return on equity of 15-20%. The NMB bank had been performing ideally in the
year of 2014/15 and 2015/16 with the ratio percentage of 15.23 and 16.25. In the recent
years the ROE seems to be increasing in the year 2018/19 from 11.42% to 12.83%.

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CHAPTER THREE
CONCLUSION AND IMPLICATION

3.1 Conclusion
During the study period it was found that only some of the ratio was found to be moving
towards successful achievements. Due to the top competition with other commercial banks
in Nepal it was unable to obtain the satisfactory achievements. The following are
conclusions of the study:

 The basic internal source of cash in NMB bank is deposit which has been gradually
increasing year after year and is classified into current, saving and fixed where as the
external source of cash was financed by international agencies, World Bank through
NMB Bank Ltd under financial sector reform project. The external source of financing
was very nominal in total source of financing.

 The Liquidity analysis of the bank is done to determine the ability of the bank to pay its
bills in a timely manner. It can be concluded from the research that the liquidity
position of the bank is under satisfactory level in terms of current ratio and in
satisfactory level in terms of loan to total deposit ratio which implies the bank is able to
utilize the deposits efficiently.

 The banks cash position is seen through the calculation of absolute cash ratio, cash and
bank to current assets ratio, cash an bank to total assets ratio, and cash and bank to total
deposit ratio where it is concluded that all these ratios are rapidly increasing in recent
years due to significant increase in cash and bank account.

 The profitability position of the bank is known by the calculation of ROA, ROE,
interest earned to total assets ratio and return on total deposit where the profitability
seems to be decreasing for the bank as all the ratios are in average less than the ideal
situation.

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3.2 Action Implication

 The study of cash management of NMB Bank Ltd provides crucial information about
the existing cash management system.
 It helps to determine the strength and weakness of the particular part of cash
management on which the objective of the study is based.
 The management and other stakeholders of the bank will be benefited by the
assessment of the cash and liquidity position of the bank.
 The Study helps other managerial person to have reference about the better cash
management potential and practices.
 Academician and researcher can highlight the issue of this study in their future
research work.
 The study helps to provide the information about the cash operating cycle and current
situation of the bank as well as assist in planning capital expenditure projects.
 It helps to provide the information to the investors to invest the surplus cash for short
or long periods to keep the idle funds fully employed

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REFERENCES

Books
Gautam, R.R. Thapa, k. (2008). Capital Structure Management. Kathmandu: Asmita
Books Publishers and Distributers.
Gitman, L.J. (2001). Principle of Management. New Delhi: Pearson Education Asia.
Mittal, S.N (2003). Cost Accounting And Financial Management. New Delhi: Shree
Mahavir Books Depot.
Paudel, R.B., Baral, K.J., gautam, R.B., and Rana, S.B. (2016). Working Capital
Management. Kathmandu: Asmita Books Publishers and Distributers

Journals and articles

John, K. (2014). Cash Management. Effect of cash management on profitability of
Nigerian manufacturing firms. Retrived from https://scholar.google.com/
Saleem, M. (2011). Ratio Analysis. Impact of Liquidity Ratio and Profitability. Retrived
from https://academia.edu/
Vernimmen, L. (2017). Cash Management. Corporate Fimance. Retrived from
https://scholar.google.com/

Thesis
Babil, David (2015). A study of Improving the Liquidity for Jonsons Byggnads AB with
Cash Management. An Unpublished MBA thesis, Jonkoping International Business
School.
Bajracharya, A.K. (2010). A Study of Cash Management in Nepal Public Enterprises. An
Unpublished Ph.D Thesis, University of Delhi.
Kumar, Sunil (2016). A Study of Cash Management at Standard Chartered Bank. An
Unpublished MBA thesis, Sikkim Manipal University.

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Websites
www.imnepal.com
www.rlf.org
www.investopedia.com
www.thebalance.com
www.accountingtools.com
www.linkedin.com
www.nyu.edu
www.scholar.google.com
www.acedemia.com
www.nmbbanknepal.com

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APPENDICES

Appendix 1: Cash and Bank to Total Assets Ratio

Appendix 2: Cash and Bank to Current Assets Ratio

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Appendix 3: Current Ratio

Appendix 4: Absolute Cash Ratio

Appendix 5: Return on Total Assets

45