CHAPTER I

INTRODUCTION

1.1 Background of the Study

Ratio is an expression of quantitative relationship between two figures or numbers. It is

expressed when one figure is compared with another. Ratio analysis determines and interprets the
numerical relationship between figure of financial statement. Hence, ratio is used for evaluating
the financial position and performance of a firm.

"A ratio is an expression of the quantitative relationship between two numbers." - Wixom,
Kell and Bedford.

"A ratio is the relationship of one amount to another expressed as the ratio of or as
simple, fraction, integer, decimal fraction or percentage.

Financial analysis is detailed study or examination of financial statement of any financial

institution to analysis its comparative strengths and weakness. Financial analysis involves
analyzing financial statement proposed in accordance with generally accepted principles to
ascertain information concerning to the magnitude, timing and risking of future cash flow and
reports what happened to the firm in terms of sales, assets, liabilities, earnings, dividends and so
on over the specific time period i.e., at the end of each fiscal year thus financial statement is the
most accurate source to recognize and analysis the performance of company as it represent the
records of former financial performance and the achievement made over the years. Similarly it
shows the firm institution’s past growth in sales and the level of development that it is going to
undertake in coming years. So a careful analysis of financial statements enables a manager and
concern people to evaluate relative strength and weakness of the firm in relation to various
aspect of firm’s financial performance.

Financial analysis is all about predictive power of financial ratios. Financial ratios may be
used to predict business failure, corporate bond rating and so on. Analysis of these ratios
provides the information related to strength and weakness of financial data in relation to the
other. Financial analysis involves a series of techniques that can be useful to identify the strength

1
and weakness of firm/institution by facilitating the comparison of a financial performance of
single firm over different points of time (internal comparison) another include the comparison of
financial performance of the firm with that of another firm (external comparison).

At present financial analysis has proven itself so as to assist any financial institution to
set better plan for future. So one must appreciate the model of financial analysis to analyze one’s
findings in behalf of any financial institution in order to uplift or track the overall financial
condition of any financial institution. Present study focus on the study of financial analysis of
BOK, for the year 2015/16 to 2018/19. BOK has also been successful to open 11 (Eleven)
branches in different cities of Nepal, which are coordinated and controlled by head office
situated at Kamal Pokhari.

1.2 Statement of the Problems

Financial institution and market are mostly affected by the globalization. NRB has
recently invited the International Wholesale Financial Service Provider from different part of the
world to install their branches in Nepal and this activity soon takes place after 2010 AD. By the
same time NRB has also promoted the policy of Bank Merging by which two or more banks of
the country unites so that they can reduce their overhead costs and other expenses and compete
strongly with such banks maintaining their status as before.

All the above contents explains here the importance of financial analysis. The uses of
financial ratios and their significant. The importance of this analysis is equally even from every
aspect. Shareholders analyze these statements to have information about the earning of the
company, similarly stakeholder shows great concern about the overall strength and weakness of
the firm. Thus the whole study is a systematic analysis of these questions:

1. Is liquidity ratio has impact on profitability?

2. What is liquidity ratio of BOK?

3. What is profitability ratio of BOK?

4. What is debt management ratio of BOK?

2
1.3 Objectives of the Study

Effective planning and control are central to enhancing enterprise value. Financial plan
may take many firm but any good plan must be must be related to the firm’s existing strength
and weakness. This strength must be understood if they are to be used to proper advantage and
weakness must be recognized if a corrective action is to be taken. The basic purpose of this
report is to analyze the financial statement of BOK Nepal, finding out various ratios so as to
determine its historical performances and current financial conditions. Other specific objectives
are as follows:-

1. To analyze the income of the bank in different years.

2. To analyze the ratio about liquidity of BOK.

3. To analyze the ratio about profitability of BOK.

4. To analyze the ratio about debt management of BOK.

1.4 Rationale

The recent crisis has underlined the importance of sound bank liquidity management. In
response, regulators are devising new liquidity standards with the aim of making the financial
system more stable and resilient. In this report, I analyses the impact of liquid asset holdings on
bank profitability for a sample of BOK. Results suggest that profitability is improved for banks
that hold some liquid assets, however, there is a point at which holding further liquid assets
diminishes a banks' profitability, all else equal. Moreover, empirical evidence also suggests that
this relationship varies depending on a bank's business model and the state of the economy.
These results are particularly relevant as policymakers devise new standards establishing an
appropriate level of liquidity for banks. While it is generally agreed upon that banks undervalued
liquidity prior to the recent financial crisis, one must also consider the tradeoff between
resilience to liquidity shocks and the cost of holding lower-yielding liquid assets as the latter
may impact banks' ability to generate revenues, increase capital and extend credit.

3
1.5 Report Structure

Chapter one –Introduction : background; statement of problem; purpose the study; theoretical
bases; limitations of the study ;definition of terms; and organization of the reminder of the study

Chapter two- Review of the Literature; chronological or categorical presentation of theoretical

viewpoints related to topic

Chapter three-Research Methods: Research design or approach (quantitative or qualitative);

population and /or sample; collection and tabulation of data; and data analysis procedures.

Chapter four-Results and Findings: Presentation of results and findings of project work.

Chapter five –Discussion and Conclusion: Evaluating and interpreting the implications results
obtained and the work of others. Present implication of conclusion for practical application or
future studies

4
 CHAPTER II

RELATED LITRETURE REVIEW

2.1 Conceptual Review

Before proceeding to the theoretical literature review I’d like to first define the main
variables of this study:

Profitability

Profitability can be defined as the final measure of economic success achieved by a

company in relation to the capital invested in it. This economic success is determined by the
magnitude of the net profit accounting.

To achieve an appropriate return over the amount of risk accepted by the shareholders, is
the main objective of companies operating in capitalist economies. After all, profit is the
propulsive element of any investments in different projects.

The assessment of profitability is usually done through the ROA (Return on Assets = Net
Income / Total Assets) and ROE (Return on Equity = Net Income / Equity), which is the ultimate
measure of economic success.

Liquidity

According to Shim and Siegel accounting liquidity is the company’s capacity to liquidate
maturing short-term debt (within one year). Maintaining adequate liquidity is much more than a
corporate goal is a condition without which it could not be reached the continuity of a business.

Solvency and liquidity are two concepts that are closely related and reflect upon the
actions of company’s working capital policy. A low liquidity level may lead to increasing
financial costs and result in the incapacity to pay its obligations.

It is common to find reference to the fact that it is desirable to keep the company
liquidity ratio higher than 1.00. That would prove the firm's ability to repay short-term
commitments, with the liquidation of short term assets. Any ration below 1.0 may mean that the

5
business may not be generating cash enough to meet the short term obligations. However as
Matarazzo had stressed, "if an analyst is observing a company's balance sheet and face a
liquidity ratio of less than 1.00 he shall not, in principle, consider it to be unable to pay its debts
on time." The liquidity ratio would, according to the author, most appropriately be interpreted as
an indicator of the degree of independence of the company against creditors and its ability to face
crises and unexpected difficulties.

Another common assertion is that high liquidity is as undesirable as a low liquidity,

meaning financial mismanagement. According to Matarazzo, high liquidity is not always a sign
of financial mismanagement. If the high current ratio during a lowcurrent liabilities, it may be a
sign of a wise administration, which avoids financial costs of bank loans, or even a strategy to
get good discounts with suppliers for cash payments.

It can also be the case that a high level of inventory is part of the operational
characteristics of the company. For example, firms that need to maintain significant value in
stocks, demanded by customers quickly, as the case of commercial companies. Another example
would be companies which stocks have high value-added, as resellers of electronics, vehicles etc.

Ratio is the expression of one figure in terms of another. It is the expression of the
relationship between the mutually independent figures. It is simple mathematical expression of
the relationship of one item to another. Absolute figures alone convey no meaning unless they are
compared with past research. Accounting ratios how the interrelationship existed among various
accounting data.

According to Wixon, Kell and Bedford, “A ratio is an expression of the quantitative

relationship between two numbers”.

According to Kehler, “A ratio is the relationship of one amount to another expressed as

the ratio of or as a simple fraction, integer, decimal fraction or percentage”.

According to I.M. Pandey, “A ratio is defined as the indicated quotient of two

mathematical expressions and as the relationship between two or more things.” So, Ratio
Analysis is taken as a widely used tool for Financial analysis, It is a study of ratio & between
various items or groups of items in financial statements.

6
 Therefore, ratios refer to the numerical or quantitative relationship between two items or
variables. In simple language ratio is one number expressed in terms of another and can be
worked out by dividing the number to another.

2.2 Review of Previous Works

Bank needs to maintain some reasonable amount of liquidity to fulfill different

commitments. Such as provide money to depositors when they demand for administrative
expenses, for maintaining cash reserve ratio in the central bank etc. so, liquidity is define bank’s
capacity to pay cash in exchange of deposits. Liquidity needs of commercial banks are unique
because in no other types of business there will be such large portion of deposits payable on
demand. Inadequate liquidity does damage credits standing of other organization as well but a
banks fails to pay the deposits on demands, the bank loose the faith of the public. Bank may
maintain the liquidity in the form of :

Cash and bank balance

Placement money at short calls or short notice

Investments in gov. securities and other securities convertible into cash.

International federation of accountants has recommended the measuring the liquidity of bank by:

 Cash and liquid securities

 Interbank money deposit liabilities

Liquidity of the bank should be maintained according to standard; excel liquidity as well
as lack of the liquidity indicates that a bank is serious financial problems. The implication of the
financial problem results losing of deposits, which erodes its supply of cash and forces the
institutions to dispose of its safer and more liquid assets. On the other hand, other banks that are
strong in liquidity will be increasingly reluctant to lend the problem bank liquid funds at higher
interest rates. Thus, we can say that it is optimism necessity of the bank to maintain a proper
balance between high liquidity and low liquidity.

The tools used for analysis are:

Cash and bank balance to total deposit ratio

7
Current deposit to total deposit ratio

Saving deposit to total deposit ratio

Investment to total deposit ratio

And fund fluctuation trend line

2.3 Research Gap

All the studies mentioned above deposit analysis are basically related with the deposit
analysis of Nepalese banks. These studies have pointed out the similarities findings. The
conclusion of those researchers is that there is no more deposit analysis process of the Nepalese
banks. Therefore this study is designed to highlight the comprehensive deposit analysis and its
impact on bank performance .previous study has not been yet made emphasizing the effect of
deposit analysis on bank’s performance .this research work covers time period for five years for
the purpose of trend analysis.

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 CHAPTER III

METHODS

The research methods are the comprehensive plan or outline of the research to find the
answer of the research problem. The research methods includes the research design , the
population sample size and sampling methods , types , and procedure of data collection ,data
presentation, and finally tools and techniques used for analysis of data .

3.1 Research design:

A research design refers to a frame work for conducting the research or it is a frame
work for providing an answer to the hypothetical relationship develop easier. there are different
types of research designed under which a research work can be farmed, there are-historical
research design, action research design, case study (Field Study ) research design ,experimental
research design , correlation research design casual –comparative research design etc. This study
will be designed under descriptive and analytical research design .

3.2 Population and sample

As there are several branches of Bank of Kathmandu throughout the country this study is
based only on the financial performance of BOK. The project work explores the financial review
of BOK and describes the systematic collection and presentation of the data to form a clear
image of specific event i.e. the Financial Analysis of BOK.

3.3 Types of data:

There are two types of data can be used for a research work. Primary and secondary data
this study is based only on the financial performance of BOK. The project work explores the
financial review of BOK and describes the systematic collection and presentation of the data to
form a clear image of specific event i.e. the Financial Analysis of BOK.

9
3.4 Data Collection Procedure

The major data used in this project report are derived from the secondary source and
some analysis are based on the primary source in order to meet the requirement of this project
work report. The detailed data sources are as follows.

Secondary data

As it is already mentioned that mass coverage of this project work report is based on
secondary source of data collection. Without which the financial analysis of BOK, was
impossible to abstract. Secondary data sources are as follows:-

1. Annual report of BOK for each sample period.

2. Different books, newspaper and report published in behalf of BOK.

3.5 Instruments

Formula:-
Liquid Assets
1. Liquid ratio (LR) =
Total Assets

Net Profit
2. Return on assets (ROA) =
Total Assets

Net Profit
3. Return on equity (ROE) =
Shareholde rs Equities

Net Profit - Prefered Dividend

4. Earnings per share (EPS) =
No. of common Stock Outstandin g

Shareholde rs Equities
5. No. of shares outstanding (NSO) =
Par Value Per Share

Total Debt
6. Debt equity ratio =
Shareholde rs Equities

Total Debt
7. Debt assets ratio =
Total Assets

10
3.6 Techniques of Analysis

Merely the data collection is not a full featured project work the way of representing it
must be adopted in such a way that they can be easily understood. Method of analysis are the
modes or tools on which the conclusion is based. Also it facilitate very easy comparison of data
and information. The different tools brought up to prepare final report are as follows:-

i) Tables

ii) Bar diagrams

iii) Trend line

iv) Average

v) Percentage

vi) Financial ratios

3.7 Limitations of the Study

Limitation of any study refers to the extent to which the study is made concentrated thus
it is a boundary line which narrows the area of study into a specific circumstance. Thus if we do
not specify or limit our study it becomes vague and incomplete able. Below mentioned are the
limitation which is applied during the project work report prepared on financial analysis of BOK.

a. The study is based on only one financial institution i.e. Bank of Kathmandu

b. The study covers the period of four financial years starting from 2015/16 to 2018/19.

c. To present and analyze the data, limited tools and techniques are used.

d. This study is based on secondary data and some information is assisted as primary data.

e. This study simply cannot evaluate the overall position of BOK.

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 CHAPTER IV

RESULTS AND FINDINGS

4.1 Presentation And Analysis of Data in Tables and Figures

The objective of the study has been mentioned in the previous chapter. To fulfill the
objective relevant data and information of the ratio analysis of BOK, are presented, compared
and analyzed. The trend analysis is not the tool of that is perfect in itself but merely one of the
important tools of financial statement analyze. Though the comparison of the trend gives some
indication to the analyst to form an opinion as to whether favorable or unfavorable tendencies are
reflected by data.

The main objective of the commercial bank is to generate profit by providing service to
the customer. The existence of the commercial banks seems to be impossible without profit. The
best way to earn profit is by lending it’s capital to the customers for that bank charges certain
percentage on lending, which is called interest and is the income for the bank.

Income through credit is the strong source of profit earned by the bank. Most of the bank
fully depend on the interest earned from loan and utilizes this fund for various purpose i.e. to
operate bank, provide salary to the staffs, to fulfill the day to day operation of the bank, to
provide bonus, to the employees, to distribute dividend to the shareholders, etc.

We know that bank generates profit through lending but banks doesn’t provide credit
without making research that may be analysis of the project or the individual who are in need of
loan. The high level of officers and the experts appointed by the bank make this researches. This
research and inspection are done only to reduce the bad debt or to minimize the risk of lending
loan and make the appropriate decision. So, the bank as well as the whole nation will be
benefited.

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 Table 4.1: Net return from interest in different years

Fiscal Interest Interest Net interest Ratio of net interest

Year Income Expenditure income income
2015/16 473297122 285005602 188291520 39.78%
2016/17 496808827 276705159 220103668 44.30%
2017/18 567096226 286297050 280799176 49.52%
2018/19 607095662 241639164 365456498 60.20%

Amount in Rs.
800000000

600000000

400000000

200000000

0
2015/16 2016/17 2017/18 2018/19
Fiscal Years
Interest income Interest expenditure Net interest income

Fig 4.1: Net Return from interest in different years

The above table reveals net interest income which is collected from the lending to its
customers. The income received from its client without making any expenditure to collect the
debt is called gross income from interest. The total expenditure made by bank to collect the debt
is termed as interest expenditure. Deducting interest expenditure from interest income net
income from interest is obtained. (Net Interest income = Interest income – Interest expenditure)

In the fiscal year 2016/17 BOK generate a interest income of 44.30%. It reveals that the
bank spend more funds in collecting debtors thus its income ratio is creeping. Again in the fiscal
year 2016/17 and 2017/18 BOK has become successful in reducing the interest expenditure and

13
increased the net income which leads to increase the interest ratio to 49.52% & 60.20%
respectively. But in the fiscal year 2018/19 the interest ratio has declined to 57.09% this may be
because of political situation of the nation.

From above diagram it is found that the income from interest is increasing rapidly every
year. But the interest expenditure of the bank is little fluctuating this is although they are
providing quality service to customer and appropriate investment in different sectors. The main
reason to increase the interest earned by bank is also due to rise in the number of customer whom
BOK provide loan as per their investments.

Liquidity Ratios of BOK

Liquidity ratio measure the firm’s ability to meet current obligation. These rations focus
on current assets and liabilities and are used to ascertain the short term solvency position of a
firm. A firm should ensure that it does not suffer from lack of liquidity and also that it does not
have excess liquidity. The failure of company to meet its obligation due lack of sufficient
liquidity will result in a poor credit worthiness’, loss of creditors confidence or even in legal
triangle resulting in the closure of the company. A very high degree of liquidity is also bad idle
assets earns nothing the firm’s funds will be unnecessarily tied up in current assets. Again very
little amount of liquidity is not good for the firm. Therefore proper balance between the two
contradictory require marks that is liquidity and profitability. The most common ratios which
indicates the extent of liquidity are:

Liquidity Ratio

Liquidity ratio (LR) is the quantitative relationship between liquid assets (LA) and total
deposit (TD), liquid assets are those , which can m\normally be converted into cash within a
year. On the other hand, total deposit refer to those obligation, which must be paid within an
accounting cycle. The LR shows banks' ability to pay liability, it is accurate and quick measure
of the firm's ability to meet current obligations. It is calculated by dividing LA by TD.

Liquid Assets
Liquid ratio (LR) =
Total Assets

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 Table 4.2: Liquid ratio of BOK

Fiscal Year Liquid assets Total Deposit Liquid ratio

2015/16 6262427115 95836461244 1.073
2016/17 7351175168 8685683716 1.071
2017/18 9412719665 8845599442 1.064
2018/19 9761899522 9136392648 1.068

Liquid Ratio
1.075
1.07
1.065
1.06
1.055
1.05
1.045
1.04
2015/16 2016/17 2017/18 2018/19
Fiscal Years

Earnings per share

Fig 4.2: Trend line for liquid ratio of BOK

The liquid ratio thus calculated measures the ability of the bank to meet obligations due
within one year. This assumes a regular cash flow and that both account receivable and inventory
can be readily converted into cash As a conventional rule the ration 2:1 is employed as a standard
of comparison , LR is less than 2:1 are typically considered very low and indicate financial
difficulties for BOK the LR for the fiscal year to 2013/14 are 1.073 times, 1.064 times. 1.068
times and 1.052 times respectively which seems to be poor however, LR is the quantitative test
of a firm’s liquidity. It does not consider the quality of liquid assets, therefore the ratio equals to
or greater than 2:1 may not be doing good due to slow paying debtors or less convertible
inventory. But a poor ratio less than 2:1 may be performing well if it has highly liquid stock of
quality account receivable.

15
Profitability Ratios of BOK

Profitability is the end results of a number of corporate policy and decision. It is the
differences between revenue and expenses over a period of time. Profit is the ultimate output of
the company and it will have no future if it fails to make sufficient profit. Therefore financial
manager should continuously evaluate the efficiency of the firm in term of profit. The
profitability ratio are calculated to measure the operating efficiency of the firm. Beside owner
and manager are also interested to know the financial soundness of the firm. Owner are eager to
know their return whereas manager are interested in operating efficiency. So they calculate
profitability ratio because expectation of both owner and manager are evaluated in term of profit
earned by the firm. This is possible only when company earns enough profit.

i) Return on assets

Which is often called the company's return on total assets, measure the overall
effectiveness of management in generating profit with its available assets. The higher the
company's return on assets the better it is doing in operation and vice-versa. The ratio of return
on assets measure the success or failure of the firm to utilize its total assets. In order to judge the
management effectiveness, it is necessary to measure the profitability of all financial resources
invested in the firm’s asset. For this purpose a formula derived as.

Net Profit
Return on assets (ROA) =
Total Assets

Table 4.3: Return on assets of BOK

Fiscal Year Net profit Total assets ROA

2015/16 9274782 6356645864 1.46%
2016/17 82127662 7444816989 1.10%
2017/18 127473189 9496344672 1.34%
2018/19 139529721 9888533138 1.41%

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 ROE in percentage
2.5 —
2 —
1.5 —
1 —
0.5 —
0 —
2015/16 2016/17 2017/18 2018/19
Fiscal years
Return on Assets
Fig 4.3: Trend line for ROA of BOK

Total assets of the BOK shows the increasing trend and profit of the bank is also. In the
increasing trend, the return on the assets (ROA) are 1.46%, 1.10%, 1.34% and 1.41%
respectively for the year 2015/16, 2016/17, 2017/18 and 2018/19 respectively. The ROA shows
the fluctuation which indicates that there in necessary of proper management to utilize available
assets effectively and efficiently.

ii) Return on equity

Return on equity (ROE) is percentage of net profit (Income) on total equity of the firm.
It also shows how effectively the bank is utilizing is net income worth for profit generation. The
efficiency can be analyzed from the table below. This ratio can be used of return on equity is
better for owner’s. it is calculated as follows.

Net Profit
Return on equity (ROE) =
Shareholders Equities

Table 4.4: Return on equity of BOK

Fiscal Year Net profit Shareholder equity ROE

2015/16 9274782 520184620 1.78%
2016/17 83127662 579133236 14.18%
2017/18 127473189 650745230 19.50%
2018/19 139529721 320737816 43.50%

17
 ROE in percentage
45 —
40 —
35 —
30 —
25 —
20 —
15 —
10 —
5 —
0 —
2015/16 2016/17 2017/18 2018/19
Fiscal years
Return on Equity

Fig 4.4: Trend line for ROE of BOK

According to table and diagram, the return on equity is quite fluctuating and it is increasing trend
in the fiscal year 2018/19. This result of ROE prove the way to deteriorate the enthusiasm of
present and potential investors of equity. Also it directly affect the market value of shares and
goodwill of bank.

iii) Earning per share

Earnings per share (EPS) is one of the strong tools of measuring the profitability of the
common shareholder’s investment. It is constantly being used to measure whether the firm’s
earning power per share has been changed over the given period or not EPS is the result of net
profit after tax loss preference dividend divided by the total number of common share
outstanding, Actually it reveals, the amount of earning attributable to each common share
outstanding.

Net Profit - Prefered Dividend

Earnings per share (EPS) =
No. of common Stock Outstanding

Since BOK has no preference share capital and no banks share issued. Therefore, BOK
has not required to give preference dividend but must adjust EPS by applying adjustment factor.

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 Shareholde rs Equities 4635980900
No. of outstanding shares = 
Par Value Per Share 100

= 4635809 Shares

Table 4.5: Earning per share of BOK

Fiscal Year Net profit No. of outstanding shares EPS

2015/16 9274782 4635809 Rs. 2.00
2016/17 82127662 4635809 Rs. 17.72
2017/18 127473189 4635809 Rs. 30.10
2018/19 139529721 4635809 Rs. 30.10

The EPS of BOK has been increasing continuously as a result of the effective and
efficient management of the firm. This has resulted the growth in the market has resulted the
growth in the market price per share. The management is able to maximize the value share which
is good sign for the common shareholders, bank and the potential inventors.

Amount in Rs.
50
40
30
20
10
0
2015/16 2016/17 2017/18 2018/19
Fiscal Years
Earnings per share

Fig 4.5: Trend line for EPS of BOK

In the above diagram, the X-axis and Y-axis represent the fiscal year and the earning per share.
The curve represent the increasing trend of EPS in 2015/16 to 2018/19 fiscal year. EPS of BOK
for the year 2015/16 i.e. Rs.2.00 and EPS for the year 2016/17, 2017/18, 2018/19 respectively as
Rs. 17.72, Rs.27.30 & Rs.30.10. This clears that the banks EPS for several years. In 2015/16

19
BOK EPS was minimum but in 2018/19 it’s EPS has increase to Rs. 30.10, As a result of the
effective management of the bank. The market price has increased this has resulted in continuous
growth in the EPS.

Debt Management Ratios of BOK

The debt management ratios, also known as leverage ratio shows that proportions of debt
and equity in financing the firm’s assets. So long term creditors and more concerned. With firm’s
long term financial strength. In order to judge the long term financial position of the firms,
financial leverage or capital structure ratio are calculated.

The manner in which asset are financed has a number of implication first between debt
and equity, debt is more risky from the firm’s point of view the firm has legal obligation to pay
interest to debt holders, irrespective of the profiles made or losses incurred by the firm. If the
firm fails to pay to debt holders in time, they can take legal action against it to get payments and
in extreme eases it can force the firm into liquidation. Second, use of debt is advantageous for
shareholders in two ways.

Retaining control of the firm with a limited stake and their earning will be magnified
when the firm earned a ratio of return on the total capital employed higher the interest rate on the
borrowed funds. Leverage ratios are either calculated from the balance sheet items to determine
the pre-position of the debt in total financing of from the profit and loss a/c by determining the
extent to which operating profit are sufficient to cover the financial charge.

i) Debt equity ratio

Debt equity ratio is used to evaluate the long term solvency position of the firm. It
express the relationship between debt capital and equity capital and reflect the relative claim of
them on the assets. It is calculated by dividing total debt by total equity.

Total Debt
Debt equity ratio =
Shareholders Equities

20
 Table 4.6: Debt equity ratio of BOK

Fiscal Year Bond/Debenture Total Equity DE ratio

2015/16 5836461244 520184620 11.22%
2016/17 6865683713 579133236 11.86%
2017/18 8845599422 650745230 13.59%
2018/19 9136392648 320737816 28.49%

Amount in Rs.
12000000000
10000000000
8000000000
6000000000
4000000000
2000000000
0
2011/12 2016/17 2017/18 2018/19
Fiscal Years
Bond/ Debenture Total Equity

Fig 4.6: Total debt and equity capital of BOK

From the debt holder point of view the firm with high DE ratio is unable to provide the
margin of safety to them. However the shareholder may consider it to be significant because they
enjoy trading equity and also use of high debt is tax deductive source to them and use of high
debt may be dangerous to the bank in the sense that inability or may lead the bank to bankruptcy.

ii) Debt assets ratio

The debt assets ratio (DA) simply known as debt ratio, shows the proportion of total debt
used in financing total assets of the firm. It is calculated by dividing total debt by total assets.
This ratio is calculated in order to assess proportion of total fund short and long term provided by
outsider to finance total assets.

Total Debt
Debt assets ratio =
Total Assets

21
 Table 4.7: Debt assets ratios of BOK
Fiscal Year Total Debt Total Assets DA ratio
2015/16 5836461244 6356645864 91.82%
2016/17 6865683713 7444816989 92.22%
2017/18 8845599442 9496344672 93.15%
2018/19 9136392648 9888533138 92.39%

Amount in Rs.
14000000000
12000000000
10000000000
8000000000
6000000000
4000000000
2000000000
0
2015/16 2016/17 2017/18 2018/19
Fiscal Years
Total Debt Total Assets

Fig 4.7: Total debt assets ratio of BOK

High DA ratio from the shareholder point of view is considered to be significant because
they are enjoying trading on equity. However from lender’s point of view the firm with higher
DA is unable to provide a large margin of safety for them

Total Loan to Deposit of BOK

Deposit refers to the collection of money from various sectors like personal institutions
organization, company, industries, whether they are profit seeking or nonprofit-seeking, deposit
is very important for the successful and smooth operation of banking system. It is compared to
the circulation of blood in the human body. The growth and development of bank depends
primarily upon the source of existence of a commercial bank. Accepting deposit is the main
function of commercial bank. Again, giving loan to the general public, institution, organization
etc is also an important functions of the commercial banks. Lunching loans is main the source of
generation income for the bank. The volume of funds that management will use for generating

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income through loans and investment are determined largely by deposit policy, the deposit and
lending of funds are both equally important for the bank. The ratio of total loan to total deposit is
calculated as.

Landing
Total loan to deposit ratio =
Total Deposit

The total deposit is the accumulation of fixed deposit, current deposit, current deposit,
and other deposit collected from the customer of bank. And this deposit is utilized to give loan to
other third party. The BOK’s deposit to lending ration is increasing every year. It indicates that
the bank is effectively utilizing the funds deposit by the public and is investing on profit earning
sectors. Hence the bank is playing the role of investment company.
Table 4.8: Total deposit and lending of BOK

Fiscal Year Total deposit Total lending DL ratio

2015/16 5723289650 4613697307 1.2405
2016/17 6170711570 4542700202 1.3584
2017/18 7741645424 5646698444 1.3710
2018/19 8942748998 5912579472 1.5125

Amount in Rs.
12000000000
10000000000
8000000000
6000000000
4000000000
2000000000
0
2015/16 2016/17 2017/18 2018/19
Fiscal Years
Total Deposit Total Lending

Fig 4.8: Total deposit and lending of BOK

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In the above diagram, it can be seen that the demand for deposit in the bank is increasing means
the customers are largely attracted by this bank. But the bank has not landed all the deposited
amount in loan, the loan offered by BOK is following the deposit trend. The more the ban
received deposits, the more it will investor.

4.2 Findings

Finding is an important part of the repost writing and presentation, during the time of
field of activities in the BOK. It was found that,

1. The percentage of net interest income has increased from 49.52% in 2013/14 to 60.20% in
2018/19.

2. The liquidity ratio

3. The EPS of the bank has constant to Rs. 30.10 in the fiscal year 2017/18 & 2018/19.

4. of BOK is found to be 1.068 times in 2018/19 where as in 2017/18 is 1.064 times.

5. The debts to equity ratio is found to be 28.49 times and that of debt to total assets ratio is
92.39 times in 2018/19.

6. The interest coverage ratio of bank is 2.51 times in 2018/19.

7. The ROA increased from 1.34% in 2013/14 To 1.41% in 2018/19.

8. The ROE decreased from 19.50% in 2013/14 to 43.50% in 2018/19.

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 CHAPTER V

DISCUSSION AND CONCLUSION

5.1 Discussions

The main objective of the study is to fulfill the assessment required for practical study of
BBS (IV) year of T.U. BOK is one of the successful banks operating the territory of Nepal,
Providing fair banking service to its customers namely remittance letter of credit, loan, credit.,
locker, guarantees etc. are major and one of the indirect investment for the nation by BOK. So,
this company is selected for the purpose of study, it started operation in March 1995 with the
objectives to fuel the Nepalese economy and take it to hover height as well as to facilitate the
nation economy to competitive globally.

All the data presented here are of secondary nature. The five fiscal year’s published data
of BOK are used in this study. Different methods are used in this study to make the report
precious. In this study different financial statement are applied whenever necessary. In the
sample of data of last five year the BOK is found to earned maximum profit. By this analysis the
position of BOK as well as its importance for the banking sector and the nation is clearly
understood.

5.2 Conclusion and Implications

During the visit to BOK for the purpose of collecting data’s and information it was notice
that the staff were highly efficient and hard working. They were very concerned about the
customer’s service. The number of customer are increasing each year. The BOK’s head office
and branch offices as well are providing credit facility by which lost of customers have been
benefiting. The list of the fiscal work report of the BOK is presented as below:-

1. BOK has been mobilizing it’s fund in most of the sector of economy as per the need of
country.

2. The bank is able to pay it’s short term obligation in time out of its earnings.

3. The shareholders, creditors of BOK and employee of the bank are found satisfied from the
return they receives from the bank.

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4. The return on equity is quiet fluctuating over the year.

5. The EPS of the BOK’s is in increasing trend.

Implication

BOK is well experienced and successful to expand its business in different part of nation. The
financial statement of the company are presented in accordance with generally accepted
accounting practices as per guidelines issued by Nepal Rastra Bank still if the bank takes care
about the following things it will be more beneficial for the banks.

1. The bank should try to mobilize it’s fixed assets as much as possible so that the return on
assets can be increased.

2. Liquidity position of the bank is through satisfactory, it should be taken in to consideration.

3. The bank’s return of equity must be maintained.

4. It should improve the interest paying capacity because it’s interest coverage is low.

5. They should increase the rate on deposit, so that more customer can be attracted.

6. They should at least open their branches in different headquarter of the rural district.

Finally it may be concluded that BOK seems to have known the fact that only a large
quantity of natural resources, skilled manpower, Unless there is well establishment of financial
institution to mobilize capital. The present study only consider the financial ratios as a variable
for comparison. So, it is recommended to include other variables too in further study of the same
topic.

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 REFERENCES

Agrawal, G.R. (2003), Project Management in Nepal; Kathmandu, MK Publisher &

Distributors.

Annual Report (2015/15 to 2018/19), Bank of Kathmandu Limited.

Bajracharya, Bhanu Chandra (2060), Business Statistics & Business Mathematics; Kathmandu,
M.K.Publisher and Distributors.

Dangol, Ratna Man & Prajapati Keshab (2003), Financial Analysis & Planning Accounting;
Kathmandu, Taleju Publication.

Munankarmi, Shiva Prasad (2004), Text Book of Accountancy & Auditing; Kathmandu,
Educational Enterprises (P) Ltd.

Pant, P. R. (2003), Fieldwork Assignment & Report Writing; Kathmandu, Buddha Academic
Enterprises Pvt. Ltd.

Rana, Surya (2005), Financial Management; Kathmandu, Ratna Pustak Bhandar.

Thapa, Sher Jung & Singh Hridaya Bir (2060), Banking, Principles & Legislation Practice;
Kathmandu, Nabin Prakashan.

Website of BOK; www.bok.com.np

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