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

1
techniques that can be useful to identify the strength 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 2011/12 to 2014/15.
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?
5. What is the position of deposits and lending 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.
5. To identify the position of deposit and lending 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 analyse
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 firms ability to repay
short-term commitments, with the liquidation of short term assets. Any ration below
1.0 may mean that the 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,

5
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.
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.

6
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
Current deposit to total deposit ratio
Saving deposit to total deposit ratio
Investment to total deposit ratio
And fund fluctuation trend line

7
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.

8
 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 .

3.1Research 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 will be this study is based only on the financial
performance of BOK. The project work explores the financial review of BOK and

9
describes the systematic collection and presentation of the data to form a clear image
of specific event i.e. the Financial Analysis of BOK.

3.4 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:-

1) 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 Data Presentation and 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

10
3.6 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) = Shareholders Equities

Net Profit - Prefered Dividend

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

Shareholders Equities
5. No. of outstanding shares =
Par Value Per Share
Total Debt
6. Debt equity ratio = Shareholders Equities

Total Debt
7. Debt assets ratio =
Total Assets
Landing
8. Total loan to deposit ratio = Total Deposit

11
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 2011/12 to
2014/15.
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.

12
 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.

13
 Table 4.1: Net return from interest in different years

Fiscal Interest Interest Net interest Ratio of net

Year Income Expenditure income interest income
2011/12 473297122 285005602 188291520 39.78%
2012/13 496808827 276705159 220103668 44.30%
2013/14 567096226 286297050 280799176 49.52%
2014/15 607095662 241639164 365456498 60.20%

Amount in Rs.
800000000

600000000

400000000

200000000

0
2011/12 2012/13 2013/14 2014/15
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 2012/13 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 2012/13 and 2013/14 BOK has become successful
in reducing the interest expenditure and increased the net income which leads to

14
increase the interest ratio to 49.52% & 60.20% respectively. But in the fiscal year
2014/15 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.

4.1.1 Liquidity Ratios of BOK

Liquidity ratio measure the firm’s ability to met 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 dose not suffer from lack of
liquidity and also that it does not have excess liquidity. The failure of company to
meet it’s 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 tow contradictory require marks that is liquidity and profitability. The most
common ratios which indicates the extent of liquidity are:

i) 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 firms ability to meet current
obligations. It is calculated by dividing LA by TD.

15
 Liquid Assets
Liquid ratio (LR) = Total Assets

Table 4.2: Liquid ratio of BOK

Fiscal Year Liquid assets Total Deposit Liquid ratio

2011/12 6262427115 95836461244 1.073
2012/13 7351175168 8685683716 1.071
2013/14 9412719665 8845599442 1.064
2014/15 9761899522 9136392648 1.068
Liquid Ratio

1.075
1.07
1.065
1.06
1.055
1.05
1.045
1.04
2011/12 2012/13 2013/14 2014/15
Fiscal Years

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 ration2:1 is employed as a standard of comparison , LR is less then 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

16
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 then 2:1 may be performing well if it has
highly liquid stock of quality account receivable.

4.1.2 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 companies return on total assets, measure the overall
effectiveness of management in generating profit with it’s available assets. The higher
the companies 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
2011/12 9274782 6356645864 1.46%
2012/13 82127662 7444816989 1.10%
2013/14 127473189 9496344672 1.34%
2014/15 139529721 9888533138 1.41%

17
 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 2011/12, 2012/13, 2013/14 and 2014/15
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
2011/12 9274782 520184620 1.78%
2012/13 83127662 579133236 14.18%
2013/14 127473189 650745230 19.50%
2014/15 139529721 320737816 43.50%

18
 ROE in Percentage
50
40
30
20
10
0
2011/12 2012/13 2013/14 2014/15
Fiscal Years
Return on equity

Fig 4.3: 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 2014/15. 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

Earning 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
Earning 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.
Shareholders Equities 4635980900
No. of outstanding shares = 
Par Value Per Share 100
= 4635809 Shares

19
 Table 4.5: Earning per share of BOK

Fiscal Year Net profit No. of outstanding shares EPS

2011/12 9274782 4635809 Rs. 2.00
2012/13 82127662 4635809 Rs. 17.72
2013/14 127473189 4635809 Rs. 30.10
2014/15 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 goods sign for the common shareholders, bank and
the potential inventors.
Amount in Rs.

50
40
30
20
10
0
2011/12 2012/13 2013/14 2014/15
Fiscal Years
Earning per share

Fig 4.4: 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 2011/12 to 2014/15
fiscal year. EPS of BOK for the year 2011/12 i.e. Rs.2.00 and EPS for the year
2012/13, 2013/14, 2014/15 respectively as Rs. 17.72, Rs.27.30 & Rs.30.10. This
clears that the banks EPS for several years. In 2011/12 BOK EPS was minimum but in
2014/15 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.

20
4.1.3 Debt Management Ratios of BOK

The debt management ratios, also knows 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 fore 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

Table 4.6: Debt equity ratio of BOK

Fiscal Year Bond/Debenture Total Equity DE ratio
2011/12 5836461244 520184620 11.22%
2012/13 6865683713 579133236 11.86%
2013/14 8845599422 650745230 13.59%

21
 2014/15 9136392648 320737816 28.49%

Amount in Rs.

12000000000
10000000000
8000000000
6000000000
4000000000
2000000000
0
2011/12 2012/13 2013/14 2014/15
Fiscal Years
Bond/ Debenture Total Equity

Fig 4.5: Total bond/debenture 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
Table 4.7: Debt assets ratios of BOK
Fiscal Year Total Debt Total Assets DA ratio
2011/12 5836461244 6356645864 91.82%

22
 2012/13 6865683713 7444816989 92.22%
2013/14 8845599442 9496344672 93.15%
2014/15 9136392648 9888533138 92.39%

14000000000
12000000000
10000000000
8000000000
6000000000
4000000000
2000000000
0
2011/12 2012/13 2013/14 2014/15
Fiscal Years
Total Debt Total Assets
Amount in Rs.
I

Fig 4.6: Total debt and assets 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

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of view the firm with higher DA is unable to provide a large margin of safety for
them.

4.1.4 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 non
profit-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
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

2011/12 5723289650 4613697307 1.2405
2012/13 6170711570 4542700202 1.3584
2013/14 7741645424 5646698444 1.3710
2014/15 8942748998 5912579472 1.5125

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 Amount in Rs.
12000000000
10000000000
8000000000
6000000000
4000000000
2000000000
0
2011/12 2012/13 2013/14 2014/15
Fiscal Years
Total Deposit Total Lending

Fig 4.7: Total deposit and lending of BOK

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 Major Findings of the Study

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 2014/15.
2. The liquidity ratio of BOK is found to be 1.068 times in 2014/15 where as in
2013/14 is 1.064 times.
3. 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 2014/15.
4. The interest coverage ratio of bank is 2.51 times in 2014/15.
5. The ROA increased from 1.34% in 2013/14 To 1.41% in 2014/15.
6. The ROE decreased from 19.50% in 2013/14 to 43.50% in 2014/15.
7. The EPS of the bank has constant to Rs. 30.10 in the fiscal year 2013/14 &
2014/15.

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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 it’s 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.

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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 it’s
earnings.
3. The share holders, creditors of BOK and employee of the bank are
found satisfied from the return they receives from the bank.
4. The return on equity is quiet fluctuating over the year.
5. The EPS of the BOK’s is in increasing trend.

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Implication

BOK is well experienced and successful to expand it’s 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 know 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.

28
 REFERENCES

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

Distributors.

Annual Report (2064/65 to 2068/69), 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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