CHAPTER – 1
INTRODUCTION
1. Background
1.1 Background of the study: -
Profitability is a measure of firm’s efficiency. Survivability of a company as well as the
dividends received by shareholders depends on the firm long-term profitability. In fact,
profitability measures how well a company utilizes its resources in the purpose to generate profit
and shareholder value. Profitability is expressed as a ratio between profit and different types of
utilized resources. The higher the profit rate, the higher the profitability rate. Ratios are used to
measure profitability and give final answers to how effectively the firm is being managed in
terms of its financial performance. Therefore, management, creditors and owners are also
interested in the profitability ratio of the firm.
In order to perform a profitability analysis, all costs of an organization have to be allocated to
output units by using intermediate allocation steps and drivers. This process is called costing.
When the costs have been allocated, they can be deducted from the revenues per output unit. The
remainder shows the unit margin of a product, client, location, channel or transaction. After
calculating the profit per unit, managers or decision makers can use the outcome to substantiate
management decisions. Managers can decide to stop selling loss making products, to reduce
costs for loss making customers or to increase sales in profitable locations.
1.2 Profile of the organization: - NMB Bank Nepal is a commercial bank in Nepal with
headquarters in Kathmandu. The bank is licensed by central bank of Nepal, the Nepal Rastra
Bank and has 110 branches across the nation providing retail and commercial banking services.
The bank's shares are publicly traded in the Nepal Stock Exchange. The Bank has a joint venture
agreement with Netherlands Development Finance Company (FMO) a Dutch development bank
which holds 17% of the bank's shares and is the largest shareholder of the Bank.It was founded
in May 2008 and is licensed as an "A" class financial institution. It was created as a merger with
four financial institutions, Bhrikuti Development Bank, Pathibhara Bikas Bank, Prudential
Finance Company, Clean Energy Development. In September 2016, the bank signed a joint
venture agreement with the Netherlands Development Finance Company (Nederlandse
Financierings-Maatschappij voor Ontwikkelingslanden, following which FMO became the single
largest shareholder of the bank.NMB Bank has been recognized as 'Bank of the Year in Nepal'
for two consecutive years, 2017 and 2018 by The Banker, a service of the Financial Times, for
its leading role in the country’s financial sector by using new digital technologies. Recently
NMB Bank Has acquired Om Dev Bank.
1.3 Statement of Problem: -
The statement of problem of the study will be:
Does the profitability helps to find the position of NMB Bank?
Why is it important to analyze profitability?
How do you analyze a NMB Bank's profitability?
What is the best measure of profitability?
1.4 Objective of the study: -
The objective of the study will be:
To understand income statement and the ways to analyze them.
To point out the strength and weakness of NMB Bank.
To evaluate the profitability position of the bank.
.
1.5 Limitation of the Study: -
This study has the following limitations:
a) The study is limited to five years period from 2071/72 to 2075/76.
b) The studies have been done according to the information provided by the Bank.
c) Being a student resources constraint is another factor that has limited the scope of the study.
d) The study concern only the analysis of the ratio various other profitability analysis tools are
not analysis, so our decision may be differ when other calculation are calculates.
1.6 Significance of Study: - The purpose of this study is to evaluate the profitability position of
NMB Bank Limited using different profitability tools. Its importance is to help the investor and
shareholders of some important variables. The stakeholder’s may be the management, the
shareholder’s and the outsiders. It helps management to identify their loose areas & other
weakness, suggests the ways through which management can solve it and avoid it in future. It
may benefit the shareholder’s to know whether their funds are being used properly or not. It may
help outsiders like debtors, competitors and investors etc. to take decision on various matters
such as whether to deposit or not, finance or not etc.
1.7 Organization of study: - Research report can be prepared in different ways, Researcher
writes the style of arrangement of chapters in the thesis. Generally, Thesis is written in the
following ways:
Introduction: The first chapter of this study includes general background, statement of the
problem, objectives of the study, theoretical framework, research hypothesis, limitation of the
study, review of previous work, research design, population and sample, sampling technique,
procedure of data collection and data analysis tools.
Result and Analysis: This chapter deals with the presentation of data using appropriate table
and graphs as well as analysis of data using financial tools and statistical tools for the analysis
and interpretation of data. Lastly, the major findings are drawn from analysis.
Summary and Conclusion: Third and last chapter include brief sketch of the study, conclusion
and recommendation.
CHAPTER-2
REVIEW OF LITERATURE
2.1 Conceptual Review: - In this study, I found that the improved profitability is the only for
evaluating performance from the share holders point of view. Profitability ratio is the indicators
of degree of managerial success in achieving the objective of profit maximization. It maps out
the actions required in the course of the study given his previous knowledge of other researchers'
point of view and his observations on the subject of research. A profit is what is left of the
revenue a business generates after it pays all expenses directly related to the generation of the
revenue, such as producing a product, and other expenses related to the conduct of the business
activities. There are many different ways to analyze profitability ratios such as Return on Assets,
Return on equity, Earning per Share, Net Interest Margin, and Profit Margin etc. Review of
literature comprises upon the existing literature and research related to the present study with a
view to find out what had already been studies.
2.2 Review of previous works: - A literature review is a scholarly paper, which includes the
current knowledge including substantive findings, as well as theoretical and methodological
contributions to a particular topic. Literature reviews are secondary sources, and do not report
new or original experimental work. Most often associated with academic-oriented literature, such
reviews are found in academic journals, and are not to be confused with book reviews that may
also appear in the same publication. These studies are helpful in assessing the limitations,
findings and suggestions involved in such studies.
Singh S.P, (1974) examined the 14 nationalized banks in terms of changes in their profitability
between pre-nationalization and the post-nationalization periods.
Mr. Bourden (1986), Lecturer of Punjab, University in his research “An empirical analysis of
profitability in Cattle Feed Industries” points out that profitability analysis is necessary for
overall efficiency of the enterprise.
Gopinathan (2009), in the study entitled “Profitability in Banks, a matter of survival” has
presented that the financial ratio analysis can spot better investment options for investors as the
ratio analysis measures various aspects of the performance and analyzes fundamentals of a
company or an institution.
CHAPTER-3
RESEARCH METHODOLOGY
3.1 Research design: - Research design refers to the overall strategy that you choose to integrate
the different components of the study in a coherent and logical way, thereby, ensuring you will
effectively address the research problem; it constitute the blueprint for the collection,
measurement, and analysis of data. A research design is purely and simply the framework or plan
for a study that guides the collection and analysis of data. A research design is the arrangement
conditions, for the collection and analysis of data in a manner that aims to combine relevance to
the research purpose with economy in procedures. This research is conducted to acquire depth
knowledge on any issue or for the development of theory. The main function of research design
is to ensure that the evidence obtained enables you to effective address the research problem as
unambiguously as possible.
3.2 Population and sampling: - The population refers to the industries of the same nature and
its services and product in general. It is not possible to study the entire bank due to lack of time
and resources. Hence, the total bank constitutes the population and the bank under the study i.e.
NMB BANK constitutes the sample for the study. Financial statements for last five fiscal years
from F/Y 2071/72 to F/Y 2075/76 have been taken as sample data for evaluating Profitability
Analysis of NMB BANK.
3.3 Sources of data: -
The study used secondary data for the multiple regression analysis. As such the data for the study
was gleaned purely from published financial statements of the sampled banks, thus making the
data source completely secondary in nature.
3.3.1 Primary Data:-
The data, which are originally collected by the researcher himself for the purpose of present
research, is known as primary data. Primary data is used when secondary data is not available. It
can be collected using various methods. Primary data can be generated through administration of
interview, questionnaire and observation etc.
3.3.2 Secondary Data:-
The data which are originally collected but obtained from pre-published or already sources are
secondary data. The researcher can obtain secondary data from various sources. Secondary data
can be obtained from published and unpublished sources.
3.4 Data Collection Procedure: -
There is not one “best” data collection technique — every process comes with pros and cons.
Some methods are better for projects that only require quantitative data, while others are better
for uncovering qualitative data. Different type of data collection techniques are used for the this
study they are mention below
3.4.1 Questionnaire: - Questionnaires are a popular means of data collection because they are
inexpensive and can provide a broad perspective. Surveys are often used when information is
sought from a large number of people or on a wide range of topics. We have conducted this
survey by face-to-face, by mail, telephone.
3.4.2 Interview: - Indirect interview method is used to collection the information from the
customer of the banks similarly to get direct information; data are collected through the
interaction with the staff and manager of NIBL bank.
3.4.3 Observation: - Another important technique for collecting data for this thesis. Making
direct observations is a simple and unobtrusive way of collecting data. The data are collected by
visiting banks, annual reports and training program conducted by NIBL bank
3.5 Use of statistical Tools and Techniques: -
Accounting data contained in balance sheet and income statement are used to calculate various
types of ratios, which assess different characteristics of Profitable performance. The analysis of
data is done according to the pattern of data available in this study. The technique of analysis of
this study data has been presented and calculated in terms of tables, formats, diagrams, graphs,
and charts. Simple analysis i.e. trend analysis will be used
