A STUDY ON

WORKING CAPITAL
MANAGEMENT
OF
NEPALESE LISTED BANKS

By:
Ekta Shrestha
Post Graduate Campus
Faculty of Management
T.U. Registration No.: 30522-94

A Thesis Submitted to:

Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirement for the degree

of
Masters of Business Studies (M.B.S.)
Biratnagar, Nepal
Chaitra 2065
 TRIBHUVAN UNIVERSITY
POST GRADUATE CAMPUS
Biratnagar (Nepal)
Ph: 021-526327, 522204 , 528205

RECOMMENDATION

This is to certify that the thesis:

Submitted by
Ekta Shrestha

Entitled
A STUDY ON WORKING CAPITAL MANAGEMENT
OF
NEPALESE LISTED BANKS

has been prepared as approved by this Department in the prescribed format

of Faculty of Management. This thesis is forwarded for examination.

Thesis Supervisor Head of Department

(Dr. Madhav Bd. Shrestha) (Dr. Madhav Bd. Shrestha)

……………………….. ………………………..

Campus Chief

Date: ...................... ......................................

2
 TRIBHUVAN UNIVERSITY
POST GRADUATE CAMPUS
Biratnagar (Nepal)
Ph: 021-526327, 522204 , 528205

VIVA-VOCE SHEET
We have conducted the viva-voce examination of the thesis presented
by

Ekta Shrestha

Entitled
A STUDY ON WORKING CAPITAL MANAGEMENT
OF
NEPALESE LISTED BANKS
and found the thesis to be the original work of the student and written
according to the prescribed format. We recommend the thesis to be
accepted as partial fulfillment of the requirement for
Masters Degree In Business Studies (M.B.S.)

Viva-Voce Committee

Chairperson, Research Committee .....................................................

Thesis Supervisor ......................................................

(Dr. Madhav Bahadur Shrestha)

Member (External Expert) .......................................................

Date: -..............................
3
 DECLARATION

I here by declare that the work repeated in this thesis

entitled “A Study of Working Capital Management of Nepalese
listed Banks.” Submitted to post graduate college, faculty of
management, Tribhuvan University in my original work done in the
form of partial fulfillment of the requirement for the Master’s
Degree in Business And Study (M.B.S.) under the supervision of Dr.
Madav Pd. Shrestha.

…………………
Ekta Shrestha
(Researcher)
T.U. Registration
no.30522-94
Campus Roll No. 113

4
 ACKNOWLEDGEMENT

This thesis has been prepared on “A Study On Working Capital Management

Of Nepalese Listed Banks.” for the partial requirement of the Master of
Business Studies (MBS).

First and foremost, I would like to owe my sincere thanks to Dr.

Madhav Bahadur Shrestha, Reader and Chairperson, Research Committee of
Management of Post Graduate Campus, without whose valuable guidance and
encouragement this thesis would not have been completed. I am, indeed,
indebted to him as I learnt a lot about the subject from him and who continues
to inspire and encourage me.

I am thankful to the Mr. Harihar Bhandari, Campus Chief and the

teachers of Post Graduate Campus for providing me their valuable guidance. I
am also thankful to the staff member and especially to Mr. Gopal Prasad
Ghimire for providing me his helping hand. I am also grateful to librarians of
Post Graduate Campus.

I would like to extend my deep gratitude to my parents and brothers

who have been a continuous inspiration and motivation throughout my life. I
am also indebted to my friends who have been supporting me throughout the
research work.

Date ............................…………... ………………………….

Ekta Shrestha
(Researcher)
T.U. Registration
no.30522-94
Campus Roll No. 113

5
 ABBREVIATION USED IN THIS STUDY

FY : Fiscal Year
JVBs : Joint Venture Banks
HBL : Himalayan Bank Limited
SCBNL : Standard Chartered Bank Nepal Limited
NABIL : Nepal Arab Bank Limited
ATM : Automated Teller Machine
Pvt. : Private
Co. : Company
No. : Number
i.e. : That Is
Ltd. : Limited
C.V : Coefficient Of Variation
S. No. : Serial Number
Rs. : Rupees
% : Percentage
Amt : Amount
CA : Current assets
FA : Fixed assets
QA : Quick assets
CL : Current Liabilities
W/C : Working Capital
WCM : Working Capital Management
r : Correlation coefficient
PE : Probable error
C&B : Cash And Bank Balance

6
 CHAPTER-ONE
INTRODUCTION

1.1 Background
The Kingdom of Nepal covers an area of 147,181 square kilometers, and
stretches 145-241 kilometers north to south and 850 kilometers west to east.
"Nepal is one of the least developed countries in the world with a per capita
income of less than $ 200 per annum. Geographically, Nepal is a landlocked
country sandwiched between China and India and has a very small economy
compared with that of these two neighbouring countries. Measured in terms of
the size of GDP, the Chinese or Indian economies are respectively 115 times
and 85 times larger than the Nepalese economy." 1

The economic plight of Nepal is neither satisfactory nor praiseworthy.

Rapid economic development is important for all countries of the world. It is
more urgent for the least developed countries like ours. In this context, it is but
natural that existing agricultural predominance in our country has to be
reduced. Nepal like other developing countries has been facing the problem of
accelerating the pace of economic development. The other reason behind the
lack of economic development is that the majority of Nepalese are illiterate,
which has restricted the people to primitive and traditional forms of occupation.

In context to Nepal, today, banking sector has become one of the major
sectors. However, only few Nepalese knows the significance of bank and
banking activities. People are unaware of the fact that in any plan of economic
development, banking occupies a position of strategic importance. Banking
services are extremely important in a free market economy. They generally
serve two primary purposes. First, by supplying customers with the basic
medium of exchange (cash, checking accounts, and credit cards), bank play a
key role in the way goods and services are purchased. Without these familiar
methods of payment, goods previously have to be exchanged by barter (trading
one goods for another), which is extremely time-consuming and inefficient.
Second, by accepting money deposits from the savers and then lending the
money to borrowers, banks encourage the flow of money to productive uses
and investments. This in turn allows the economy to grow. Without this flow,
savings would sit idle in someone's safe or pocket, money would not be

1
Yubaraj Khatiwada, Some Aspects of Monetary Policy in Nepal, South Asian Publishers Pvt. Limited,
NewDelhi, 1994, p. 1.
7
available to be borrowed by anyone, people would not be able to purchase cars
or houses, and businesses would not blossoms as they do now. Thus, bank
makes a better use of money and mobilizes the people savings in productive
sector. It helps in every aspect to the government. In fact, banks are the nerve
center of the economy and the barometer of economic prosperity.

"A bank is an institution whose debts (bank deposits) are widely accepted in
settlement of their people's debts to each other."2

In the words of Kent," A bank is an organization whose principal

operations are concerned with the accumulation of the temporarily idle money
of the general public for the purpose of advancing to other for expenditure."

In the words of Banking Regulation Act of India," Banking means the

accepting for the purpose of lending or investment of deposit of money from
the public repayable on demand or otherwise, and withdrawal by cheques, draft
or otherwise."

In the words of U.S. Law," Any institution offering deposits subject to

withdrawal on demand and making loans of a commercial or business nature is
a bank."

Banking is of ancient origin, though little is known about it prior to the

13th century. Many of the early “bank” dealt primarily with coin and bullion,
much of their business being money changing and the supplying of foreign and
domestic coin of the correct weight and fineness. An important early group of
banking institutions was the merchant bankers. Gradually, they developed with
time and need of human wants and now have come to in modern type. “The
importance of banking development, however, was realized only recently, and
therefore, the banking system in the country has a very short history. It was
only after the establishment of Nepal Bank Limited in 1994 B.S., that the
histories of organized banking system begin in the country.” 3 Rastriya Banijya
Bank established in 2022 B.S. followed the process. With the establishment of
RBB and ADB, banking service spread to both the urban and rural areas.

Once these people got the banking services, they were expecting
improvement and efficiency. However, excess political and bureaucratic
interference and absence of modern managerial concept in these institutions
was hurdle in this regard. Banking service to the satisfaction of customers was
a far cry. These factors led the government to encourage joint venture in

2
R.S Sayers, Modern Banking, Oxford Clearendon Press, India, 1967, p. 3.
3
Gunanidhi Sharma, Monetary Structure of the Nepalese Economy, South Asian Publishers, New Delhi,
1987, p. 52.
8
banking sectors. The government’s policy of allowing foreign joint venture
banks to operate in Nepal is basically targeted to encourage local traditional run
commercial banks to enhance their banking capacity through competition,
efficiency, modernization via, computerization and promote customer services.

Thus, the banks have to develop various strategies to gain competitive

edge over the rest of the banks. Among various strategies, the bank has to
develop; one of the most important strategies to develop is efficient and
effective working capital management. Working capital is defined as all the
short term assets such as cash, marketable securities, accounts receivables and
inventories which are used in the daily operations of the business. Since
working capital management is quite essential to conduct daily operations of
each and every business organizations, it is regarded as the life-blood and nerve
knot of a business firm. Thus, the present study aims to analyze the working
capital management of the three JVBs operating in Nepal with the help of
secondary data for the period 1998/99 to 2004/05.

1.2 History of Commercial and Joint Venture Banks in Nepal

A commercial bank has been defined as an institution, which receives
deposits of money or of credit and which seeks profits through the extension
and sale of its own credit. Commercial banks contribute significantly in the
financial system of the country.

"Commercial bank is the corporation which accepts demand deposits subject to

cheques and makes short term loans to business enterprises regardless of the
scope of its other sources."4

"The name commercial bank was first used to indicate that the loans extended
were short term loans to business, though loans later were extended to
consumers, governments and other non-business institution as well. In general,
the assets of commercial banks tend to be more liquid and carry less than the
assets held by other financial intermediaries."5

Commercial banks play an important role in affairs of the economy in

various ways. Commercial banks are the largest and most diversified
intermediaries in ranges of assets held and liabilities issues. The salient feature
of commercial banks lies, in fact not in their assets, but in their liabilities. The
operations of commercial banks record the economic pulse of the economy.
The size and composition of their transactions mirror the economic happening
in the country. They are as essential instrument of accelerated growth in a
4
American Institution of Banking, Principle of Banking Operation, USA, 1972, p. 1.
5
The New Encyclopedia Britannica, USA, 1991, Vol. 3.
9
developing economy. By mobilizing community savings and diverting them
into productive channels, Commercial banks expand the tempo and appreciate
the Value of aggregate economic activity in the economy. In Nepal,
Commercial banking started with the establishment of "Nepal Bank Limited"
under the Nepal Bank Act 1993 B.S. The authorized capital was contributed by
the government (51%) and remaining by public (49%). Nepal Bank Limited
was established in 1994 B.S.

The concept of joint venture was a revolutionary concept in the banking

history. Banks operating in the form of joint venture is known as Joint Venture
Bank. Joint Venture Bank is an effect of strategic alliances- an arrangement in
which two corporations combine forces to form a cooperative partnership in
order to share risk of development, to offset one’s weaknesses with strengths of
other and alike others. In Nepal, JVBs are registered under the commercial
bank act, 2021 B.S. and operated under the commercial bank act, 2031 B.S.
They have joint venture between Nepalese investor and their parent foreign
banks. The parent foreign bank occupies certain percentage of shares not
exceeding 50% and applies their international management and network. The
financial and non-financial institutions as well as private sector share the
domestic portion of the investment.

There were many JVBs established after 2040 B.S. The inception of
“Nepal Arab Bank Limited” 6 (renamed as Nabil Bank Limited since 1st January
2002) in 2041.03.29 (12th July 1984) as a first Joint Venture Bank proved to be
a milestone in the history of banking. Nabil Bank Limited gave a new ray of
hope to the sluggish financial sector. The second JVBs “Nepal Indosuez Bank
Limited”7 were established in 2043 B.S. after the incorporation of NIBL, a new
Joint Venture Bank under the name of “Nepal Grindlays Bank Limited” 8 was
established in 10th Magh 2043 B.S. It is the third JVBs of Nepal.” After the
establishment of NGBL, More JVBs were come into existence after the
initiation of government's policy of economic liberalization and privatizations
in 2049 B.S.”9 They are Himalayan Bank Limited (2049), Nepal SBI Bank
Limited (2050), Nepal Bangladesh Bank Limited (2051), Everest Bank Limited
(2051), Bank of Kathmandu (2052) and so on. These JVBs came into existence
to develop the economic conditions of the nation.

6
Annual Report, Nepal Arab Bank Limited.
7
Annual Report, Nepal Investment Bank Limited.
8
Annual Report, Nepal Grindlays Bank Limited.
9
Gorkhapatra, Nepal National Daily, Ashad 3rd, 2053.

10
About the bank: Nabil Bank Limited

In the liberalized environment of Nepal, banking service has become

highly competitive and customer oriented. Nepal Arab Bank Limited is one of
the leading commercial bank in the banking scenario of Nepal. The bank was
formally established as the third commercial bank in 2041 B.S. (July 12, 1984
A.D.). From their very inception in 1984 as the first joint venture bank to
commence operations in kingdom of Nepal they have been a leader in terms of
bringing the very best international standard banking practices, products and
services. Initially Dubai bank Limited invested 50% of equity shares of Nabil
bank. The shares owned by Dubai bank Limited were transferred to Emirates
Bank International Limited and later on to National Bank Limited, Dubai.

Nabil bank was regulated with the authorized capital of Rs. 500 million,
an issued capital of Rs. 492 million and Rs. 492 million as paid up capital.
Today Nabil bank is a leader in the financial sector in Nepal. With a network
that has 19 points of representation spread across the kingdom; complimented
by a network of ATMs and now Nabilnet and NabilTele the ease of access of
accounts and information for the convenient of their customers.

They are a full service bank providing an entire range of products and
services, starting with deposit accounts in local and foreign currency, Visa and
MasterCard denominated in rupees and dollars, Visa Electron debit cards,
Personal Lending products for Auto, Home and Personal loans, Trade Finance
products, Treasury services and Corporate Financing. The main aim of the bank
is to be able to meet the entire gamut of financial requirements that is why they
pride themselves in being 'Your Bank at Your Service'.

About the bank: Himalayan Bank Limited

After the opening of Nepalese door to foreign commercial banks during

mid eighties, Nepal took pride in growth and progress in the banking industries.
With this development by his Majesty government, Himalayan Bank Limited
was set up in the private sector. Himalayan Bank Limited was incorporated in
1992 by a few distinguished business personalities of Nepal in partnership with
Employees Provident Fund and Habib Bank Limited, one of the largest
commercial bank of Pakistan. Banking operation commenced from January
1993. It is the first commercial bank of Nepal whose maximum shares are held
by the Nepalese private sector. Besides commercial banking services, the bank
also offers industrial and merchant banking services. It is the fourth joint
venture bank in Nepal established under the Commercial Act 2031 B.S.

11
 At the launch period, HBL had authorized capital of Rs. 240 million,
issued capital of Rs. 120 million and paid up capital of Rs. 60 million. HBL has
always been committed to providing a quality service to its valued customers,
with a personal touch. The Bank, wherever possible, offers tailor made
facilities to its clients, based on the unique needs and requirements of different
clients. To further extend the reliable and efficient services to its valued
customers, Himalayan Bank has adopted the latest banking technology. This
has not only helped the Bank to constantly improve its service level but has
also prepared the Bank for future adaptation to new technology. The Bank
already offers unique services such as SMS Banking and Internet Banking to
customers and will be introducing more services like these in the near future.

The Bank has five branches in Kathmandu Valley at the following

locations: Thamel, New Road, Maharajgunj, Pulchowk (Patan) and
Suryavinayak (moved from Nagarkot). In addition, the bank also has nine other
branches outside Kathmandu Valley in Banepa, Tandi, Bharatpur, Birgunj,
Hetauda, Bhairawa, Biratnagar, Pokhara, Dharan and Butwal. The bank also
operates a counter in the premises of the Royal Palace. The Bank will be
aggressively opening new branches at different parts of the Kingdom to serve
its customers better.

HBL is pioneer to bring products like credit cards, ATM and tele-
banking, cheques that are hard to counterfeit and so forth. It also provides a full
range of banking products and services such as current, savings, call and term
deposit accounts, fund transfer services, safe deposit lockers, priority banking,
home banking, auto loan, home loan, foreign exchange services, personal loan,
corporate employee accounts, letters of credit, commercial lending, etc.;
catering to a wide range of customers from individuals, to mid-market local
corporate to multinationals and large public sector companies, as well as
embassies, aid agencies, airlines, hotels and government corporations.

About the bank: Standard Chartered Bank Nepal Limited

Standard Chartered Bank Nepal Limited enjoys the status the largest
bank currently operating in Nepal .it has been in operation in Nepal since 1987
when it was initially registered as a joint-venture operation. Today the bank is
an integral part of standard Chartered group who has 75% ownership in the
company with 25% shares owned by the Nepalese public. The Bank has been
the pioneer in introducing 'customer focused' products and services in the
country and aspires to continue to be a leader in introducing new products and
highest level of service delivery. It is the first Bank in Nepal that has
implemented the Anti-Money Laundering policy and applied the 'Know Your

12
Customer' procedure on all the customer accounts.
SCBNL was regulated with the authorized capital of Rs 100 Million, an
issued capital of Rs. 50 million and Rs. 30 million paid up capital. An integral
part of the only international banking Group currently operating in Nepal, the
Bank enjoys an impeccable reputation of a leading financial institution in the
country. With 11 points of representation (7 Branches) and 9 ATMs across the
Kingdom and with over 300 local staff, Standard Chartered Bank Nepal Ltd. is
in a position to service its customers through a large domestic network. In
addition to which the global network of Standard Chartered Group gives the
Bank the unique opportunity to provide truly international banking in Nepal.

Standard Chartered Group employs 30,000 people in over 500 locations

in more than 50 countries in the Asia Pacific Region, South Asia, the Middle
East, Africa, the United Kingdom and the Americas. It is one of the world's
most international banks, with a management team comprising 79 nationalities.
The Bank is trusted across its network for its standard of governance and its
commitment to making a difference in the communities in which it operates.

It offers a full range of banking products and services in Consumer and

Wholesale banking such as current, savings, call and term deposit accounts in
Local & Foreign currency, fund transfer services, credit card services, 24 hour
ATM services, safe deposit lockers, foreign exchange services, priority
banking, home banking, auto loan, home loan, personal loan, SMS banking,
corporate employee accounts, letters of credit, commercial Lending (Working
Capital), etc.; catering to a wide range of customers from individuals, to mid-
market local corporate to multinationals and large public sector companies, as
well as embassies, aid agencies, airlines, hotels and government corporations.

1.3 Focus of the Study

The present study "Working Capital Management of the JVBs Nabil
Bank Limited, Himalayan Bank Limited and Standard Chartered Bank Nepal
Limited" is intended to analyze the JVBs practice in working capital
management and to examine management performance in this segment of
financial management. This information will help to determine the extent of
efficiency and effectiveness of the three JVBs in respect of managing working
capital to the optimum level. Besides, this study also focuses on the relationship
between current assets and current liabilities and relationship of other variables,
which affect the working capital management of the three JVBs during past
seven years up to 2005 A.D.

All the companies need a proper financial management for successful

operation because financial management is universally involved in the
13
management of private enterprises as well as public enterprises as oxygen in
atmosphere. Therefore, financial management is a major component of
company. Financial management has full responsibility about financial
problems of the firm. It provides many ideas about how to utilize optimally the
limited funds in the firm. So, proper financial management is necessary to
achieve the objectives for every company. The study of financial management
remains incomplete without study of working capital management.

Working capital is the oil that lubricates the wheels of business. Without
adequate oil, machines grind to a halt and a business with inadequate working
capitates will do like-wise. There might not be many business firms in the
world where, besides investment in fixed assets, funds would not be needed for
carrying on day to day operations of the business. Probably, the daily cash
receipts may be adequate to meet the day to day expenses of the dealings in
some business concerns. But in most of them it is essentials that a certain
proportion of funds are kept invested in the form of different current assets like
inventories, receivables, cash and marketable securities. Liquidity and
profitability are two important and major aspects of corporate business life. No
firm can survive, if it has no liquidity. A firm may exist without making profits
but cannot without liquidity. A firm not making profits may be treated as sick
but, one having no liquidity may soon meet its downfall and ultimately die.
Working capital management has thus become a basic and broad measure of
judging the performance of a business firm.

“Working capital management usually is considered to involve the

administration of current assets- namely cash, marketable securities,
receivables, and inventories- and the administration of current liabilities.”10

Working capital, thus, consists of four main components: cash,

marketable securities, inventory, and accounts receivable. The management of
current assets (normally converted into cash within an accounting year) and
current liabilities (generally discharged within one year) and the
interrelationship that exists between them may be termed as working capital
management. Working capital management is also known as current assets
management because it requires much of the financial manager’s time. A
common thread underlines all current assets management. For each type of
assets, firms face a fundamental tradeoff: current assets (that is, working
capital) are necessary to conduct business and the greater the holding of current
assets, the smaller the danger of running out, hence the lower the firm’s
operating risk. However, holding working capital is costly- if inventories are
too large, then the firm will have assets, which earn a zero or even negative

10
J.C. Van Horne, Financial Management & Policy, Prentice Hall of India Private Limited, 1973, p. 384.
14
return if storage and spoilage costs are high. And, of course, firms must use
capital to buy assets such as inventory; this capital has a cost, and this increase
the downward drag from excessive holding of inventories (or receivables or
even cash). So there is pressure to hold the amount of working capital to the
minimum consistent with running the business without interruption.

“Working capital may be regarded as the life-blood of a business. Its

effective provision can do much to ensure the success of business while its
inefficient management can lead not only to loss of profit but also ultimate
downfall of what otherwise might be considered as a promising concern, much
has been rightly made of the long term planning in the use of working capital
is immeasurable .”11An enlightened management should, therefore, maintain a
right amount of working capital on a continuous basis. Only then a proper
functioning of the business operations will be ensured. Sound financial and
statistical techniques, supported by judgemental, should be used to predict the
quantum of working capital needed at different time periods.

It is quite known that operating a company effectively and efficiently is

more important than establishing it. Thus, the researcher has taken this subject
for detailed study, keeping in mind all the above facts which play a pivot role in
upliftment of any organizations. The main focus of the study is, thus, stressed
towards the comparative study of working capital management of the selected
JVBs viz. NABIL, HBL, and SCBNL, to analyze the working capital, to find
out major bleeps and suggestive recommendations to the selected companies to
accomplish its objective of effective working capital management.

1.4 Statement of the Problems

Many times, in the event of the failure of a business the shortage of
working capital funds is given out as its root cause. But in the ultimate analysis
it may be the mismanagement of working capital funds of the business that
could have converted an otherwise successful business into an unsuccessful
one. Inadequacy of working capital is a symptom, and sometimes an excuse,
but by no means the cause, of business failure. It is obvious from above that
working capital should neither be too little nor too much; it must just be
rightly balanced. Excessive and inadequate amount of working capital
creates problem and hence the firm suffers from technical insolvency.
Technical insolvency of the firm damages its long-term prospect.
Therefore the management of the firm must be effective and efficient in
managing the firm's working capital. Today, most of the private and public
enterprises have well recognized the importance of proper working capital

11
P.K. Kulmany, Financial Management, Himalaya Publishing House Mumbai, 1983, p. 385.
15
management. However, Nepalese enterprises and firms are still facing the
problem of working capital management.

Banks are one of the apex entities of economy in any nation for
promoting different business activities such as trade, industry and commerce.
Hence, necessity of these institutions has been realized the most. Earlier only
two banks were in operation namely Nepal Bank Limited and Rastriya Banijya
Bank before the inception of JVBs. The government liberal policy as well as
economic growth resulted in the introduction of many banks from the private
sector. Although, JVBs are operationally more efficient, having better
performance while comparing with local banks, but they are still facing many
problems. The main locus of the statement of the problem is stressed towards
the comparative study of working capital management of the selected JVBs viz.
NABIL, HBL, and SCBNL. All the three mentioned JVBs have been
competing in the same economic environment and financial market. Similarly,
all the three banks are operating fully under computerized system to meet the
growing competition in banking system.

Lack of appropriate training and oriental classes to their different level

of employees, ineffective working capital management, lack of proper policy
planning, organizing, controlling, reported resources and market information
are hindering their prospective growth.

1.5 Research Questions

The present study tries to explore the answer under the following key
issues:

 How far the three JVBs Nabil, HBL, SCBNL are being able to utilize its
different assets?
 Has the se JVBs followed a scientific and systematic management or
not?
 What factors have been taken by these JVBs in estimating the working
capital need of a company?
 How far these JVBs been able to utilize the working capital for
generating adequate profitability?
 How far have JVBs been able to convert the mobilized resources into
investment?
 Is there proper investment in each types of working capital in these
JVBs?
 Is the positive composition between current assets and current liability?
 Which of the current assets are more problematic for these JVBs?
16
  What type of opportunities and threats these bank faces?
 What are the major strength and weakness of these banks?
 Based on the above questions, which bank has faced more financial risk?

1.6 Hypothesis of the Study

Every research has to start with certain assumptions and presumption
through which subsequent study might prove and disapprove. It is the
hypothesis round which entire process revolves. A hypothesis helps the
researcher in proceeding further and finding solution of the problem, which
he/she wants to study. Without hypothesis, the effectiveness of the research is
not possible, to know the scope of study, nature of data to be collected and the
one to be discarded. Again, the hypothesis helps in organizing the collected
data in a very systematic way and in fact it stands at the mid-point of research
directing towards particular way of finding tentative solution to the question of
how and why.

A hypothesis is a conjectural statement, of the relationship between two

or more variables. Hypothesis is always in declarative sentence form, and they
relate either generally or specifically, variables to variables.

The selection of the topic has been made with a view to evaluating,
analyzing and examining the working capital management of the Himalayan
Bank Limited, Standard Chartered Bank Nepal Limited and Nabil Bank
Limited in Nepal. It is true that these JVBs have a high capital employment
ratio but unfortunately due to certain causes its development has not met the
desired needs of the country. Therefore, it is assumed that the leading factor
which has been obstructions and preventing the growth of these JVBs is mainly
improper and inefficient management of working capital. If the working capital
funds could have been managed properly, the JVBs would have been put back
upon a better financial footing.

In order to evaluate the problem and to meet the objectives of the

research study following null hypothesis (Ho) is formulated:

 There is no significant difference in current assets of the three JVBs.

 There is no significant difference in current liabilities of the three JVBs.
 There is no significant difference in cash and bank balance of the three
JVBs.
 There is no significant difference in net profit of the three JVBs.
 There is no significant difference in receivables of the three JVBs.
 There is no significant difference in net working capital of the three JVBs.

17
1.7 Objectives of the Study
The primary objectives of the study is to identify the existing problems
of the working capital management of selected different joint venture banks
more over, following are the specific objectives of the study:

 To analyze the current assets and current liabilities of the selected banks
understudy during the seven years period of 1998/1999 to 2004/2005.
 To evaluate and analyze the net profit of the selected joint venture banks.
 To examine the working capital with the help of trend analysis.
 To identify various working capital aspects of the selected banks.
 To provide constructive solutions for solving working capital
management problems.

1.8 Need and Significance of the Study

At present the JVBs are gaining a wide popularity through their efficient
management and professional services and playing an eminent role in the
economy. This study no doubt will have importance to various groups but in
particular is directed to a certain groups of people/organizations.

The study of working capital management of NABIL Bank Limited,

Himalayan Bank Limited, and Standard Chartered Bank Nepal Limited will be
Beneficial to the following:

a) To the Shareholders:

Shareholders are the true owners of the company. As they are taking a
major risk by investing their large capital, so they deserve to get each and every
informations they seek for regarding the firm. This study will be useful to them
for acquiring the answers to the following questions:

 How funds are utilized?

 To what extent they are gaining?
 Is the productivity of their limited resources satisfactory?

b) To the Management:

This study will be helpful to go deeply into the various matters as to why
the performance of their bank is better or worse than other joint venture banks.
The management will be able to find out the loose areas and gaps, which can be
corrected in near future.

18
c) To the Policy-Makers:

Officers of government, ministry, central bank, and security exchange

and tax office can formulate appropriate policies, rules and regulations
regarding the operations of the commercials banks with the help of this
analysis.

d) To the Reader:

It will also provide a helping hand to those who are interested to study or
conduct research about working capital management.

1.9 Limitations of the Study

As every study has been conducted within certain limitations and
assumptions, thus the present study has the following assumptions and
limitations:

a) The study is limited to working capital management.

b) The study has been confined only three banks named NABIL bank
Limited, Himalayan Bank Limited and Standard Chartered Bank Nepal
Limited.
c) The study is based mainly on secondary data, and to some extent, on
primary data, too.
d) The study covers seven years study from fiscal year 1998/1999 to
2004/2005.
e) The information furnished by the staff members is assumed to be free
from biasness and is regarded as complete.
f) The data available in published annual reports have been assumed to be
correct and true.
g) Due to the time constraint not all the related areas are possible to cover in
depth.
h) Only limited financial tools and techniques are used for analysis. So this
study may not be sufficient for depth analysis.

1.10 Organization of the Study

The study comprises five chapters; each devoted to some aspects of the
study of comparative study of Working Capital Management of Nepalese Joint
Banks namely Nabil Bank Limited, Standard Chartered Bank Nepal Limited
and Himalayan Bank Limited. Each chapter contains:-

19
 Chapter-1 Introduction
Chapter-2 Review of Literature
Chapter-3 Research Methodology
Chapter-4 Presentation and Analysis of Data
Chapter-5 Summary, Conclusion and Recommendation

The contents of each of the chapter of this study are briefly mentioned
here:

The first chapter is the introductory, which deals with background, focus
of the study, statement of the problems, research questions, hypothesis of the
study, objectives of the study, need and significance of the study, limitation of
the study and organization of the study.

The second chapter is devoted to theoretical analysis and brief review of

related literature. It discuses the theoretical framework and review of major
related studies conducted before. The theoretical and review of related
literature conducted in this part provide a framework with the help of which
this study has been accomplished.

The third chapter briefly explains about the research methodology,

which has been used to evaluate the working capital management of the banks
under consideration. It deals with research design, population and sample,
sources of data, data collection and data analysis tools.

The fourth chapter deals with the empirical analysis of the study. It deals
in presentation and major findings of the study of working capital management.

The fifth and final chapter is devoted to summary of the four earlier
chapters. This chapter tries to fetch out a conclusions of the study and attempts
to offer various suggestions and recommendations for the improvement of the
future performance of the three JVBs under review.

Finally bibliography and appendices have also been included in the last
part of the study.

20
 CHAPTER-TWO
REVIEW OF LITERATURE

2.1 Conceptual Review

The term working capital originated with the old Yankee peddles, who
would load up his wagon with goods and then go off on his route to peddle his
wares. The merchant was called working capital because it was what he
actually sold, or “turned over,” to produce his profits. The wagon and horse
were his fixed assets. He generally owned the horse and wagon, so they were
financed with “equity” capital, but he borrowed the funds to buy the
merchandise. These borrowings were called working capital loans, and they
had to be repaid after each trip to demonstrate to the bank that the credit was
sound. If the peddler was able to repay the loan, then the bank would make
another loan, and banks that followed this procedure were said to be employing
“Sound banking practices."

Working capital management was studied as a part of economics in the

beginning of the 19th century but today it is being studied as a separate entity. It
is considered as the heart and soul of any business and working capital decision
directly relates to everything that happens in business. Working capital policy
affects every activity of business such as production, personnel, marketing,
finance, etc. Working capital management ensures better liquidity stock control
and profitability.

"Sufficient working capital must be provided in order to take care of normal

process of purchase of raw materials and supplies, turning out finished
products, selling the products and waiting for payment to be made. If the
original estimates of working capital are insufficient, some emergency measure
must be resorted to or business comes to dead stop."12

Working capital management involves both setting working capital

policy and carrying out that policy in day to day operations. At first glance, it
might seem that the working capital management is not as important as capital
budgeting is not as important as capital budgeting, dividend policy, and other
decisions that determine a firm's long term direction. However, in today's world
of intense global competition, working capital management is receiving
increasing attention from managers striving for peak efficiency. In fact the goal

12
W.H.Laugh, Business Finance, Ronald Press, New York, 1917, p. 355.
21
of many leading companies today-including American Standard, Campbell
Soup, General Electric, Quaker Oats, and Whirlpool-is zero working capital.
Proponents of the zero working capital concept claims that a movement toward
this goal not only generates cash but also speeds up production and helps
businesses make more timely deliveries and operate more efficiently. The
concept has its own definition of regarding working capital: Inventories +
Receivables - Payables. The rationale here is (1) that inventories and
receivables are the keys to making sales, but (2) that inventories can be
financed by suppliers through accounts payable.

2.1.1 Working Capital Theories

2.1.1.1 Nature of Working Capital / Conceptual Thoughts
Working capital is essentially circulating nature. It is subject to
fluctuations. It is influenced by the type, size and the length of the operating
cycle of a business firm. The amount of working capital differs not only in
different industries, but also from one firm to another firm in the same industry.
It has been even compared with a river, which is always there, but that the
water level is constantly changing. Thus, the nature of working capital is not
fixed it is changeable at different time on the basis of transaction of goods.

Working capital, thus, has a volatile nature. This nature present some
problems and contents in financing working capital need. The volatile nature of
working capital refers to the change in total current assets. Thus, the nature of
working capital is not static; it is changeable as per transactions of goods.

2.1.1.2 Management of Working Capital

Working capital can be regarded as the life blood of the business firm.
There might not be many business firms in the world where, besides investment
in fixed assets, funds would not be needed for carrying on day to day
operations of the business. Probably, the daily cash receipts may be adequate to
meet the day to day expenses of the dealings in some business concerns. But in
most of them it is essential that a certain proportion of funds be kept invested
in the form of different current assets like inventories, receivables, cash and
marketable securities, liquidity and profitability are two important and major
aspects of corporate business life. No firm can survive, if it has no liquidity. A
firm may exists without making profits but cannot survive without liquidity. A
firm not making profits may treated as sick but, one having no liquidity may
soon meet with its downfall and ultimately die. Working capital management
has thus become a basic and broad measure of judging the performance of a
business firm.
22
 Technically, working capital management is an integral part of the
financial management. The financial manager must determine the optimum
level of working capital funds and also the optimum composition of current
assets and current liabilities. He must ensure that the appropriate sources of
funds are used to finance working capital and also see that short term liabilities
of the business are met well in time.

2.1.1.3 Concept of Working Capital

An enterprise needs not only fixed capital but also Working Capital. The
working capital is the capital needed to conduct the day-to-day operations of a
business. Working capital is, therefore, a border term and there are chances of
misunderstanding it.

In fact, there are two concepts of working capital: gross concept and net
concept which is highlighted below:

A. Gross Concept

In simple terms, gross concept of working capital may be defined as the

total of current assets. In other words, if all expenses needed to run day-to-day
operation of business, such as amount to be invested in the form of cash,
finished goods receivables, etc. are put together, it is called working capital.
This working capital and total current assets are synonymous. Gross concept is
regarded as the quantitative nature.

"The term working capital refers to the gross working capital and it represents
the amount of funds invested in total current assets; thus the gross working
capital is the capital invested in total current assets of an enterprise".13

The gross working capital concepts focus attention on two aspects of

current assets management which are listed below-

 Optimum investment in current assets.

 Financing of current assets.

The consideration of the level of investment in current assets should be

avoiding two danger points- excessive and inadequate. Investment in current
assets should be just adequate not more or less to the needs of business firm.
Thus, gross concept of working capital is the sum of all current assets, which
can be converted, in the ordinary course of business, into cash within one
accounting year and includes:

13
R.K Sharma and S.K.Gupta, Management Accountancy Principles And Practices, 7th edition 1996, p. 21.
23
 a) Cash in hand
b) Cash at bank
c) Bills receivable
d) Debtors
e) Marketable securities
f) Prepaid Expenses or paid in advance
g) Accrued or Outstanding income
h) Short term loan and advances
i) Short term investment
j) Inventories
 Raw materials
 Finished goods
 Work in progress
 Supplies

B. Net Concept

In simple terms, net concept of working capital can be defined as the

excess of current assets over current liabilities. Net concept is regarded as
qualitative and time concept nature. L.J.Gitman has defined net concept of
working capital as "the portion of a firm's current assets which are financed
from long term funds".14

The net working capital concept focus attention on two aspects which
are listed below-

 Indicate the liquidity position of the firm.

 Suggest the extent to which working capital needs may be financed by
permanent source of funds.

The need for the net concept arises due to the fact that the gross concept
fails to consider current liabilities. Current liabilities are those liabilities which
are intended to be paid in ordinary course of business within a short period of
normally one accounting year. It includes:

a) Sundry creditors
b) Bills payables
c) Notes payables
d) Account payables
e) Bank overdraft
f) Short term loan
g) Provision for taxation
14
L.J.Gitman, Principles of Managerial Finance, 1976, p. 150.
24
 h) Outstanding expenses
i) Advance income
j) Accrued income
k) Accrued interest on loan and debentures
l) Long term loan to mature within a year

Working capital has two concepts- the total of current assets (gross
concept) and the excess of current assets over current liabilities (net concepts).
Both these concepts of working capital have their own significance. "If the
objective is to measure the size and extent to which current assets are being
used, 'gross concept' is useful; whereas in evaluating the liquidity position of an
undertaking 'net concept' becomes pertinent and preferable".15

In summary, it may be emphasized that gross and net concepts of

working capital are two important facets of the working capital management.
There is no precise way to determine the exact amount of gross, or net, working
capital for every firm. The data and problems of each company should be
analyzed to determine the amount of working capital.

2.1.1.4 Types of Working Capital

Working capital can be classified under the following heads:

1. Permanent, fixed or regular working capital

Permanent working capital is the minimum amount of current assets

which is continuously required by the business to carry on its operations. This
level of working capital should always be maintained by the business, so that it
might in a position to run the business even during the dullest season of the
year. It is only due to this characteristic that it is sometime also known as
regular working capital.

Permanent working capital has the following characteristics:

 It is classified on time basis.
 It continuously varies from one asset to another and continues to remain
in the business process.
 It also varies with the growth of business.

2. Fluctuating, temporary, variable or seasonable working capital

Fluctuating working capital is the extra amount of current assets

15
R.K.Mishra and S.Ravishanker, Current Perspectives in Public Enterprise Management, Ajanta
Publication, New Delhi, 1985, p. 316.
25
particularly cash, receivables and inventory which are needed during the more
active business season of the year. It is temporarily invested in current asset and
its main features are:

 It is particularly paired to a concern of a seasonal or cycle nature.

 It is not always gainfully utilized, though it may change from one asset to
another as fixed working capital does.

3. Balance sheet working capital

The working capital which is calculated from the items appearing in the
balance sheet is known as balance sheet working capital. Gross working capital
is represented by the total of current assets, and net working capital is
represented by the excess of current assets over current liabilities.

4. Cash working capital

The working capital is calculated on the basis of items appearing in the

profit and loss account of a business. It shows the actual flow of money at a
particular time and is considered to be the most realistic manner of showing
working capital management. It is based on the operating cycle concept which
has assumed a great significance in financial management in recent years. The
reason is that cash working capital shows the adequacy of the cash flow.

5. Negative working capital

When current liabilities exceed current assets, such a situation is termed

as deficit of working capital. Kennedy and Mc Mullen observe," a working
capital deficit exists if current liabilities exceed current assets."

2.1.1.5 Need and Importance of Working Capital

Working capital management has acquired important position and great
significance in the recent past. It has been emphasized that a business should
maintain a sound working capital position. It should have adequate capital to
run its business operations. Both excessive a well as inadequate working capital
positions are dangerous from the firm’s point of view. Excessive working
capital means idle fund which earn no profits for the firm. Paucity of working
capital not only impairs firm’s profitability but also results in production
interruption and inefficiencies.

26
 There are many aspects of working capital management which make it
an important function of the financial manager among them some are
mentioned below:

a) It enables a concern to operate its business more efficiently, because

there is no delay in obtaining raw materials etc.
b) It enhances the creditability and goodwill of the firm.
c) It makes it possible for a business to meet all its current obligations well
in time and to take advantage of cash discount.
d) It enables the concern to hold its own even during a period of business
depression.
e) It helps in the upliftment of the morale of the management and
employees.
f) It enables a concern to extend favorable credit terms to customers.
g) It ensures regular return to the investor.

2.1.1.6 Principles of Working Capital Management

The Financial manager should consider the following principles while
exercising working capital management:

a) Principle of Risk Variation

The word risk here refers to the immobility of a concern in maintaining

sufficient working capital to pay for its liabilities. If working capital varies
relative to sales, the level of risk that a concern assumes will also vary, and the
opportunity of loss or gain will increase. In other words, there is a definite
relationship between the degree of risk and the rate of return. As a concern
assumes more risk, the opportunity of gain or loss increase accordingly. As the
level of working capital relative to sales decreases, the degree of risk increases.
Thus, if the size of working capital goes up, the amount of risk goes down and
the opportunity for loss/ gain is likewise adversely affected.

b) Principle of Cost of Capital

There are different sources of finance, for each source has a different
cost of capital. It should be kept in mind that the cost of capital is in inverse
proportion to risk.

c) Principle of Maturity of Obligation

A firm should make every attempt to relate maturities of obligation to its

flow of internally created funds. It should be noted that a greater risk is
generated with greater disparity.
27
 d) Principle of Equity Position
According to this principle, the amount of working capital invested in
each segment should be adequately justified by a concern's equity position.
Every rupee invested in the working capital should contribute to the net worth
of the concern.

28
2.1.1.7 Determinants of Working Capital
The firm should maintain a sound working capital position. It should
have adequate capital to run its business operations. Both excessive as well as
inadequate working capital positions are dangerous from the firm's point of
view. Excessive working capital means idle fund which earns no profit for the
firm. Paucity of working capital not only impairs firm's profitability but also
results in production interruptions and inefficiencies.

The working capital is determined by a wide variety of factors. These

factors however affect different enterprises differently. They also vary from
time to time. Therefore, it is often said that there are no set rules or formulas to
determine the level of the working capital of a firm. In fact a large number of
factors affect the working capital requirements and all factors plays different
importance. Thus, an analysis of related factors should be made in order to
determine the size of investment in working capital. These factors are
highlighted below-

a) Manufacturing Cycle
b) Nature and Size of Business
c) Business Cycle Fluctuations
d) Credit Policy
e) Growth and Expansion Activities
f) Availability of Credit
g) Price Level Change
h) Technological Development
i) Profit Level
j) Level of Tax
k) Transportation and Communication Facilities

2.1.1.8 Effects of Excessive Working Capital

The firm should maintain adequate working capital to run its business
operation in a continuous basis. But it does not mean that the firm should
maintain working capital more than its requirement because excessive working
capital means idle funds which earn no profits for the firm. There are many
negative effects of excessive working capital which can be highlighted below-

 It results in unnecessary accumulation of inventories which may result the

chances of inventory waste, theft, mishandling and losses increase.
 It indicates defective credit policy and slack collection period which may
result higher bad debts incidence that adversely affects profits.
29
  It may increase the tendency of the firm to accumulate inventories to make
speculative profits grow. This may tend to make dividend policy liberal
and difficult to cope with in future when the firm is unable to make
speculative profits.
 It may tempt the firm to overtrade which will engulf the financial
soundness of the firm.
 It makes management complacent which degenerates into managerial
inefficiency.

2.1.1.9 Effects of Inadequate Working Capital

It is known from above that there are negative effects of maintaining
excessive working capital but it does not mean that the firm should maintain
working capital less than its requirement because paucity of working capital not
only impairs firm's profitability but also results in production interruptions and
inefficiencies. There are many negative effects of excessive working capital
which can be highlighted below-

a) It makes difficult for the firm to undertake profitable projects for non
availability of the working capital funds and thus results in stagnates of
growth.
b) The rate of return on investment slumps because fixed assets cannot be
efficiently utilized for the lack of working capital funds.
c) It makes impossible to utilize production facilities fully due to
unavailability of buying sufficient raw materials.
d) It becomes difficult to implement operating plans and achieve the firm's
profit target.
e) Paucity of working capital funds renders the firm unable to avail
attractive credit opportunities.
f) It may not be able to make regular repair and maintenance of plant,
machineries and tools to boost up production and reduce the unit cost of
production.
g) The firm may loose its reputation when it is not in a position to honour
its short term obligations. As a result, the firm faces tight credit terms.

2.1.1.10 Circulation System of Working Capital

The knowledge of the circulation system of working capital is very vital
for the study of working capital management. Generally, the funds necessary
for the operation of the business are acquired from the issue of shares, the issue
of debentures, and other long term arrangements and from operations of
business. The fund available from the above sources is used to purchase fixed
assets, viz., plant and machinery, land and buildings and some other fixed
30
assets, while the remaining part of the funds is used for day to day operations of
the business, i.e. to pay creditors for raw materials purchased and to pay wages
and overhead expenses for the raw materials processed. This allows the firm to
have finished goods stocks and further sale of these finished stocks leads to
generate cash or create account receivables. This procedure leads to profit
generation and some part of the profit is used to pay tax, interest and dividends,
while the remaining part is ploughed back in the business. This cycle goes on
constantly throughout the life of business.

The working capital circulation system as described above is

diagrammatically presented in the figure below-

2.1.1.11 Test of Working Capital

Generally there are four tests of the working capital policy which are
discussed below-

i. Level of Working Capital

With the careful analysis of the movements of the working capital in

successive periods, the level of the working capital should be kept up.

ii. Structural Health

31
 Structural health of the various components of the working capital
should be considered. It is very vital to have a sound structural relationship
among all the components which includes in the working capital from the view-
point of liquidity.

32
iii. Circulation

Circulation is one of the important features of the liquidity position.

Ratios can be calculated to show the average period needed for the conversion
of raw materials into finished stock, the finished stock into sales and the sales
into cash.

iv. Liquidity

Liquidity position is regarded as the more crucial and significant test to

measure the working capital policy. The ratios which can be used for this
purpose includes-current assets to current liabilities, inventory to current assets,
quick assets to current liabilities, quick resources to current assets, and working
capital to current assets.

2.1.1.12 Financing of Working Capital

The term financing of working capital means making arrangement of
funds, which equals to the amount of working capital. Each and every firm
must find out the sources of funds to finance its currents assets. Current assets
of a concern are financed by spontaneous current liabilities such as trade
creditors, bank overdraft, short term loans and provisions, and long tern sources
such as share capital, debentures, retained earnings and debt from financial
institutions. The relevant question that arises in current assets financing is: what
should be the relative proportion of short term sources of financing and long
term sources of finance. The following three approaches for determining an
appropriate working capital financing mix have been applied in practice:

a) Matching Approach

Under this approach, the firm can adopt a financing approach which
involves the matching of expected life of assets with the expected life of the
source of funds raised to finance assets. In simple sense, the firm finances its
short term needs with short term funds and long term needs with long term
funds.

33
 The concept of matching approach can be made clear with the figure
demonstrated below:

Short
Term
Temporary Current Assets Financing
Amount

Long
Permanent Current Assets Term
Financing

Fixed Assets

time Time

Figure: 2 Matching Approach of Financing

In the above figure, X-axis denotes time and Y-axis denotes amount. The
figure clearly shows that under the matching approach only the short term
variation shown at the top will be financed with a short term debt. Fixed assets
would be financed with long term sources of funds.

b) Conservative Approach

A firm may adopt a conservative approach in financing its working

capital as an exact matching plan may not be possible in practice. Under this
approach, the firm uses long term sources of funds for financing needs and the
use of short term funds is limited only to emergency situations.

34
 The concept of conservation approach can be made clear with the figure
demonstrated below:

Short
Temporary Current Assets Term
Financing

Long
Permanent Current Assets Term
Amount

Financing

Fixed Assets

time Time

Figure: 2 Conservative Approach of Financing

In the above figure, X-axis denotes time and Y-axis denotes amount. The
figure clearly shows that under conservative approach of financing long term
funds are used to finance fixed assets permanent current assets and a part of
temporary current assets.

c) Aggressive Approach
Under this approach, the firm finances a part of its permanent current
assets with short- term sources of funds. Some extremely aggressive concerns
may even finance a part of their fixed assets with short term sources of funds.
Thus, when the firm uses more short term financing, it is assumed to follow
aggressive approach.

35
 The concept of aggressive can be made clear with the figure
demonstrated below:

Short
Temporary Current Assets Term
Financing

Long
Permanent Current Assets Term
Amount

Financing

Fixed Assets

time Time

Figure: 3 Aggressive Approach of Financing

In the above figure, X-axis denotes time and Y-axis denotes amount. The
figure clearly shows that under aggressive approach a major part of the total
current assets and a part of long term investment is also financed short term
sources.

Thus, from the above study, we can make the following generalization:

Approach Cost Working Capital Degree of Risk Profitability

Matching Intermediate ----------- High High

Conservative High High Low Low
Aggressive Low Intermediate Intermediate Intermediate

36
37
2.1.2 Cash Management
The financial strength of companies is critical in an uncertain
environment. Cash serves as insurance against a declining economy, and it also
provides opportunities to firms. It is said that approximately 1.5 percent of the
average industrial firm's assets are held in the form of cash, which is defined as
the total of bank demand deposits plus currency. Many overleveraged
companies are accumulating cash to pay off their debts. However, some firms
may have too much cash, thus making them vulnerable to corporate raiding-a
trend that we have seen a lot of lately.

Cash is regarded as both the beginning and the end of the working
capital cycle-cash, inventories, receivables and cash. In fact, it is considered as
the most important current assets for the operations of the business. Cash is the
money which the firm can disburse immediately without any restriction. The
term cash includes coins, currency and cheques held by the firm, and balances
in its bank accounts. Cash is the basic input needed to keep the business
running on a continuous basis; it is also the ultimate output expected to be
realized by selling the service or product manufactured by the firm. Managing
it efficiently and effectively is the key determinant of appropriate working
capital management. Thus, a major function of the financial manager is to
maintain a sound cash position.

"Cash, like the blood stream in the human body, gives vitality and strength to a
business enterprise. The steady and healthy circulation of cash throughout the
entire business operation is the basis of business solvency." 16

"It is the cash which keeps a business going. Hence, every enterprise has to
hold necessary cash for its existence." 17

Cash management took on increased importance in the 1970s when the

high level of interest rates on short-term investments raised the opportunity cost
of holding cash balances. Though idle cash is sterile, its retention is not without
cost. Even with the lower rates, managing cash will remain important given the
active market for takeovers. Financial managers, therefore, have developed and
refined techniques of cash collection and disbursement enabling them to
optimize the availability of funds and to reduce the interest costs of outside
financing.

16
B.B.Havard and M.Upton, Introduction to Business Finance, McGraw Hill Book Co., New York, 1953,
p. 188.
17
J.M.Keynes, The General Theory of Employment, Interest and Money, Harcourt Brac., New York,
1936, p.170.
38
"Holding of cash balance has an implicit cost in the form of its opportunity
cost."18

Cash is termed as "non-earning" asset in the sense that, although it is

needed to pay for labour and raw materials, to buy fixed assets, to pay taxes, to
service debt, to pay dividends, and so on, cash itself earns no interest. Thus, the
goal of cash management is to reduce the amount of cash the firm must hold for
use in conducting its normal business activities. The higher the level of idle
cash, the greater is the cost of holding it in the manner of loss of interest, which
could have been earned either by investing it in the securities or by paying off
the loans taken previously.

Supply of cash in an adequate manner is vital to meet the requirements

of the business, its shortage may stop the business operations and may
degenerate a firm into a state of technical insolvency and even of liquidation. If
the level of cash balances is more than the desired level with the firm, it shows
mismanagement of funds. Therefore, for its smooth running and maximum
profitability proper and effective cash management in a business is of
paramount importance.

Cash management is thus concerned with the managing of -

 Cash flows into and out of the firm.

 Cash flows within the firm.
 Cash balances held by the firm at a point of time by financing deficit or
investing surplus cash.

2.1.2.1 Motives of Holding Cash

It is known factor that the future is pregnant with all sorts of risks and
opportunities. So cash may be required at any point of time and is very vital to
hold cash. Businesses and individuals generally have three primary motives for
holding cash which are discussed below-

 The Transaction Motive

Cash balances are very vital in operating any kind of business activities.
The principal motive for holding cash is to enable the firm to conduct its
ordinary business-making purchases and sales. The firm requires cash primarily
to make payments for purchase, operating expenses, wages, dividends, taxes,
etc. Thus, the transactions motive mainly refers to holding cash to meet

18
K. Brandt, Louis, Analysis for Financial Management, Prentice Hall Inc, Englewood Cliffs, New Jersey,
1971, p. 225.
39
anticipated payments whose timing is not perfectly matched with cash receipts.

40
  The Precautionary Motive

The precautionary motive for holding safety stocks of cash relates

primarily to the predictability of cash inflows and outflows. It is the need to
hold the cash to meet any contingency in future. The firm generally requires
cash to withstand some unexpected emergencies which may be the result of
strikes, floods, failure to pay to vital customers, sharp increase in cost of raw
materials. The amount of precautionary cash is also influenced by the firm's
ability to borrow at short notice when the need arises.

 The Speculative Motive

The speculative motive relates to the holding of cash for investing in

profit-making opportunities as and when they arise. In other words, it refers to
the expectation of the firm to gain advantage of opportunities that occurs at the
unexpected moments and is generally outside the normal course of business. It
helps to take advantage of an opportunity to purchase raw materials at a
reduced price on payment of immediate cash, gain from quantity discounts,
anticipated price increase, etc.

Thus, decisions with regard to holding cash require careful analysis in

order to approach optimal holdings. However, companies mainly concentrate
upon transaction and precautionary motives of the cash.

2.1.2.2 Objectives of Cash Management

The primary objectives of cash management are highlighted below-

 To meet the cash disbursement needs.

 To minimize funds committed to cash balances. These are conflicting and
mutually contradictory. The task of cash management is to reconcile them.

2.1.2.3 Functions of Cash Management

The firm should evolve strategies regarding the highlighted four
functions of cash management in order to resolve the uncertainty about
prediction of cash flow-

 Cash Planning

Cash plans are very vital in developing the overall operating plans of the
firm. Cash planning is a technique to plan for and control the use of cash. It
protects the financial condition of the firm by developing a projected cash
41
statement from a forecast of expected cash inflows and outflows for a given
period. The forecasts may be based on the present or the anticipated future
operations. Cash planning may be done on daily, weekly or monthly basis
depending upon the size of the firm and philosophy of management.

 Managing the Cash Flows

Once the cash budget has been prepared and appropriate net cash flow
established, the financial manager should ensure that a significant deviation
between projected cash flows and actual cash flows does not exist. In order to
achieve this target, cash management efficiency will have to be improved
through the proper control of cash collection and disbursement. The twin
objectives in managing the cash flows should be to accelerate cash collections
as much as possible and to decelerate or delay cash disbursements as much as
possible.

 Optimum Cash Balance

One of the primary duties of the financial manager is to maintain a sound
liquidity position of the firm so that dues may be settled in time. The test of
liquidity is the availability of cash to meet the firm's obligations as and when
they become due. The financial manager should be able to determine the
appropriate amount of cash balance. Such a decision is influenced by a trade-
off between risk and return. If the firm maintains a high level of cash balance, it
will have a sound liquidity position but will have to forego the opportunities to
earn interests and on the other hand if the firm maintains small cash balance, its
liquidity position becomes weak and suffers from scarcity of cash to make
payments. Thus, maintaining too large or too small cash balance may hamper
the firm so the firm should be able to manage an optimum cash balance.

 Investing Idle Cash

Excess cash should be invested normally on those things which can be

conveniently and promptly converted into cash. The excess amount of cash
held by the firm can be temporarily invested in marketable securities or bank
deposits, which can be regarded as near moneys. A firm generally holds extra
cash balance because cash flows cannot be predicted with certainty. Cash
balance held to cover future exigencies is called the precaution balance and is
usually invested in marketable securities and bank deposits until needed.
Instead of holding cash for the precautionary requirements, it can make short
term borrowings to meet it. However, the choice between the short-term
borrowings and liquid assets holding will depend upon the firm's policy
regarding the mix of short-term and long-term financing.
42
2.1.3 Receivable Management
Trade credit is the most prominent force of the modern business. It is
considered as an essential marketing tool, acting as a bridge for the movement
of goods through production and distribution stages to customers finally. A
firm grants trade credit to protect its sales from the competitors and to attract
the potential customers to buy its products at favourable terms. When the firm
sells its products or services and does not receive cash for it immediately, the
firm is said to have granted trade credit to customers. Trade credit, thus, creates
receivables which the firm is expected to collect in the near future.

The term 'receivables' is defined as "debt owed to the firm by customers

arising from sale of goods or services in the ordinary course of business." 19

In simple words, amount due from customers is known as receivables.

Receivables represent investments. Firms would, in general, rather sell for cash
than on credit, but competitive pressures force most firms to offer credit. Thus,
goods are shipped, inventories are reduced, and an account receivable is
created. Eventually, the customer will pay the account, at which time (1) the
firm will receive cash and (2) its receivables will decline. Carrying receivables
has both direct and indirect costs, but it also has a crucial advantage-increased
sales. As substantial amounts are tied up in receivables; they need a careful
analysis and proper management. The receivables are also known as account
receivable, customer receivables, sundry receivables, trade debtors, trade
acceptance, book debts, bill receivables, etc.

Receivables constitute a substantial portion of current assets of several

firms and occupy second important place after inventories. In any sizeable
business organization, the bulk of sales would be on credit. This is borne out by
the fact that credit allowed to customers always enables the concern to increase
sales. No business can run without credit facilities in today's competitive era.
Credit sales play a vital role in the development and expansion of market for
each and every firm whether it is small or big. So the company should keep
some provision for credit sales, which will definitely increase the level of
receivables. In this sense, receivables play an important role in ensuring a
higher turnover for the firm concerned.

19
D.M.Joy, Introduction to Financial Management, Irvin, Hnne Wood, 1977, p. 456
43
 The receivables arising out of the credit includes three characteristics
which are discussed below-

 It involves an element of risk which should be carefully analyzed because

cash sales are totally risk less, but not the credit sales as cash payment has
yet to be received.
 It is based on economic value. To the buyer, the economic value in goods
or services passes immediately at the time of sale, while the seller expects
an equivalent value to be received later on.
 It implies futurity. The cash payment for goods or services received by the
buyer will be made by him in a future period.

2.1.3.1 Objectives of Maintaining Receivables

The main objectives of maintaining receivables are discussed below-

 Expansion of Sales

In today's competitive age, no business can operate completely only on

cash. It has to sell its product on credit too to expand its sales and grab
maximum market share. Moreover, customers may not be willing to buy goods
on cash basis and, thus, to encourage them to purchase goods the firm has to
offer them the credit terms. In the absence of such an offer, a firm may not be
able to sell goods at a desired level. Thus, receivables enable it to push its sales
effectively in the market.

 Increase in Profits
It is a known fact that the profit level will increase with the increase in
sales level. This is ordinarily so because the marginal contribution-affected by
an increase in sales is higher than the additional costs associated with such an
increase.

 Maintaining Liquidity

Receivables are termed as near money. Thus, it facilitates the task of

maintaining liquidity in business because it can easily be converted into cash.

2.1.3.2 Objectives of Receivables Management

The basic objective in the management of receivables should be that of
maximization of overall returns on investment. It is obvious that the firm's
objective with respect to receivables management is not merely to collect
44
receivables quickly but to give attention to the benefit cost trade off involved in
the various areas of accounts receivables management. Thus, the main
objective of receivables management is to maximize the value of the firm by
way of achieving a trade off between risk and profitability.

The objective of receivables management is, "to promote sales and profit
until that point is reached where the return on investment in further funding of
receivables is less than the cost of funds raised to finance that additional credit
(i.e., cost of capital)." 20

Some of the major objectives of receivables management are highlighted

below-

 To control the cost of credit.

 To keep credit at the minimum level.
 To maintain the optimum level of investments in receivables.
 To obtain the optimum volume of sales.
 To keep down the average collection period.

2.1.4 Inventory Management

In simple sense, inventory refers to the movable articles of the business
which are eventually expected to go into the flow of trade. It refers to the stock
pile of the product a firm is offering for sale and the components that make up
the product. In financial parlance, inventory is defined as the sum of the value
of raw materials, fuels and lubricants, spare parts, maintenance, consumables,
semi processed materials and finished goods stock at any given point of time.
To expand the definition of inventory and make it applicable to manufacturing
firms as well as merchandising firms, it can be stated that inventory means the
aggregate of those items of tangible personal property which are held for sale in
the ordinary course of business and are in the process of production for such
sale and are to be currently consumed in the production of goods or services to
be available for sale.

Thus, the stock of different type of consumable goods held by an

organization is called inventory. The basic reason to for holding inventory is to
keep up the production activities unhampered. Inventory is one of the most
important liquid assets to many business concerns. It is also equally important
to both governmental as well as non-governmental sector. Inventory, by nature
is a circulating capital and exhausts frequently either consumption or sale or by
fire or other natural calamities. It occupies a large percentage of the working

20
S.E.Bolten, Managerial Finance, Houghton Mittin Co., Boston, 1976, p. 446.
45
capital employed by a firm. Firms generally maintain some inventory in stock
to achieve a desired level of sale. The major goal of inventory management is
to determine and maintain the optimum level of inventory management. Thus
purchasing economically, using appropriately and preserving carefully is the
main objective of inventory management. In other words, optimum investment
in inventory is the essence of inventory management.

Inventory management is concerned with the acquisition, storage,

handling and use of inventories so as to ensure the availability of inventory
whenever needed, provide adequate cushion for contingencies and derive
maximum economy and minimum wastage and losses. In this modern era, thus,
inventory management plays a significant role in each and every organization
whether small or big. Managing inventories is one of the crucial roles of
finance manager as it covers a huge part of current assets and the finance
manager should have efficient and effective control over assets being produced
to be sold in the normal course of the firm's operation. The return on
investment depends a great deal on the manner the inventories are managed.
So, it is quite clear that, management should involve adequate alteration to the
inventory management to reduce the cost of production and working capital
requirement.

Inventory management focuses on the following three basic questions-

 How many units of each inventory item should the firm hold in stock?
 How many units should be ordered (or produced) at a given time?
 At what point should inventory be ordered (or purchased)?

2.1.4.1 Management of Inventory

In the sphere of working capital, the efficient and effective management
of inventory poses a challenging problem. Inventory constitutes the largest
component of current assets in many business organizations. The turnover of
working capital is much more dependent upon its turnover. Thus, inventory
management is of considerable significance to all business enterprises.

"The proper management and control of inventory not only solves the acute
problems of liquidity but also increases annual profits and causes substantial
reduction in the working capital of a firm". 21

Inventories form a link between production and sale of a product.

Therefore, it is essential to have a sufficient level of investment in inventories.

21
L.R.Howard, Working Capital - Its Management and Control, Mac Donald and Vent Ltd., London,
1971, p. 92.
46
D.Scholl Lawrence and W.Haley Charles rightly remark, "Managing the level
of investment in inventory is like maintaining the level of water in a bath-tub
with an open drain. The water is flowing out continuously. If water is let in too
slowly, the tub is soon empty. If water is let in too fast, the tub overflows. Like
the water in the tub, the particular items of inventories keep changing, but the
level may stay the same. The basic financial problems are to determine the
proper level of investment in inventories and to decide how much inventory
must be acquired during each period to maintain that level”. 22

Thus, proper management of inventories is very crucial for every

organization and is exercised by introducing different measures of inventory
control, such as, ABC analysis, by fixation of norms for inventory holdings, by
determining reorder points and through a close watch on the movements of
inventories.

2.1.4.2 Importance of Inventory Management

The efficient management of inventories enables the organization to
achieve better working results and reduction in working capital. The primary
importance of inventory management are to minimize the possibility of
disruption in the production schedule of a firm for want of raw materials, stores
and spares, and to keep down capital investment inventories.

Inventory management should strike a balance between excess inventory

and inadequate inventory, so its importance is of great deal. The aim of
inventory management is to avoid too much inventory for the smooth running
of the business operation. However, the importance of inventory management
can be listed as below-

 To ensure a regular supply of materials to facilitate uninterrupted

production.
 To maintain adequate stocks of raw materials in the period of scarce
supply and anticipate price changes.
 To maintain adequate stock of finished goods for smooth sales operations
and effective customer service.
 To minimize the carrying costs and time.
 To control investment in inventories and keep it at an optimum level.

22
D. Scholl Lawrence and W. Haley Charles, Introduction to Financial Management, McGraw-Hill,
Inc., New York, 1963, p. 500.
47
2.1.4.3 Motive to Hold Inventories
There are generally three motives of holding inventories which are
discussed below-

 The Transaction Motive

A company should maintain adequate stock of materials for a continuous

supply to the factory for an uninterrupted production. It is not possible for a
company to procure raw materials whenever it is needed. A time lag occurs
between demand and supply of materials. Thus, the transactions motive
emphasizes the need to maintain inventories to facilitate smooth production and
sales operations.

 The Precautionary Motive

There exists uncertainty in procuring raw materials in time at many
occasions. The procurement of materials may be delayed because of such
factors as strike, transport disruption or short supply. The firm should therefore
maintain sufficient level of raw materials at a given time to streamline
production. Thus, the precautionary motive necessitates holding of inventories
to guard against the risk of unpredictable changes in demand and supply forces
and other factors.

 The Speculative Motive

A firm may have to hold inventories to take advantage from quantity

discounts and anticipated price increase. The firm may purchase bulk quantities
of raw materials than needed for desired production and sales levels to obtain
quantity discounts of bulk purchasing. At times, the firm would like to raw
materials in anticipation of price rise. Thus, the speculative motive influence
the decision to increased or decreased inventory levels to take advantage of
price fluctuations.

2.2 Review of Literature

Review of literature means reviewing research studies or other relevant
propositions in the related area of the study so that all the past studies, their
conclusions and deficiencies may be known and further research can be
conducted. It is an integral and mandatory process in research works.

48
2.2.1 Review of Books
This section includes review of various books and working capital
management which has been studied for the purpose of making the research
easier.

Sarita and Bhuvan Dahal have written a book named "A Handbook to
Banking" which gives general overview of banking sector. It has been designed
for students, bankers, businessman and others as an introductory course. It
includes introduction of banking, its gradual development in Nepal as a
separate non-manufacturing sector, its current operation and position, financial
and managerial strength and weakness of banking business in context to Nepal.

In context to working capital, the well known Professor Weston and

Brigham have given some important explanation regarding the origin of
working capital.

"The term working capital originated with the old Yankee peddles, who
would load up his wagon with goods and then go off on his route to peddle his
wares. The merchant was called working capital because it was what he
actually sold, or “turned over,” to produce his profits. The wagon and horse
were his fixed assets. He generally owned the horse and wagon, so they were
financed with “equity” capital, but he borrowed the funds to buy the
merchandise. These borrowings were called working capital loans, and they
had to be repaid after each trip to demonstrate to the bank that the credit was
sound. If the peddler was able to repay the loan, then the bank would make
another loan, and banks that followed this procedure were said to be employing
Sound Banking Practices”.23

As per the theoretical concepts on the components of working capital

from James C. Van Horne, "Working capital management usually is considered
to involve the administration of current assets-namely cash, marketable
securities, receivables, and inventories-and the administration of current
liabilities".24

A well known Indian Professor R.K.Mishra and S. Ravishanker have

described the concept of working capital.

23
J.Fred Weston and E.F.Brigham, Essentials of Managerial Finance, The Dryden Press, New York,
1975, p. 345.
24
J.C.Van Horne, Financial Management and Policy, Prentice hall of India (P) Ltd., New Delhi, 1973, p.
384.
49
"Working capital has two concepts-the total of current assets (gross concept)
and the excess of current assets over current liabilities (net concept).Both these
concepts of working capital have their own significance. If the objective is to
measure the size and extent to which current assets are being used, 'gross
concept' is useful; whereas in evaluating the liquidity position of an
undertaking, 'net concept' becomes pertinent and preferable".25

We can also get much informative knowledge from the book written by
S.C. Bardia named "Working Capital Management" which was quite
resourceful for this study and for others who would conduct the research study
on working capital management. He has described various aspects of working
capital management into seven chapters. The first chapter introduces the
subject. The second chapter focuses on the working capital trends. The third,
fourth and fifth chapters, respectively provides a detailed study of various
components of the working capital, viz., inventory, receivables and cash. The
sixth chapter examines in detail the sources of financing the third, fourth and
fifth chapters respectively. It also analyses the funds flow statement. The last
chapter summarizes the findings of the study and offers suitable suggestions for
the improvement of efficiency and effectiveness of management of the working
capital.

2.2.2 Review of Published Journals/Articles

This section includes review of published journals/articles by various
management experts and executives relating to working capital management.

Dr. Manohar K. Shrestha has conducted an empirical observation of

twelve-selected PEs, in this article; he has described the conceptual ingredient
concerning the W/C. Some of the major conclusion drawn from the research is
highlighted below-

a) "The liquidity position of the selected PEs showed wide deviation.

b) Based in the sales value four out of seven PEs had normal inventory, the
other three had not been satisfactorily maintained an din the rest
inventory had exceeded sales.
c) The collection period relating to the selected PEs exhibited marked
difference ranging from 32 days to 75 days.
d) The profitability position was analyzed through return on net W/C was
in embellishment phase.

25
R.K.Mishra, and S.Ravishanker, Current Perspectives in Public Enterprise Management, Ajanta
Publication, New Delhi, 1985, p. 316.
50
 e) It has showed the lack of farsighted liquidity adjustment strategy in must
of the PEs.
f) Large blocking of capital inventories and low capacity utilization. All
these were due to inefficient management of W/C in those public
enterprises."26

Dr. A.k. Mukherjee in 1988 conducted an empirical observation of

twenty-selected PEs. in India. The scope of those studies was limited to
manufacturing of public enterprises and the period was limited to 5 years.

The main focus of this research study are highlighted below-

a) "Working capital changes mainly due to changing pattern of investment

in quick assets. Current assets are highly affected by the inventory policy
of the unit.
b) Production or output, the size of working capital was negatively
corrected of all the units.
c) The government is not in favor allowing depreciation funds to use for
financing working capital requirements. Such funds at the very outset
used to replace assets. The government has also laid down compressive
guidelines regarding bank financing the SC needs of the firm in different
industries.
d) The current ratio is less than two. The contribution of cash credit
management is more than the W/C requirements which indicates that
portion of such financing has been diverted towards capital expedition.
e) It was observed that the overall profitability and the size of working
capital are negatively corrected. Poor and defect product pricing policy
has also led to negative profitability."27

2.2.3 Review of Related Research Work

This section includes review of related studies made by the students of

an MBA, MBS and PHD. relating to working capital management in different
PEs and Private Sector in Nepal.

Dr. Khagendra Acharya has studied the working capital management of

manufacturing public enterprises in Nepal with reference to Nepal Tea
Development Corporation (NTDC). He took five years data from 1975/76 to
1982/83. Some of the key findings of the study are highlighted below-

26
M.K.Shrestha, Working Capital Management in Selected Public Enterprises, A Pad Management
Journal, 1992.
27
A.K.Mukherjee, Management of Working Capital, Vohra Pub. And Distributors, Allahabad, 1988, p. 9.
51
 a) "Inventory occupies a large portion in working capital in NTDC.
b) The turnover of inventory, receivable and current assets of NTDC were
lower than average of PEs selected.
c) Insufficient working capital has led to sell its product at a rate far below
than its BEP as revealed by BEP analysis.
d) A close liaison should be maintained between the production units of
different states and the central materials management department.
e) The growth of working capital and inventory is correlated negatively as
disclosed from the overall adequacy of inventory in NTDC.
f) Receivable as compared to sales volume has a rapid growth."28

Mr. Jiban Nath Sapkota on his study on working capital management of

Himal Cement Company Limited (HCCL) considered the ratio analysis of
HCCL for 5 years i.e. from 2044/45 to 2048/2049. From the study, he came in
conclusion that the inventory, cash, receivable should be managed
appropriately in an optimum level. He recommended that the company should
determine certain rate of return on it investment, He further suggested that the
sales target should be set to recouped and overcome loss occurred. He argued
that HCCL lacks appropriate guidelines for funds, inventory control, cost
control selling process, investment policies which are hindering the actual
growth of HCCL." 29

Dr. Madhav Bahadur Shrestha has also done research on working capital
management of Cement Industry in Nepal with special reference to Udaypur
Cement Industry Limited (UCIL) and Hetauda Cement Industry Limited
(HCIL). The study covers the period 1993/94 to 2000/01.

Some of the major outcomes of the research study conducted by him are
highlighted below-

a) "HCIL has a low ratio of cash in terms of number of days of operating

expenses whereas it is very high in UCIL.
b) In relation to operational requirement in HCIL and UCIL, the cash
balance has been found to be much lower.
c) There lacks proper planning and control in the management of cash in
both HCIL and UCIL.
d) High stocking of HCIL and UCIL has led to low inventory turnover and
are declining in a regular pattern.

28
Dr.K.Acharya, The Management of Working Capital Management in PEs of Nepal with Special
Reference to Tea Industry, University of Allahabad, 1985.
29
J.N.Sapkota, A Study on Management in Himal Cement Company Limited , unpublished dissertation,
T.U.
52
 e) Inefficient management of W/C has led to gradual loss year after year in
HCIL and UCIL."30

The above review of literature from various books/journals, articles and

dissertations related to working capital management reveals that the leading
factor which has been obstructing and preventing the growth of the Nepalese
Corporation is mainly improper and inefficient management of working capital.
If the working capital funds have been managed properly the corporation would
have been put back upon a driving seat. Since working capital is the lifeblood
of the banking sector and has assumed great significance in the recent past,
efficiency of working capital management of the Nepalese banking sector
should be analyzed. So, the present study tries to analyze the working capital
management of the selected three JVBs covering the period 1998/1999 to
2004/2005.

30
M.B.Shrestha, Working Capital Management of Cement Company in Nepal with special Reference
Udaypur Cement Industry Ltd. And Hetauda Cement Industry Ltd., unpublished thesis submitted in
MDS University, Ajmer, Rajasthan, 2004.
53
 CHAPTER THREE
RESEARCH METHODOLOGY

3.1 Introduction
In the modern world Research has become an indispensable in all
spheres of human activity. Research is essentially a systematic inquiry seeking
facts through objectives verifiable methods in order to discover the relationship
among them and to deduce from them broad principles or laws. It is really a
method of critically thinking by defining and redefining problems, formulating
hypothesis or suggested solution, collecting, organizing and evaluating data,
making deductions and making conclusions to determine whether they fit the
formulated hypothesis.

Research is a systematic method of finding out solution to a problem

where as research methodology refers to "various sequential steps to adopt by a
research in studying a problem with certain objective in view". 31 In other
words, research methodology describes the methods, techniques and process
applied in the entire aspect of the study.

"A systematic research study needs to follow proper methodology to active the
pre-mentioned objective. Research methodology is a sequential procedure and
method to be adopted in a systematic study". 32

It has been clear that research methodology is a systematic and scientific

method of identifying problems, collecting facts and information tabulating and
recording the data, setting hypothesis, analyzing the facts and researching
certain conclusion with a view of findings answer to the problems. In fact,
research methodology is one of the crucial aspects of the thesis writing. So the
present chapter outlines the entire research methodology used and followed in
this study.

3.2 Research Design

Research design refers to the conceptual structure within which the
research is conducted. It is the plan, structure and strategy of investigation
conceived so as to obtain a number of research questions and to control

31
C.R. Kothari, Research Methodology Methods and Techniques, Villey Eastery Limited New Delhi, 1989,
p. 38.
32
C.R.Kothari, Quantitative Techniques, Vikash Publishing House Pvt. LTd., New Delhi, 1994, p. 19.
54
variance. It is essential for the whole study and helps in finding out deficiency
in expectation of the starting of work. The research design is the outline of a
plan to test the hypothesis and should include all the procedures that follow. It
is said that the formidable problem that follows in task of defining the
research is the preparation of design of the research project, popularly
known as research design. Basically, the research design has two purposes.
The first purpose is to answer the research question or test the research
hypothesis. The second purpose of research design is to control variance.

"A research design is the arrangement of conditions for collection and analysis
of data in a manner that aims to combine relevance to the research purpose with
economy in procedure".33

Thus, a research design is a plan for the collection and analysis of data.
Research design is the main part of a thesis or any research work. It presents a
series of guide posts to enable the researcher to progress in the right direction in
order to achieve the goal. This study tries to evaluate the working capital
management of the selected JVBs banks. To accomplish the objectives it has
adopted the descriptive cum analytical type of research design. It tries to
describe and analyze all these facts that have been collected for the purpose of
the study. Some statistical and accounting tools have also been applied to
examine the facts and descriptive techniques have been adopted to evaluate the
structure of selected nature of operations.

3.3 Population and Sample

The term "population" used in statistics denotes the aggregate from
which the sample is to be taken and the term "sample" is that part of the
population which we select for the purpose of investigation. Population refers
not only to people but the totality of all observations that have selected for
study. Population is also known as universe. Sample refers to a part chosen
from the population. Shoppers often examine a handful of rice from the sack
before purchasing any. They decide from the handful of rice (sample) what the
sack (population) will contain.

Thus, in statistics population means whole and the sample means the part
of the whole. This study is directly concerned in the population and treated in
the population and sampling data. In Nepal 115 companies are listed in NSE
whose stocks are traded in stock market. Out of 115 listed companies, the three
JVBs are HBL, NABIL & SCBNL have been selected as samples for the study.

33
Claire Selltiz Others, Research Methods in Social Science, 1962, as quoted in C.R. Kothari,
Quantitative Techniques, Vikash Publishing house Pvt. Ltd., New Delhi, p. 22.
55
The financial statements of the total number of commercial bank in Nepal from
the date of their establishment till today constitute the population for the
present study.

56
3.4 Sources of Data
Analysis of data means to study the tabulated material in order to
determine inherent facts or meanings. It involves breaking down the existing
complex factors in to simpler parts and putting them together in new
arrangements for interpretation. A plan of analysis should be prepared in
advance before the actual collection of the material. A preliminary analysis
plan for investigation process requires detailed information about similarities,
differences, trends, outstanding factors etc.

This research would include both Primary and Secondary data. Data
collected by the researcher or through agent for the first time from related field
and possessing original character are known as primary data. Primary data are
also called field source. On the other hand, data collected by some one else,
used already and are made available to others in the form of published statistics
are known as secondary data. Once primary data have been used, it loses its
primary characteristics and becomes secondary. The difference between
primary and secondary data is a matter of relativity. Primary data are generally
used in those cases where the secondary data do not provide an adequate basis
for analysis. In certain cases both data may be employed.

3.5 Data Collection Techniques

Once the purpose of statistical investigation has defined, the next step is
the collection of the data which are relevant for analysis in a meaningful
manner. Thus collection of data is considered as an integral part of the research
activity. The following data collection procedure was used after the
identification of sources of data required for the preparation of this research
work.

Firstly, the financial statements i.e. Profit and Loss Account and Balance
Sheet of the three JVBs were downloaded from the Nepal Stock Exchange to
the computer disk and printed later on. Lastly, financial statement published by
the banks from time to time, Auditor General's Reports, some previous study
made regarding in this field, newspaper, journals, booklets and articles related
to this study, Publications of Ministry of Finance, Ministry of Industry, Central
Bureau of Statistics, National Planning Commission and similar reports
submitted to various meeting, seminar and official accounting were collected.

57
3.6 Data Analysis Tools
There are different analytical tools and technique used in these research
studies which are highlighted below:

3.6.1 Ratio Analysis

Financial ratios are just a convenient way to summarize large quantities

of financial data. They are simply a means of highlighting in arithmetical terms
the relationship between figures drawn from financial statements. There are
two ways of expressing ratios -one is the percentage method such as 100
percent and the other is the phrase method such as two for one.

A ratio is the defined as" the indicated quotient of two mathematical

expressions" and as "the relationship between two or more things." 34

"A ratio is simply one number expressed in terms of another." 35

Ratio analysis is considered as one of the most important and commonly

used techniques in the modern times for the analysis of working capital. It is
the basic technique used in judging the liquidity position of a firm. It is the one
that help to make rational decisions in keeping with the objectives of the firms.
It is computed from financial statement such as Balance Sheet, Profit and Loss
account; Fixed Assets Schedule, etc.

In this research study, the investigator has selected which is related to

working capital management of the selected banks.

3.6.2 Average
The term "average" is referred as a measure of central tendency. The
average is the measures, which condense a huge data in to a single value, which
represents the entire data and generally located at the central part. There are
different types of averages but only Arithmetic Mean is used for this research
work. Arithmetic Mean is most popular and frequently used measure of central
tendency. It is the ratio of the sum of all observations to the number of
observations. It is calculated from ungrouped data and frequency distributions.

Arithmetic mean of a given set of observations is their sum divided

by the number of observations. In general, if X 1, X2……..X n are the given
n observations, then their arithmetic mean, usually denoted by X is given

34
Webster's New Collegiate Dictionary, 8th Edition, Springfield, Mass: G & C, Merrian, 1975, p. 958.
35
Robert N. Anthony, Management Accounting, Third Edition, Homewood, Illinois, 1964, p. 297.
58
by:

X1  X 2  ..  Xn x
X = =
n n
where,
 x = the sum of the observations and
n = no. of years

3.6.3 Standard Deviation (SD)

It measures the variation of the mass of the figures in a series of average.
It is absolute measure of dispersion. So, it is calculated to supplement the
relative measure, Coefficient of variation. It is usually denoted by  (Small
Sigma). Standard deviation is the positive square root of the arithmetic mean of
the square of the deviation of given observation from their arithmetic mean.
Thus, if X1, X2, X3…………Xn is a set of 'n' observation then the standard
deviation is given by,



X X 2

3.6.4 Trend Percentage Method

There are various phenomena, which change with the passage of time.
So the careful study of relative change that has taken place in the past help to
forecast the future trend and tendencies. An index number is statistical device
assigned to measure the relative change in the level of phenomena (variable or
group of variable) with respect time, geographical location or other
characteristic. In fact, index no is a device for measuring change in the
magnitude of the phenomena from time to time or event from place to place.

Thus, index numbers are indicators to measure the relative change in the
value of the variable in any given period called the "current period" with
respect to its values in some fixed period called "base period". Index numbers
are also called economic barometer because each phenomenon like import,
export, price, quantity at two periods are compared by using Index numbers.
The index number of current period is compared by assuming the value at base
period (i.e. free from natural calamities like flood, draught, war, strike etc) and
is not varying distant with the current year.

59
3.6.5 Correlation Analysis
Correlation is the measure of relationship between two or more
characteristics of a population or a sample. It simply measures the changes
between the phenomenon. If two quantities vary in a related manner so that a
movement- an increase or decrease on one tends to accompanied by a
movement in the same or opposite direction in the other, they are called
correlated. Correlation analysis is one of the most widely used tools in practical
cases.

"The correlation is defined as the relationship between (among) the one

dependent variable (or factor) and one (or more than one) independent
variable(s) or factor(s). In other words, correlation is the relationship between
(or among) two or more variables (i.e. only one variable dependent and one or
more variable (s) independent)". 36

“Correlation is the statistical tool that we can use to describe the degree to
which one variable is linearly related to another”. 37

Thus, correlation is a statistical tool, with the help of which, we can

determine whether or not two or more variables are correlated and if they are
correlated the degree (extent) and direction of correlation is determined. It can
be used in two or more variables. It shows the positive and negative
relationship between the variables. It indicates the relationship between the two
such variables in which with the change in the value of one variable, the value
of the other variable also changes. The result of coefficient of correlation is
always between +1 or -1. When r = +1, it means that there is perfect
relationship between two variables and vice-versa. When r = 0, it means
that there is no relationship between two variables. It is calculated by the
following formula-
(x - x)(y - y)
r
(x - x) 2 (y - y) 2

3.6.6 Co-efficient of Variation (C.V.)

Coefficient of variation may be simply defined as the ratio of standard
deviation to the mean. It is expressed in percentage. It is calculated by using the
following formula-

36
Sunity Shrestha and Dhruba Prasad, Statistical Method in Management, Taleju Prakashan, Kathmandu, 2nd
Edition, 2057, p. 315.
37
Levin Richard and David Rubin, Statistics for Management, Prentice Hall of India, Pvt. Ltd., New Delhi,
1991, p. 505.
60
 
C.V.   100%
X

3.6.7 Probable Error (P.E.)

Probable error is a statistical technique by which significance of Karl

Pearson coefficient of correlation can be tested. If 'r' is the correlation
coefficient from a sample of 'N' pair of items then 'P.E.' is defined as follows-

1 r2
P.E.  .6745 
N

If the value of correlation(r) is less than 'P.E.', it means correlation

is not significant at all. If 'r' is greater than six times of 'P.E.', it means 'r'
is significant. All the assumed ratio and significant test are conducted in
the next chapter.

3.6.8 Analysis of Variance Test (F- statistic)

When we have to test the significance of the differences between two

sample means, t-test is suitable. But when we need to test the significance of
the differences among more than two sample means, f-distribution is suitable
technique, called the "Analysis of Variance". Using ANOVA technique we will
be able to make inferences about whether our samples are drawn from
populations having the same mean.

Analysis of variance (ANOVA) is an extremely useful technique

concerning researches in the fields of economics, biology, education,
psychology, sociology, business/industry etc. An essence of ANOVA is that the
total amount of variation in a set of data is broken down into two types, that
amount which can be attributed to chance and that amount which can be
attributed to specified causes. There may be variation between samples and also
with in sample items. Through this technique one can explain whether various
varieties of seeds or fertilizers or soils differ significantly so that a policy
decision could be taken accordingly, concerning a particular variety in the
context of agriculture researchers.

The basic principle of ANOVA is to test for differences among the

means of the populations by examining the amount of variation with in each of
these samples relative to the amount of variation between the samples by the
ratio.

61
 CHAPTER-FOUR
PRESENTATION AND ANALYSIS OF DATA

4.1 Introduction
The chapter entitled "Presentation and Analysis of Data" is a crucial
chapter and has been organized to present the result and analyze them
accordingly. The basic objective of this study is to observe and comparatively
analyze the working capital position of the three JVBs named as Nepal Arab
Bank Limited, Himalayan Bank Limited and Standard Chartered Bank Nepal
Limited. The presentation and analysis of data in this study have been done to
evaluate the working capital position through the financial data available in the
website of Nepal Stock.com.

Data collected for the analysis of working capital management are

presented in the form of tabular form and are analyzed with the help of widely
accepted tools of financial management, ratio analysis, correlation analysis,
trend analysis, and analysis of variance.

4.2 Analysis of Ratios

A ratio is simply defined as the indicated quotient of two mathematical
expressions and the relationship between two or more things. There are two
ways of expressing ratios -one is the percentage method such as 100 percent
and the other is the phrase method such as two for one.

"The ratio analysis provides guides and clues especially in spotting trends
towards better or poorer performance, and in finding out significant deviation
from any average or relatively applicable standard." 38

Ratio analysis is a technique commonly employed by analysts examining

a company's financial statements. It is mainly used by three main groups: (1)
managers, who employ ratios to help analyze, control and thus improve their
firm's operations; (2) credit analysts, including bank loan officers and bond
rating analysts, who analyze ratios to help ascertain a company's ability to pay
its debts; and (3) stock analysts, who are interested in a company's efficiency,
risk, and growth prospects. In particular, an analysis of selected accounting
ratios allows a bank manager to evaluate the bank's current performance, the
change in its performance over time (time series analysis of ratios over a period

38
Erich A. Helfert, Techniques of Financial Analysis, Homewood, Illinois, 1957, p.57.
62
of time), and its performance relative to that of competitor banks (cross-
sectional analysis of ratios across a group of firms).

In this study, only those ratios have been covered which is related
to working capital management of the selected banks.

4.2.1 Cash and Bank Balance to Current Assets

The cash and bank balance to current assets ratio is also one measure of
liquidity. The cash and bank balance is the most liquid form of the current
assets. It provides liquidity to the firm and is a major and important resource of
working capital. Only this item can meet the current bills and current
obligations of the firm when they are due. In fact, it plays a crucial role to
achieve efficient and effective management of working capital in all types of
business organization whether manufacturing or non-manufacturing
organization. The ratio shows the percentage of readily available fund within
the banks over total current assets. It helps in examining the cash and bank
balance out of bank's current assets. It gives the bank management the clear
idea of cash and bank balance in its current assets account. Thus, this ratio
measures the proportion of cash and bank balance held by NABIL, HBL and
SCBNL out of its total current assets. It can be calculated as-
Cash and Bank Balance
Cash and Bank Balance to Current Assets =
Current Assets

The low ratio indicates sound management and high ratio indicates weak
management policy.

63
 The following table shows the ratio of cash & bank balance to current
assets of NABIL, HBL and SCBNL from F/Y 2000/01 to F/Y 2006/2007.

Table No.: 1
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
Cash & CA Ratio Cash & CA Ratio Cash & CA Ratio
Bank (%) Bank (%) Bank (%)
Balance Balance Balance
2000/2001 630.94 11961.95 5.27 802.21 10988.05 7.30 826.15 12862.22 6.42
2001/2002 910.07 14788.91 6.15 901.91 15605.42 5.78 1020.46 16650.32 6.13
2002/2003 812.91 13161.68 6.18 1435.17 17359.84 8.27 961.05 19224.18 5.00
2003/2004 1051.82 13312.39 7.90 1264.67 14165.33 8.93 825.23 18330.82 4.50
2004/2005 1144.77 13868.31 8.25 1979.21 16881.45 11.72 1512.3 20797.6 7.27
2005/2006 970.49 14243.92 6.81 2001.18 18657.35 10.73 2023.16 23225.83 8.71
2006/2007 559.38 14969.38 3.74 2014.47 21326.26 9.45 1111.12 21447.16 5.18
Total 6080.38 96306.54 44.30 10398.82 114983.7 62.18 8279.47 132538.13 43.21
Avg.(mean) 868.63 13758.08 6.33 1485.55 16426.24 8.88 1182.78 18934.02 6.17
s.d. 1.43 1.86 1.36
c.v. 22.59 20.95 22.04
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of cash and bank balance to current
assets of three JVBs from 2000/2001 to 2006/07. The proportion of cash and
bank balance to current assets for 7 successive years of NABIL is 5.27%,
6.15%, 6.18%, 7.90%, 8.25%, 6.81% and 3.74% respectively whereas of HBL
is 7.30%, 5.78%, 8.27%, 8.93%, 11.72%, 10.72% and 9.45% respectively and
that of SCBNL is 6.42%, 6.13%, 5.00%, 4.50%, 7.27%, 8.71% and 5.18%
respectively. The proportion of cash and bank balance to current assets is
highest in the year 2004/2005 i.e. 8.25% and lowest in the year 2004/2005 i.e.
3.74% for NABIL, highest in the year 2004/2005 i.e. 11.72% and lowest in the
year 2003/2004 i.e. 5.78% for HBL and highest in the year 2005/2006 i.e.
8.71% and lowest in the year 2003/2004 i.e. 4.50% for SCBNL. The average
proportion of cash and bank balance to current assets of NABIL, HBL and
SCBNL are 6.33%, 8.88% and 6.17% respectively. The average proportion of
HBL i.e. .8.88% is greater in comparision to the three JVBs. Therefore liquidity
position on the basis of cash and bank balance to current assets ratio maintained
by HBL is better among the three JVBs. Higher proportion of cash and bank
balance to current assets indicates higher amount of cash and bank balance
maintained by the bank which shows that the bank has been able to maintained
enough liquidity to fulfill its current obligations but the bank should keep in

64
consideration that enough cash and bank balance results in idle money which
incurs opportunity cost. Hence from the utilization perspective, this may not be
desirable solution.

The C.V. of cash and bank balance to current assets for 7 successive
years of NABIL is 22.59% whereas of HBL is 20.95% and that of SCBNL is
22.04%. Thus, as regard to the consistency maintained by the three JVBs, HBL
is more consistent or uniform among the three JVBs because the C.V. of HBL
(i.e. 20.95%) is lower than that of the NABIL and SCBNL. In other words,
there is more fluctuation in cash and bank balance to current assets ratio of
NABIL and SCBNL than the HBL.

4.2.2 Cash and Bank Balance to Total Assets

Cash and bank balance is a significant aspect of the TA. It provides

liquidity to the firm. The proportional of liquid cash in comparison to the TA
shows the investment in cash out of TA. The higher ratio decreases the risk and
provides more working capital but if the excess cash earn nothing, the
profitability would decrease. Thus, this ratio measures the proportion of cash
and bank balance held by NABIL, HBL and SCBNL out of its total current
assets. It can be done by the following expression-
Cash and Bank Balance
Cash and Bank Balance to Total Assets =
Total Assets

The low ratio indicates the decrease in risk and profitability and the high
ratio indicates the increase in the working capital.

65
 The following table shows the ratio of cash & bank balance to total
assets of NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 2
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
Cash & TA Ratio Cash & TA Ratio Cash & TA Ratio
Bank (%) Bank (%) Bank (%)
Balance Balance Balance
2000/2001 630.94 12184.05 5.18 802.21 11244.10 7.13 826.15 13016.98 6.35
2001/2002 910.07 15024.20 6.06 901.91 15863.74 5.68 1020.46 16832.23 6.06
2002/2003 812.91 17770.65 4.57 1435.17 19500.57 7.36 961.05 19357.18 4.96
2003/2004 1051.82 17629.25 5.97 1264.67 21315.85 5.93 825.23 18443.10 4.47
2004/2005 1144.77 16562.62 6.91 1979.21 24197.97 8.18 1512.30 21000.50 7.20
2005/2006 970.49 16745.49 5.80 2001.18 25729.79 7.78 2023.16 23642.06 8.56
2006/2007 559.38 17186.33 3.25 2014.47 28871.34 6.98 1111.12 21893.58 5.08
Total 6080.38 113102.59 37.74 10398.82 146723.36 49.04 8279.47 134185.63 42.68
Avg.(mean) 868.63 16157.51 5.39 1485.55 20960.48 7.01 1182.78 19169.38 6.10
s.d. 1.11 .85 1.33
c.v. 20.59 12.12 21.80
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The above table highlights the proportion of cash and bank balance to
total assets of three JVBs from 2000/2001 to 2006/07. The proportion of cash
and bank balance to total assets for 7 successive years of NABIL is 5.18%,
6.06%, 4.57%, 5.97%, 6.91%, 5.80% and 3.25% respectively whereas of HBL
is 7.13%, 5.68%, 7.36%, 5.93%, 8.18%, 7.78% and 6.98% respectively and that
of SCBNL is 6.35%, 6.06%, 4.96%, 4.47%, 7.20%, 8.56% and 5.08%
respectively. The proportion of cash and bank balance to total assets is highest
in the year 2004/2005 i.e. 6.91% and lowest in the year 2006/2007 i.e. 3.25%
for NABIL, highest in the year 2004/2005 i.e. 8.18% and lowest in the year
2001/2002 i.e. 5.68% for HBL and highest in the year 2005/2006 i.e. 8.56%
and lowest in the year 2003/2004 i.e. 4.47% for SCBNL. The average
proportion of cash and bank balance to total assets of NABIL, HBL and
SCBNL are 5.39%, 7.01% and 6.10% respectively. The average proportion of
HBL i.e. 7.01% is greater in comparision to the three JVBs. Therefore liquidity
position on the basis of cash and bank balance to total assets ratio maintained
by HBL is better among the three JVBs. Higher ratio indicates higher amount
of cash and bank balance maintained by the bank which shows that the bank
has been able to maintained enough liquidity to fulfill its current obligations but

66
the bank should keep in consideration that enough cash and bank balance
results in idle money which incurs opportunity cost. Hence from the utilization
perspective, this may not be desirable solution.

The C.V. of cash and bank balance to total assets for 7 successive years
of NABIL is 20.59% whereas of HBL is 12.12% and that of SCBNL is 21.80%.
Thus, as regard to the consistency maintained by the three JVBs, HBL is more
consistent or uniform among the three JVBs because the C.V. of HBL (i.e.
12.12%) is lower than that of the NABIL and SCBNL. In other words, there is
more fluctuation in cash and bank balance to total assets of NABIL and
SCBNL than the HBL.

4.2.3 Current Assets to Total Assets

Current assets normally require meeting working capital, which is used

to fulfill the need of daily business requirement. The volume or size of CA
differs as the base of the size as well as the nature of the business. The current
assets to total assets shows what percentage of the firm's total assets are
invested in the form of current assets. Higher percentage of CA in TA
indicates greater liquidity position of the firm as well as it lowers the risk of
being insolvent and vice-versa. It can be calculated as-
Current Assets
Current Assets to Total Assets =
Total Assets

Higher the ratio, higher the risk and profitability and lower the
ratio, lower the risk and profitability.

67
 The following table shows the ratio of current assets to total assets of
NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 3
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
CA TA Ratio CA TA Ratio CA TA Ratio
(%) (%) (%)
2000/2001 11961.95 12184.05 98.18 10988.05 11244.10 97.72 12862.22 13016.98 98.81
2001/2002 14788.91 15024.20 98.43 15605.42 15863.74 98.37 16650.32 16832.23 98.92
2002/2003 13161.68 17770.65 74.06 17359.84 19500.57 89.02 19224.18 19357.18 99.31
2003/2004 13312.39 17629.25 75.51 14165.33 21315.85 66.45 18330.82 18443.10 99.39
2004/2005 13868.31 16562.62 83.73 16881.45 24197.97 69.76 20797.60 21000.50 99.03
2005/2006 14243.92 16745.49 85.06 18657.35 25729.79 72.51 23225.83 23642.06 98.24
2006/2007 14969.38 17186.33 87.10 21326.26 28871.34 73.87 21447.16 21893.58 97.96
Total 96306.54 113102.59 602.08 114983.7 146723.36 567.71 132538.13 134185.63 691.67
Avg.(mean) 13758.08 16157.51 86.01 16426.2429 20960.48 82.31 18934.02 19169.38 98.81
s.d. 8.97 12.57 0.49
c.v. 10.43 15.27 0.50
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The above table highlights the proportion of current assets to total assets
of three JVBs from 2000/01 to 2006/07. The proportion of current assets to
total assets for 7 successive years of NABIL is 98.18%, 98.43%, 74.06%,
75.51%, 83.73%, 85.06% and 87.10% respectively whereas of HBL is 97.72%,
98.37%, 89.02%, 66.45%, 69.76%, 72.51% and 73.87% respectively and that
of SCBNL is 98.81%, 98.92%, 99.31%, 99.39%, 99.03%, 98.24% and 97.96%
respectively. The proportion of current assets to total assets is highest in the
year 2001/2002 i.e. 98.43% and lowest in the year 2002/2003 i.e. 74.06% for
NABIL, highest in the year 2001/2002 i.e. 98.375 and lowest in the year
2003/2004 i.e. 66.45% for HBL and highest in the year 2003/2004 i.e. 99.39%
and lowest in the year 2006/2007 i.e. 97.96% for SCBNL. The average
proportion of current assets to total assets of NABIL, HBL and SCBNL are
86.01%, 82.31%, and 98.81% respectively. The average proportion of current
assets to total assets of SCBNL is greater in comparision to the three JVBs.
Therefore, on the basis of current assets to total assets ratio maintained by
SCBNL, it can be concluded that SCBNL has been in both profitable and
riskier position during the seven years study period among the three JVBs.
However, SCBNL should concentrate on its current assets management
because high level of current assets denotes good liquidity position but it
adversely affects the profitability of the bank because idle money earns
68
nothing.

The C.V. of current assets to total assets for 7 successive years of

NABIL is 10.43% whereas of HBL is 15.27% and that of SCBNL is 0.50%.
Thus, as regard to the consistency maintained by the three JVBs, SCBNL is
more consistent or uniform among the three JVBs because the C.V. of SCBNL
(i.e. 0.50%) is lower than that of the NABIL and HBL. In other words, there is
more fluctuation in cash and bank balance to current assets of NABIL and HBL
than the SCBNL.

4.2.4 Current Assets to Fixed Assets

It should be kept in mind that for operating efficiently and effectively for
any firm, it requires both reasonable amount of current assets and fixed assets.
It is one of the vital aspects of the firm and plays a key role for the success or
failure of the firm. The ratio of current assets to fixed assets indicates the
relationship between current assets and fixed assets. It is calculated as-
Current Assets
Current Assets to Fixed Assets =
Fixed Assets

Increase in the ratio accompanied by the profit indicates that the

business is expanding and the decrease in the ratio indicates that business
is slack or more mechanism has been put through.

69
 The following table shows the ratio of current assets to fixed assets of
NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 4
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
CA FA Ratio CA FA Ratio CA FA Ratio
(in (in (in
times) times) times)
2000/2001 11961.95 205.59 58.18 10988.05 171.31 64.14 12862.22 143.57 89.59
2001/2002 14788.91 219.17 67.48 15605.42 193.05 80.83 16650.32 170.72 97.53
2002/2003 13161.68 248.67 52.93 17359.84 201.68 86.07 19224.18 121.81 157.82
2003/2004 13312.39 237.64 56.01 14165.33 318.84 44.43 18330.82 101.07 181.37
2004/2005 13868.31 251.91 55.05 16881.45 229.87 73.44 20797.60 191.71 108.48
2005/2006 14243.92 338.13 42.13 18657.35 299.64 62.27 23225.83 136.23 170.49
2006/2007 14969.38 361.23 41.44 21326.26 295.82 72.09 21447.16 71.41 300.34
Total 96306.54 1862.34 373.22 114983.7 1710.21 483.27 132538.13 936.52 1105.62
Avg.(mean) 13758.08 266.05 53.31 16426.2429 244.32 69.03 18934.02 133.79 157.95
s.d. 8.46 12.72 67.35
c.v. 15.87 18.43 42.60
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The above table highlights the proportion of current assets to fixed assets
of three JVBs from 2000/2001 to 2006/07. The proportion of current assets to
fixed assets for 7 successive years of NABIL is 58.18 times, 67.48 times, 52.93
times, 56.01 times, 55.05 times, 42.13 times and 41.44 times respectively
whereas of HBL is 64.14 times, 80.83 times, 86.07 times, 44.43 times, 73.44
times, 62.27 times and 72.09 times respectively and that of SCBNL is 89.59
times, 97.53 times, 157.82 times, 181.37 times, 108.48 times, 170.49 times and
300.34 times respectively. The proportion of current assets to fixed assets is
highest in the year 2000/2001 i.e. 67.48 times and lowest in the year 2006/2007
i.e. 41.44 times for NABIL, highest in the year 2002/2003 i.e. 86.07 times and
lowest in the year 2003/2004 i.e. 44.43 times for HBL and highest in the year
2006/2007 i.e. 300.34 times and lowest in the year 2000/2001 i.e. 89.59 times
for SCBNL. The average proportion of current assets to fixed assets of NABIL,
HBL and SCBNL are 53.31 times, 69.03 times, 157.95 times respectively. The
average proportion of SCBNL is greater in comparision to the three JVBs. As
higher ratio indicates higher amount of current assets maintained by the bank in
comparision to the fixed assets, so the higher ratio accompanied by the profit
of SCBNL indicates that the business of SCBNL is expanding. The

70
decrease in the ratio of NABIL and HBL as compared to SCBNL indicates
that business is slack or more mechanism has been put through.

The C.V. of current assets to fixed assets for 7 successive years of

NABIL is 15.87 times whereas of HBL is 18.43 times and that of SCBNL is
42.60 times. Thus, as regard to the consistency maintained by the three JVBs,
NABIL is more consistent or uniform among the three JVBs because the C.V.
of NABIL (i.e. 15.87 times) is lower than that of the HBL and SCBNL. In other
words, there is more fluctuation in current assets to fixed assets ratio of HBL
and SCBNL than the NABIL.

4.2.5 Net Working Capital to Current Assets

Maintaining enough working capital is one of the important functions of

the finance manager. It is needed for the daily operations of the business. The
net working capital is computed after deducting current liabilities from current
assets. This ratio indicates the relationship between net working capital and
current assets.
Net Workin g Capital
Net Working Capital to Current Assets =
Current Assets

71
 The following table shows the ratio of net working capital to current
assets of NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 5
(Rs. In Million)

Nabil Bank Limited Himalayan Bank Limited

1
2 3 4 4/2=5 6 7 8 8/6=9
Year
TCA TCL Net Ratio TCA TCL Net Ratio
Working (%) Working (%)
Capital Capital
(2-3) (6-7)
2000/2001 11961.95 11249.94 712.01 5.95 10988.05 10698.75 289.30 2.63
2001/2002 14788.91 13977.29 811.62 5.49 15605.42 15311.04 294.38 1.89
2002/2003 13161.68 17226.21 (4,064.53) (30.88) 17359.84 18742.46 (1,382.62) (7.96)
2003/2004 13312.39 16384.73 (3,072.34) (23.08) 14165.33 19433.25 (5,267.92) (37.19)
2004/2005 13868.31 15135.42 (1,267.11) (9.14) 16881.45 21899.93 (5,018.48) (29.73)
2005/2006 14243.92 15112.45 (868.53) (6.10) 18657.35 22325.47 (3,668.12) (19.66)
2006/2007 14969.38 15385.33 (415.95) (2.78) 21326.26 25837.29 (4,511.03) (21.15)
Total 96306.54 104471.37 (8,164.83) (60.53) 114983.70 134,248.19 (19,264.49) (111.17)
Avg.(mean) 13758.08 14924.48 (1,166.40) (8.65) 16426.24 19,178.31 (2,752.07) (15.88)
s.d. 12.85 14.19
c.v. 148.55 89.36

Standard Chartered Bank Nepal Ltd.

10 11 12 12/10=13
TCA TCL Net Working Capital Ratio
(10-11) (%)
12862.22 11936.55 925.67 7.20
16650.32 15817.40 832.92 5.00
19224.18 18245.18 979.00 5.09
18330.82 17207.62 1123.20 6.13
20797.60 19631.60 1166.00 5.61
23225.83 22146.32 1079.51 4.65
21447.16 20311.16 1136.00 5.30
132538.13 125295.83 7,242.30 38.97
18934.02 17899.40 1,034.61 5.57
.80
14.36
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of net working capital to current

assets of three JVBs from 2000/2001 to 2006/07. The proportion of net

72
working capital to current assets for 7 successive years of NABIL is 5.95%,
5.49%, -30.88%, -23.08%, -9.14%, -6.10% and -2.78% respectively whereas of
HBL is 2.63%, 1.89%, -7.96%, -37.19%, -29.73%, -19.66% and -21.15%
respectively and that of SCBNL is 7.2%, 5.00%, 5.09%, 6.13%, 5.61%, 4.65%
and 5.30% respectively. The proportion of net working capital to current assets
is highest in the year 2000/2001 i.e. 5.95% and lowest in the year 2002/2003
i.e. -30.88% for NABIL, highest in the year 2000/2001 i.e. 2.63% and lowest in
the year 2003/2004 i.e. -37.19% for HBL and highest in the year 2000/2001 i.e.
7.20% and lowest in the year 4.65% for SCBNL. The average proportion of net
working capital to current assets of NABIL, HBL and SCBNL are -8.65%, -
15.88%, 5.57% respectively. The average proportion of SCBNL is greater in
comparision to the three JVBs.

The C.V. of net working capital to current assets for 7 successive years
of NABIL is 148.55% whereas of HBL is 89.36% and that of SCBNL is
14.36%. Thus, as regard to the consistency maintained by the three JVBs,
SCBNL is more consistent or uniform among the three JVBs because the C.V.
of SCBNL (i.e. 14.36%) is lower than that of the NABIL and HBL. In other
words, there is more fluctuation in net working capital to current assets of
NABIL and HBL than the SCBNL.

4.2.6 Current Assets to Current Liabilities

The management of working capital is concerned with management of
relationship between the current assets and current liabilities. This ratio is
applied to test the short term financial strength i.e. it is an indicator of the firm's
ability to meet its short term obligations. In other words, it indicates the firm's
ability to cover its current liabilities with its available current assets. It indicates
the rupees of current assets available for each rupee of current liabilities.

Current assets normally include cash, marketable securities, accounts

receivable, and inventories. Current liabilities consist of accounts payable,
short-term notes payable, current maturities of long-term debt, accrued taxes,
and other accrued expenses (principally wages).
Current Assets
Current Assets to Current Liabilities =
Current Liabilitie s

The standard ratio is considered as 2:1. Generally, higher ratio is

favorable for the business but if the ratio is greater than 2, it indicates idle fund
and hence the inability of the management to manage its working capital
properly. The low ratio indicates the short term solvency or poor liquidity
position of the firm i.e. cash may not be available in the firm to pay off its
73
current liabilities.

74
 The following table shows the ratio of current assets to current liabilities
of NABIL, HBL and SCBNL from F/Y 2000/01 to F/Y 2006/2007.

Table No.: 6
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
CA CL Ratio CA CL Ratio CA CL Ratio
(%) (%) (%)
2000/2001 11961.95 11249.94 106.33 10988.05 10698.75 102.70 12862.22 11903.72 108.05
2001/2002 14788.91 13977.29 105.81 15605.42 15311.04 101.92 16650.32 15781.19 105.51
2002/2003 13161.68 17226.21 76.40 17359.84 18742.46 92.62 19224.18 18196.01 105.65
2003/2004 13312.39 16384.73 81.25 14165.33 19433.25 72.89 18330.82 17150.05 106.88
2004/2005 13868.31 15135.42 91.63 16881.45 21899.93 77.08 20797.60 19559.38 106.33
2005/2006 14243.92 15112.45 94.25 18657.35 22325.47 83.57 23225.83 22090.48 105.14
2006/2007 14969.38 15385.33 97.30 21326.26 25837.29 82.54 21447.16 20235.75 105.99
Total 96306.54 104471.37 652.97 114983.70 134248.19 613.34 132538.13 124916.58 743.55
Avg.(mean) 13758.08 14924.48 93.28 16426.24 19178.313 87.62 18934.02 17845.23 106.22
s.d. 10.53 10.87 0.91
c.v. 11.29 12.41 0.86
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The above table highlights the proportion of current assets to current

liabilities of three JVBs from 2000/2001 to 2006/07. The proportion of current
assets to current liabilities for 7 successive years of NABIL is 106.33%,
105.81%, 76.40%, 81.25%, 91.63%, 94.25% and 97.30% respectively whereas
of HBL is 102.70 %, 101.92%,92.62%, 72.89%, 77.08%, 83.57% and 82.54%
respectively and that of SCBNL is 108.05%, 105.51%, 105.65%, 106.88%,
106.33%,105.14% and 105.99 respectively. The proportion of current assets to
current liabilities is highest in the year 2000/2001 i.e. 106.33% and lowest in
the year 2002/2003 i.e. 76.40% for NABIL, highest in the year 2000/2001 i.e.
102.70 % and lowest in the year 2003/2004 i.e. 72.89% for HBL and highest in
the year 2000/2001 i.e. 108.05% and lowest in the year 2005/2006 i.e. 105.14%
for SCBNL. The average proportion of current assets to current liabilities of
NABIL, HBL and SCBNL are 93.28%, 87.62%, 106.22% respectively. The
average proportion of SCBNL is greater in comparision to the three JVBs.
Therefore current assets to current liabilities ratio maintained by SCBNL is
better among the three JVBs. Higher ratio indicates better current assets
management maintained by the bank which shows that the SCBNL has been
able to maintain safety margin to protect the interest of the creditors and to
provide cushion the bank requires in adverse circumstances.

75
 The C.V. of current assets to current liabilities ratios for 7 successive
years of NABIL is 11.29% whereas of HBL is 12.41% and that of SCBNL is
0.86%. Thus, as regard to the consistency maintained by the three JVBs,
SCBNL is more consistent or uniform among the three JVBs because the C.V.
of SCBNL (i.e. 0.86%) is lower than that of the NABIL and HBL. In other
words, there is more fluctuation in proportion of current assets to current
liabilities of NABIL and HBL than the SCBNL.

4.2.7 Return on Current Assets

The assets which can be cashed within an accounting period are known
as current assets. It includes cash and near cash elements. Return is the main
factor for the existence of any firm. The return on current assets measures the
profit with respect to its total current assets. It gives the utilization of CA
effectiveness.
NPAT
Return on Current Assets =
Current Assets

Higher ratio indicates higher utilization of current assets.

The following table shows the ratio of return on current assets of

NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 7
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
NPAT CA Ratio NPAT CA Ratio NPAT CA Ratio
(%) (%) (%)
2000/2001 266.48 11961.95 2.23 165.25 10988.05 1.50 359.46 12862.22 2.79
2001/2002 329.12 14788.91 2.23 199.25 15605.42 1.28 392.69 16650.32 2.36
2002/2003 291.38 13161.68 2.21 277.04 17359.84 1.60 430.86 19224.18 2.24
2003/2004 271.64 13312.39 2.04 235.02 14165.33 1.66 479.21 18330.82 2.61
2004/2005 416.24 13868.31 3.00 212.13 16881.45 1.26 506.93 20797.60 2.44
2005/2006 455.31 14243.92 3.20 263.05 18657.35 1.41 537.80 23225.83 2.32
2006/2007 518.64 14969.38 3.46 308.28 21326.26 1.45 539.20 21447.16 2.51
Total 2548.81 96306.54 18.37 1660.15 114983.7 10.15 3246.15 132538.13 17.28
Avg.(mean) 364.12 13758.08 2.62 237.16 16426.2429 1.45 463.74 18934.02 2.47
s.d. 0.53 0.14 0.17
c.v. 20.23 9.65 6.88
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The above table highlights the proportion of net profit after tax to current
76
assets of three JVBs from 2000/2001 to 2006/2007. The proportion of net profit
after tax to current assets for 7 successive years of NABIL is 2.23%, 2.23%,
2.21%, 2.04%, 3.00%, 3.20%, 3.46% and respectively whereas of HBL is
1.50%, 1.28%, 1.60%, 1.66%, 1.26%, 1.41% and 1.45% respectively and that
of SCBNL is 2.79%, 2.36%, 2.24%, 2.61%, 2.44%, 2.32% and 2.51%
respectively. The proportion of net profit after tax to current assets is highest in
the year 2006/2007 i.e. 3.46% and lowest in the year 2003/2004 i.e. 2.04% for
NABIL, highest in the year 2003/2004 i.e. 1.66% and lowest in the year
2004/2005 1.26% for HBL and highest in the year 2000/2001 i.e. 2.79% and
lowest in the year 2002/2003 i.e. 2.24% for SCBNL. The average proportion of
net profit after tax to current assets of NABIL, HBL and SCBNL are 2.62%,
1.45%, 2.47% respectively. The average proportion of NABIL is greater in
comparision to the three JVBs. It reveals that NABIL has been able to utilize it
current assets more effectively than HBL and SCBNL.

The C.V. of net profit after tax to current assets for 7 successive years of
NABIL is 20.23% whereas of HBL is 9.65% and that of SCBNL is 6.88%.
Thus, as regard to the consistency maintained by the three JVBs, SCBNL is
more consistent or uniform among the three JVBs because the C.V. of SCBNL
(i.e. 6.88) is lower than that of the NABIL and HBL.

4.2.8 Return on Total Assets

The ratio of return on total assets measures the success or failure of the
firm to utilize the total assets. This ratio judge's effectiveness in using the pool
of funds, which is useful to measure the profitability of all the financial
resources, invested in the firm's assets. It is defined as the net income divided
by total assets. It determines the net income produced per dollar of assets.
Return on total assets is computed by using the following formula-
Net Pr ofit After Tax
Return on Total Assets=
Total Assets

As higher ratio indicates that the overall efficiency of the bank to utilize
their entire resources, which implies that the bank has lower proportion of non-
performing assets. So higher the ratio, the better it is for the firm and the share
and vice-versa.

77
 The following table shows the return on total assets of NABIL, HBL and
SCBNL from F/Y 2000/2001 to F/Y 2006/2007

Table No.: 8
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
NPAT TA Ratio NPAT TA Ratio NPAT TA Ratio
(%) (%) (%)
2000/2001 266.48 12184.05 2.19 165.25 11244.10 1.47 359.46 13016.98 2.76
2001/2002 329.12 15024.20 2.19 199.25 15863.74 1.26 392.69 16832.23 2.33
2002/2003 291.38 17770.65 1.64 277.04 19500.57 1.42 430.86 19357.18 2.23
2003/2004 271.64 17629.25 1.54 235.02 21315.85 1.10 479.21 18443.10 2.60
2004/2005 416.24 16562.62 2.51 212.13 24197.97 0.88 506.93 21000.50 2.41
2005/2006 455.31 16745.49 2.72 263.05 25729.79 1.02 537.80 23642.06 2.27
2006/2007 518.64 17186.33 3.02 308.28 28871.34 1.07 539.20 21893.58 2.46
Total 2548.81 113102.59 15.81 1660.15 146723.36 8.22 3246.15 134185.63 17.07
Avg.(mean) 364.12 16157.51 2.26 237.16 20960.48 1.17 463.74 19169.38 2.44
s.d. 0.50 0.20 0.17
c.v. 22.12 17.09 6.97
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of net profit after tax to total assets of
three JVBs from 2000/2001 to 2006/2007. The proportion of net profit after tax
to total assets for 7 successive years of NABIL is 2.19%, 2.19%, 1.64%,
1.54%, 2.51%, 2.72% and 3.02% respectively whereas of HBL is 1.47%,
1.26%, 1.42%, 1.10%, 0.88%, 1.02% and 1.07% respectively and that of
SCBNL is 2.76%, 2.33%, 2.23%, 2.60%, 2.41%, 2.27% and 2.46%
respectively. The proportion of net profit after tax to total assets is highest in
the year 2006/2007 i.e. 3.02% and lowest in the year 2003/2004 i.e. 1.54% for
NABIL, highest in the year 2000/2001 i.e. 1.47% and lowest in the year
2004/2005 i.e. 0.88% for HBL and highest in the year 2000/2001 i.e. 2.76%
and lowest in the year 2002/2003 i.e. 2.23% for SCBNL. The average
proportion of net profit after tax to total assets of NABIL, HBL and SCBNL are
2.26%, 1.17%, and 2.44% respectively. The average proportion of SCBNL is
greater in comparision to the three JVBs. It reveals that SCBNL provides
greater rate of return to its total assets thereby indicating that the bank has been
able to utilize its available resources more effectively and efficiently in
comparision to other two JVBs.

The C.V. of net profit after tax to total assets for 7 successive years of
NABIL is 22.12% whereas of HBL is 17.09% respectively and that of SCBNL
78
 is 6.97%. Thus, as regard to the consistency maintained by the three JVBs,
SCBNL is more consistent or uniform among the three JVBs because the C.V.
of SCBNL (i.e. 6.97%) is lower than that of the NABIL and HBL. In other
words, there is more fluctuation in net profit after tax to total assets ratio of
NABIL and HBL than the SCBNL.

4.2.9 Receivable on Total Assets

In today's world of cut throat competition, the firm cannot be able to

survive for along period of time without dealing in credit. The survival and
expansion of the firm depends upon the firm's credit sales and when the firm
sales in credit receivables occur. Thus, receivable is one of the important
components of the working capital which indicates the amount due from the
customer. The ratio of receivable to total assets is calculated dividing
receivable by total assets.
Receivable
Receivable on Total Assets =
Total Assets

This ratio measures the accounts receivable in terms of number of

days of credit sales during a particular period. The high ratio indicates the
greater chance of bad debts and the low ratio indicates the less chance of
bad debts.

The following table shows the ratio of receivable on total assets of

NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 9
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
R TA Ratio R TA Ratio R TA Ratio
(%) (%) (%)
2000/2001 231.65 12184.05 1.90 173.26 11244.10 1.54 97.69 13016.98 0.75
2001/2002 373.01 15024.20 2.48 386.56 15863.74 2.44 154.70 16832.23 0.92
2002/2003 372.35 17770.65 2.10 335.75 19500.57 1.72 139.03 19357.18 0.72
2003/2004 171.09 17629.25 0.97 385.38 21315.85 1.81 215.98 18443.10 1.17
2004/2005 230.07 16562.62 1.39 466.53 24197.97 1.93 174.48 21000.50 0.83
2005/2006 225.44 16745.49 1.35 564.36 25729.79 2.19 290.73 23642.06 1.23
2006/2007 208.67 17186.33 1.21 578.37 28871.34 2.00 266.63 21893.58 1.22
Total 1812.28 113102.59 11.40 2,890.21 146723.36 13.63 1339.24 134185.63 6.84
Avg.(mean) 258.90 16157.51 1.63 412.89 20960.48 1.95 191.32 19169.38 0.98
s.d. 0.50 0.28 0.21
c.v. 30.67 14.36 21.43

79
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The above table highlights the proportion of receivables on total assets

of three JVBs from 2000/2001 to 2006/07. The proportion of receivables on
total assets for 7 successive years of NABIL is 1.90%, 2.48%, 2.10%, 0.97%,
1.39%, 1.35% and 1.21% respectively whereas of HBL is 1.54%, 2.44%,
1.72%, 1.81%, 1.93%, 2.19% and 2.00% respectively and that of SCBNL is
0.75%, 0.92%, 0.72%, 1.17%, 0.83%, 1.23% and 1.22% respectively. The
proportion of receivables on total assets is highest in the year 2001/2002 i.e.
2.48% and lowest in the year 2003/2004 i.e. 0.97% for NABIL, highest in the
year 2001/2002 i.e. 2.44% and lowest in the year 2000/2001 i.e. 1.54% for
HBL and highest in the year 2005/2006 i.e. 1.23% and lowest in the year
2000/2001 i.e. 0.75% for SCBNL. The average proportion of receivables on
total assets of NABIL, HBL and SCBNL are 1.63%, 1.95%, 0.98%
respectively. The average proportion of HBL is greater in comparision to the
three JVBs.

The C.V. of receivables on total assets for 7 successive years of NABIL

is 30.67% whereas of HBL is 14.36% and that of SCBNL is 21.43%. Thus, as
regard to the consistency maintained by the three JVBs, HBL is more
consistent or uniform among the three JVBs because the C.V. of HBL (i.e.
14.36%) is lower than that of the NABIL and SCBNL. In other words, there is
more fluctuation in receivables on total assets of NABIL and SCBNL than the
HBL.

4.2.10 Receivable to Current Assets

This ratio is calculated dividing receivable by current assets.

Receivable
Receivable to Current Assets =
Current Assets

The high ratio indicates an unfavorable condition for the business and
low ratio indicates the favorable condition for the business.

80
 The following table shows the ratio of receivable on current assets of
NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.
Table No.: 10
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
R CA Ratio R CA Ratio R CA Ratio
(%) (%) (%)
2000/2001 231.65 11961.95 1.94 173.26 10988.05 1.58 97.69 12862.22 0.76
2001/2002 373.01 14788.91 2.52 386.56 15605.42 2.48 154.70 16650.32 0.93
2002/2003 372.35 13161.68 2.83 335.75 17359.84 1.93 139.03 19224.18 0.72
2003/2004 171.09 13312.39 1.29 385.38 14165.33 2.72 215.98 18330.82 1.18
2004/2005 230.07 13868.31 1.66 466.53 16881.45 2.76 174.48 20797.60 0.84
2005/2006 225.44 14243.92 1.58 564.36 18657.35 3.02 290.73 23225.83 1.25
2006/2007 208.67 14969.38 1.39 578.37 21326.26 2.71 266.63 21447.16 1.24
Total 1812.28 96306.54 13.21 2,890.21 114983.70 17.21 1339.24 132538.13 6.92
Avg.(mean) 258.90 13758.08 1.89 412.89 16426.24 2.46 191.32 18934.02 0.99
s.d. 0.54 0.48 0.21
c.v. 28.57 19.51 21.21
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of receivable to current assets of

three JVBs from 2000/2001 to 2006/07. The proportion of receivable to current
assets for 7 successive years of NABIL is 1.94%, 2.52%, 2.83%, 1.29%,
1.66%, 1.58% and 1.39% respectively whereas of HBL is 1.58%, 2.48%,
1.93%, 2.72%, 2.76%, 3.02% and 2.71% respectively and that of SCBNL is
0.76%, 0.93%, 0.72%, 1.18%, 0.84%, 1.25% and 1.24% respectively. The
proportion of receivable to current assets is highest in the year 2002/2003 i.e.
2.83% and lowest in the year 2003/2004 i.e. 1.29% for NABIL, highest in the
year 2005/2006 i.e. 3.02% and lowest in the year 2000/2001 i.e. 1.58% for
HBL and highest in the year 2005/2006 i.e. 1.25% and lowest in the year
2002/2003 i.e. 0.72% for SCBNL. The average proportion of receivable to
current assets of NABIL, HBL and SCBNL are 1.89%, 2.46%, 0.99%
81
 respectively. The average proportion of HBL is greater in comparision to the
three JVBs. It reveals the unfavorable business condition for HBL in
comparison to the other two JVBs. The most favourable business condition is
for SCBNL as its average ratio is lower than the rest.

The C.V. of receivable to current assets for 7 successive years of NABIL

is 28.57% whereas of HBL is 19.51% and that of SCBNL is 21.21%. Thus, as
regard to the consistency maintained by the three JVBs, HBL is more
consistent or uniform among the three JVBs because the C.V. of HBL (i.e.
19.51%) is lower than that of the NABIL and SCBNL. In other words, there is
more fluctuation in receivable to current assets of NABIL and SCBNL than the
HBL.

4.2.11 Quick Assets to Current Liabilities

Those assets which can be easily converted into cash within a year are
termed as quick assets. The quick, or acid test, ratio indicates the company's
ability to convert its current assets quickly into cash to meets its current
liability. It is calculated by deducting inventories from current assets and then
dividing the remainder by current liabilities. The quick ratio removes
inventories from current assets because they are the least liquid asset.
Therefore, the quick ratio is an "acid test" of a company's ability to meets its
current obligations.
Quick Assets
Quick Assets to Current Liabilities =
Current Liabilitie s

It tries to test the ability of the firm to meet its current obligations i.e.
payment of current liability. The standard ratio is considered as 1:1 as a firm
can easily meet all its current liability. Both the high and low ratio is not
favorable for the business.

The following table shows the ratio of quick assets to current liabilities
of NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 11
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
QA CL Ratio QA CL Ratio QA CL Ratio
(%) (%) (%)
2000/2001 11961.95 11249.94 106.33 10988.05 10698.75 102.70 12862.22 11903.72 108.05
2001/2002 14788.91 13977.29 105.81 15605.42 15311.04 101.92 16650.32 15781.19 105.51
2002/2003 13161.68 17226.21 76.40 17359.84 18742.46 92.62 19224.18 18196.01 105.65
82
2003/2004 13312.39 16384.73 81.25 14165.33 19433.25 72.89 18330.82 17150.05 106.88
2004/2005 13868.31 15135.42 91.63 16881.45 21899.93 77.08 20797.60 19559.38 106.33
2005/2006 14243.92 15112.45 94.25 18657.35 22325.47 83.57 23225.83 22090.48 105.14
2006/2007 14969.38 15385.33 97.30 21326.26 25837.29 82.54 21447.16 20235.75 105.99
Total 96306.54 104471.37 652.97 114983.7 134248.19 613.34 132538.13 124916.58 743.55
Avg.(mean) 13758.08 14924.48 93.28 16426.2429 19178.313 87.62 18934.02 17845.23 106.22
s.d. 10.53 10.87 0.91
c.v. 11.29 12.41 0.86
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of quick assets to current liabilities of

three JVBs from 2000/2001 to 2006/07. The proportion of quick assets to
current liabilities for 7 successive years of NABIL is 106.33%, 105.81%,
76.40%, 81.25%, 91.63%, 94.25%, 97.30% respectively whereas of HBL is
102.70%, 101.92%, 92.62%, 72.89%, 77.08%, 83.57%, 82.54% respectively
and that of SCBNL is 108.05%, 105.51%, 105.65%, 106.88%, 106.33%,
105.14%, 105.99% respectively. The proportion of quick assets to current
liabilities is highest in the year 2000/2001 i.e. 106.33% and lowest in the year
2002/2003 i.e. 76.40% for NABIL, highest in the year 2000/2001 i.e. 102.70%
and lowest in the year 2003/2004 i.e. 72.89% for HBL and highest in the year
2000/2001 i.e. 108.05% and lowest in the year 2005/2006 i.e. 105.14% for
SCBNL. The average proportion of quick assets to current liabilities of NABIL,
HBL and SCBNL are 93.28%, 87.62%, 106.22% respectively. The average
proportion of SCBNL is greater in comparision to the three JVBs. Therefore,
the quick ratio maintained by the SCBNL is better as the bank can easily meet
its all current claims. But it should be noticed that as the average ratio
maintained by all the three JVBs are above or below the standard ratio so it is
not favourable for them.

The C.V. of quick assets to current liabilities for 7 successive years of

NABIL is 11.29% whereas of HBL is 12.41% and that of SCBNL is 0.86%.
Thus, as regard to the consistency maintained by the three JVBs, SCBNL is
more consistent or uniform among the three JVBs because the C.V. of SCBNL
(i.e. 0.86%) is lower than that of the NABIL and HBL. In other words, there is
more fluctuation in quick assets to current liabilities of NABIL and HBL than
the SCBNL.

4.2.12 Cash and Bank Balance to Current Liabilities

This ratio is calculated dividing cash and bank balance by current

liabilities.
83
 Cash and Bank Balance
Cash and Bank Balance to Current Liabilities =
Current Liabilitie s

84
 The following table shows the ratio of cash and bank balance to current
liabilities of NABIL, HBL and SCBNL from F/Y 2000/01 to F/Y 2006/2007.
Table No.: 12
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
Cash & CL Ratio Cash & CL Ratio Cash & CL Ratio
Bank (%) Bank (%) Bank (%)
Balance Balance Balance
2000/2001 630.94 11249.94 5.61 802.21 10698.75 7.50 826.15 11903.72 6.94
2001/2002 910.07 13977.29 6.51 901.91 15311.04 5.89 1020.46 15781.19 6.47
2002/2003 812.91 17226.21 4.72 1435.17 18742.46 7.66 961.05 18196.01 5.28
2003/2004 1051.82 16384.73 6.42 1264.67 19433.25 6.51 825.23 17150.05 4.81
2004/2005 1144.77 15135.42 7.56 1979.21 21899.93 9.04 1512.30 19559.38 7.73
2005/2006 970.49 15112.45 6.42 2001.18 22325.47 8.96 2023.16 22090.48 9.16
2006/2007 559.38 15385.33 3.64 2014.47 25837.29 7.80 1111.12 20235.75 5.49
Total 6080.38 104471.37 37.24 10398.82 134248.19 53.35 8279.47 124916.58 45.88
Avg.(mean) 868.63 14924.48 5.84 1485.55 19178.313 7.62 1182.78 17845.23 6.55
s.d. 1.21 1.07 1.42
c.v. 20.72 14.04 21.68
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of cash and bank balance to current
liabilities of three JVBs from 2000/2001 to 2006/2007. The proportion of cash
and bank balance to current liabilities for 7 successive years of NABIL is
5.61%, 6.51%, 4.72%, 6.42%, 7.56%, 6.42% and 3.64% respectively whereas
of HBL is 7.50%, 5.89%, 7.66%, 6.51%, 9.04%, 8.96% and 7.80% respectively
and that of SCBNL is 6.94%, 6.47%, 5.28%, 4.81%, 7.73%, 9.16% and 5.49%
respectively. The proportion of cash and bank balance to current liabilities is
highest in the year 2004/2005 i.e. 7.56% and lowest in the year 2006/2007 i.e.
3.64% for NABIL, highest in the year 2004/2005 i.e. 9.04% and lowest in the
year 2001/2002 i.e. 5.89% for HBL and highest in the year 2005/2006 i.e.
9.16% and lowest in the year 2003/2004 i.e. 4.81% for SCBNL. The average
proportion of cash and bank balance to current liabilities of NABIL, HBL and
SCBNL are 5.84%, 7.62%, 6.55% respectively. The average proportion of HBL
is greater in comparision to the three JVBs. Therefore liquidity position on the
basis of cash and bank balance to current liabilities ratio maintained by HBL is
better among the three JVBs. Higher ratio indicates higher amount of cash and
bank balance maintained by the bank which shows that the bank has been able
to maintained enough liquidity to fulfill its current obligations but the bank
should keep in consideration that enough cash and bank balance results in idle

85
 money which incurs opportunity cost. Hence from the utilization perspective,
this may not be desirable solution.

The C.V. of cash and bank balance to current liabilities for 7 successive
years of NABIL is 20.72% whereas of HBL is 14.04% and that of SCBNL is
21.68%. Thus, as regard to the consistency maintained by the three JVBs, HBL
is more consistent or uniform among the three JVBs because the C.V. of HBL
(i.e. 14.04%) is lower than that of the NABIL and SCBNL. In other words,
there is more fluctuation in cash and bank balance to current liabilities of
NABIL and SCBNL than the HBL.

4.2.13 Debt to Equity Ratio

Debt to equity ratio shows the relationship between the borrowed fund
and owner's fund. It helps in the firm prediction of relative claims of outsiders
and owners against firm's total resources. The ratio is calculated by dividing
total debt by shareholders equity.
Debt
Debt to Equity Ratio =
Equity

The following table shows the ratio of quick assets to current liabilities
of NABIL, HBL and SCBNL from F/Y 2000/01 to F/Y 2006/2007.

Table No.: 13
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
Total Debt Sharehol Ratio Total Debt Sharehol Ratio Total Debt Sharehold Ratio
der (times) der (times) er Equity (times)
Equity Equity

2000/2001 11306.31 877.33 12.89 10792.91 451.18 23.92 11936.55 1080.41 11.05
2001/2002 14040.13 984.07 14.27 15337.69 526.05 29.16 15817.40 1014.85 15.59
2002/2003 16707.80 1062.85 15.72 18779.96 720.59 26.06 18245.18 1112.02 16.41
2003/2004 16482.82 1146.43 14.38 20457.73 858.11 23.84 17207.62 1235.48 13.93
2004/2005 15248.44 1314.19 11.60 23134.84 1063.13 21.76 19631.6 1368.91 14.34
2005/2006 15263.80 1481.68 10.30 24375.62 1324.17 18.41 22146.32 1495.74 14.81
2006/2007 15528.69 1657.64 9.37 27329.6 1541.75 17.73 20311.16 1582.41 12.84
Total 104577.99 8524.19 88.52 140,208.35 6,484.98 160.88 125295.83 8889.82 86.12
Avg.(mean) 14939.71 1217.74 12.65 20,029.76 926.43 22.98 17899.40 1269.97 14.14
s.d. 2.15 3.77 1.65
c.v. 16.70 16.40 11.67
Source: Comparative Balance Sheet and Profit And Loss Account of

86
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of debt to equity of three JVBs from
2000/2001 to 2006/07. The proportion of debt to equity for 7 successive years
of NABIL is 12.89, 14.27, 15.72, 14.38, 11.60, 10.30 and 9.37 times
respectively whereas of HBL is 23.92, 29.16, 26.06, 23.84, 21.76, 18.41 and
17.73 times respectively and that of SCBNL is 11.05, 15.59, 16.41, 13.93,
14.34, 14.81 and 12.84 times respectively. The proportion of debt to equity is
highest in the year 2002/2003 i.e. 15.72 times and lowest in the year 2006/2007
i.e. 9.37 times for NABIL, highest in the year 2001/2002 i.e. 29.16 times and
lowest in the year 2006/2007 i.e. 17.73 times for HBL and highest in the year
2002/2003 i.e. 16.41 and lowest in the year 2000/2001 i.e. 11.05 times for
SCBNL. The average proportion of debt to equity of NABIL, HBL and SCBNL
are 12.65 times, 22.98 times, 14.14 times respectively. The average proportion
of HBL is greater in comparision to the three JVBs. Therefore from the
shareholders point of view, investment in the share of HBL is considered to be
satisfactory than NABIL and SCBNL because of low cost of outsider's fund
were used to acquire assets to generate higher return. In contrary, from the
creditor's point of view, a lower debt-equity is generally viewed as favourable
so NABIL and SCBNL are favorable as they provide safe investment.

The C.V. of debt to equity for 7 successive years of NABIL is 16.70

times whereas of HBL is 16.40 times and that of SCBNL is 11.67 times
respectively. Thus, as regard to the consistency maintained by the three JVBs,
SCBNL is more consistent or uniform among the three JVBs because the C.V.
of SCBNL (i.e. 11.67 times) is lower than that of the NABIL and HBL. In other
words SCBNL fluctuates less than the other two JVBs.

4.2.14 Net Worth to Total Assets

Net worth plays a vital role in supporting its daily operations and
ensuring the long run viability of the banking system. This ratio shows the
relationship between the net worth and the total assets of the firm. It examines
the percentage of the net worth in total assets.
Net Worth
Net Worth to Total Assets =
Total Assets

The high ratio indicates the higher existence of net worth in total assets
which is favourable condition for the firm.

87
 The following table shows the ratio of net worth to total assets of
NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 14
(Rs. In Million)
Standard Chartered Bank Nepal
Nabil Bank Limited Himalayan Bank Ltd.
Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
Net TA Ratio Net TA Ratio Net Worth TA Ratio
Worth (%) Worth (%) (%)
2000/2001 877.33 12184.05 7.20 451.18 11244.10 4.01 1080.41 13016.98 8.30
2001/2002 984.07 15024.20 6.55 526.05 15863.74 3.32 1014.85 16832.23 6.03
2002/2003 1062.85 17770.65 5.98 720.59 19500.57 3.70 1112.02 19357.18 5.74
2003/2004 1146.43 17629.25 6.50 858.11 21315.85 4.03 1235.48 18443.10 6.70
2004/2005 1314.19 16562.62 7.93 1063.13 24197.97 4.39 1368.91 21000.50 6.52
2005/2006 1481.68 16745.49 8.85 1324.17 25729.79 5.15 1495.74 23642.06 6.33
2006/2007 1657.64 17186.33 9.65 1541.75 28871.34 5.34 1582.41 21893.58 7.23
Total 8524.19 113102.59 52.66 6,484.98 146723.36 29.93 8889.82 134185.63 46.85
Avg.(mean) 1217.74 16157.51 7.52 926.43 20960.48 4.28 1269.97 19169.38 6.69
s.d. 1.25 0.69 0.79
c.v. 16.62 16.12 11.81
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

The table highlights the proportion of net worth to total assets of three
JVBs from 2000/2001 to 2006/07. The proportion of net worth to total assets
for 7 successive years of NABIL is 7.20%, 6.55%, 5.98%, 6.50%, 7.93%,
8.85% and 9.65% respectively whereas of HBL is 4.01%, 3.32%, 3.70%,
4.03%, 4.39%, 5.15% and 5.34% respectively and that of SCBNL is 8.30%,
6.03%, 5.74%, 6.70%, 6.52%, 6.33% and 7.23% respectively. The proportion
of net worth to total assets is highest in the year 2006/2007 i.e. 9.65% and
lowest in the year 2002/2003 i.e. 5.98% for NABIL, highest in the year
2006/2007 i.e. 5.34% and lowest in the year 2001/2002 i.e. 3.32% for HBL and
highest in the year 2000/2001 i.e. 8.30% and lowest in the year 2002/2003 i.e.
5.74% for SCBNL. The average proportion of net worth to total assets of
NABIL, HBL and SCBNL are 7.52%, 4.28%, and 6.69% respectively. The
average proportion of NABIL is greater in comparison to the three JVBs. It
reveals that average proportion of net worth to total assets favors NABIL more
than the rest of the JVBs.

The C.V. of net worth to total assets for 7 successive years of NABIL is
16.62% whereas of HBL is 16.12% and that of SCBNL is 11.81%. Thus, as
regard to the consistency maintained by the three JVBs, SCBNL is more

88
 consistent or uniform among the three JVBs because the C.V. of SCBNL (i.e.
11.81%) is lower than that of the NABIL and HBL. In other words, there is
more fluctuation in net worth to total assets of NABIL and HBL than the
SCBNL.

4.2.15 Return on Owner's Equity

Ultimately, the most important, or "bottom line," accounting ratio is the

ratio of net income to owner's equity, which measures the return on owner's
equity. Shareholders invest their funds in the firm's share in an anticipation of
greater return in the near future. They purchase the shares of the firm so that
they could get higher return in the future and thus, it is the firm's responsibility
to provide the shareholders reasonable return. So the basic purpose of the return
on owner's equity is to measure the productivity of the shareholders equity. In
other words, it indicates the ability of the management to efficiently and
effectively capitalize the shareholders fund in income generating purposes. It
can be calculated as-
Net Profit After Tax
Return on Owner's Equity =
Owners' s Equity

The high ratio indicates that that the shareholders equity i.e. their
funds are being effectively and efficiently utilized in t he profit generating
purposes.

The following table shows the ratio of return on owner's equity of

NABIL, HBL and SCBNL from F/Y 2000/2001 to F/Y 2006/2007.

Table No.: 15
(Rs. In Million)
Standard Chartered Bank
Nabil Bank Limited Himalayan Bank Ltd.
Nepal Ltd.
1
2 3 2/3=4 5 6 5/6=7 8 9 8/9=10
Year
NPAT Owner Ratio NPAT Owner Ratio NPAT Owner Ratio
Equity (%) Equity (%) Equity (%)
2000/2001 266.48 877.33 30.37 165.25 451.18 36.63 359.46 1080.41 33.27
2001/2002 329.12 984.07 33.44 199.25 526.05 37.88 392.69 1014.85 38.69
2002/2003 291.38 1062.85 27.41 277.04 720.59 38.45 430.86 1112.02 38.75
2003/2004 271.64 1146.43 23.69 235.02 858.11 27.39 479.21 1235.48 38.79
2004/2005 416.24 1314.19 31.67 212.13 1063.13 19.95 506.93 1368.91 37.03
2005/2006 455.31 1481.68 30.73 263.05 1324.17 19.87 537.80 1495.74 35.96
2006/2007 518.64 1657.64 31.29 308.28 1541.75 20.00 539.20 1582.41 34.07
Total 2548.81 8524.19 208.62 1660.15 6,484.98 200.15 3246.15 8889.82 256.56
Avg.(mean) 364.12 1217.74 29.80 237.16 1,621.25 28.59 463.74 1269.97 36.65
s.d. 3.00 8.23 2.13

89
c.v. 10.07 28.79 5.82
Source: Comparative Balance Sheet and Profit And Loss Account of
NABIL, HBL and SCBNL as given in WWW. Nepal Stock.com

90
 The table highlights the proportion of return on owner's equity of three
JVBs from 2000/2001 to 2006/07. The proportion of return on owner's equity
for 7 successive years of NABIL is 30.37%, 33.44%, 27.41%, 23.69%, 31.67%,
30.73% and 31.29% respectively whereas of HBL is 36.63%, 37.88%, 38.45%,
27.39%, 19.95%, 19.87% and 20.00%, respectively and that of SCBNL is
33.27%, 38.69%, 38.75%, 38.79%, 37.03%, 35.96% and 34.07% respectively.
The proportion of return on owner's equity is highest in the year 2001/2002 i.e.
33.44% and lowest in the year 2003/2004 i.e. 23.69% for NABIL, highest in
the year 2002/2003 i.e. 38.45% and lowest in the year 2005/2006 i.e. 19.87%
for HBL and highest in the year 2003/2004 i.e. 38.79% and lowest in the year
2000/2001 i.e. 33.27% for SCBNL. The average proportion of return on
owner's equity of NABIL, HBL and SCBNL are 29.80%, 28.59%, 36.65%
respectively. The average proportion of SCBNL is greater in comparision to the
three JVBs. It reveals that SCBNL provides greater rate of return to their
shareholder's equity than the remaining two JVBs.

The C.V. of return on owner's equity for 7 successive years of NABIL is

10.07% whereas of HBL is 28.79% and that of SCBNL is 5.82%. Thus, as
regard to the consistency maintained by the three JVBs, SCBNL is more
consistent or uniform among the three JVBs because the C.V. of SCBNL (i.e.
5.82%) is lower than that of the NABIL and HBL. In other words, there is more
fluctuation in return on owner's equity of NABIL and HBL than the SCBNL.

4.3 Trend Analysis

In today's world of dynamic change nothing remains constant instead
everything changes now and then. As such, business too changes each year.
This really makes a Herculean task to find enough information about business
by way of analyzing the financial statements of a single year. In order to
succeed in this dynamic world, it is quite important for a business analysts to
find out the direction and tendency of business and to determine it, the relative
past data to the problem are studied and the trend is determined.

Trend analysis makes it easy to understand the changes occurred in an

item or group of items over a period of time. Thus, trend analysis is one of the
important tool for the bankers as it enable them to indicate the direction in
which their business is going and on this basis to forecast its future. There are
generally two methods of expressing trends which are listed below-

 Trend Ratios
 Graphs and Diagrams

Here, graphs and diagrams have been used to express the trends of
91
different items of the three JVBs.

4.3.1 Trend of Current Assets:

Graph no.: 1
CURRENT ASSETS

300
250
200 194 NABIL
Trend Index

181
170 167
150 158
149 162
154 HBL
142
129 142
129
124 110 111 116 119 125
100 100 SCBNL
(%)

50
0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year

Source: Appendix-A

The graph highlights the current assets trends of three JVBs from
2000/2001 to 2006/07. The growth of current assets in comparision to the base
year (i.e. 100%) for 7 successive years of NABIL is 124%, 110%, 111%,
116%, 119%, 119%, 125% respectively whereas of HBL is 142%, 158%,
129%, 154%, 170%, 194% respectively and that of SCBNL is 129%, 149%,
142%, 162%, 181%, 167% respectively. The current assets of NABIL shows
the fluctuating trend throughout the period understudy as there is rise and fall in
successive years. The current assets of HBL marked an increasing trend
throughout the period understudy except in 2003/04. The current assets of the
SCBNL also marked an increasing trend throughout the period understudy
except in 2003/2004 and 2006/07. This indicates that the current assets
management of HBL and SCBNL is better in comparision to the NABIL.

92
4.3.2 Trend of Current Liabilities:

Graph no.: 2
CURRENT LIABILITIES

300
250 241
200 205 209
NABIL
Trend Index

175 182 186

164 170
150 143 153 146
144 HBL
133
124 135 134 137
100 100 SCBNL
(%)

50
0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year

Source: Appendix-A

The above graph highlights the current liabilities trends of three JVBs
from 2000/2001 to 2006/07. The growth of current liabilities in comparision to
the base year (i.e. 100%) for 7 successive years of NABIL is 124%, 153%,
146%, 135%, 134%, 137% respectively whereas of HBL is 143%, 175%,
182%, 205%, 209%, 241% respectively and that of SCBNL is 133%,
153%,144%, 164%, 186%, 170% respectively. The current liabilities of NABIL
shows the fluctuating trend throughout the period understudy as there is rise
and fall in successive years. The current liabilities marked an increasing trend
throughout the period understudy. The current assets of the SCBNL marked an
increasing trend throughout the period understudy except in 2003/2004 and
2006/07. This indicates that the current liabilities of HBL and SCBNL are
greater in comparision to the NABIL.

93
4.3.3 Trend of Cash and Bank Balances:

Graph no.: 3
CASH AND BANK BALANCES

300
250 247 249
245 251
Trend Index

200 NABIL
179 167 183
181
150 144 158 154 HBL
123 129 134
100 100 112 116 100 SCBNL
89
(%)

50
0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year

Source: Appendix-A

The above graph highlights the cash and bank balance trends of three
JVBs from 2000/2001 to 2006/07. The cash and bank balance in comparision to
the base year (i.e. 100%) for 7 successive years of NABIL is 144%, 129%,
167%, 181%, 1545%, 89% respectively whereas of HBL is 112%, 179%,
158%, 247%, 249%, 251%, respectively and that of SCBNL is 123%, 116%,
100%, 183%, 245%, 134% respectively. The cash and bank balance of NABIL
indicates highly fluctuating trend throughout the period understudy. The cash
and bank balance of HBL marked an increasing trend throughout the period
understudy except in 2003/04 and 2006/07. The cash and bank balance of the
SCBNL marked a fluctuating trend throughout the period understudy. This
indicates that the cash and bank balance of NABIL and SCBNL is lower in
comparision to the HBL which may be termed as both good and worst as
greater cash and bank balances is good for the banks because it will increase
there working capital and they can perform their operations smoothly whereas
it is worst because greater cash balance may indicate idle cash which incurs
cost.

94
4.3.4 Trend of Total Assets:

Graph no.: 4
TOTAL ASSETS

300
250 257
215 229
200 NABIL
Trend Index

173 190 182

161 168 HBL
150 141 149
146 145
142 140 137 141
129
123
100 100 SCBNL

50
(%)

0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year

Source: Appendix-A

The above graph highlights the total assets trends of three JVBs from
2000/2001 to 2006/07. The growth of total assets in comparision to the base
year (i.e. 100%) for 7 successive years of NABIL is 123%, 146%, 145%,
140%, 137%, 141% respectively whereas of HBL is 141%, 173%, 190%,
215%, 229%, 257% respectively and that of SCBNL is 129%, 149%, 142%,
161%, 182%, 168% respectively. The total assets of NABIL show the
increasing trend in the year 2001/020, 2002/03 and 2006/07 and decreasing
trend in the remaining years. The total assets of HBL marked an increasing
trend throughout the period understudy. The total assets of SCBNL marked an
increasing trend throughout the period understudy except in 2003/2004 and
2006/07. This indicates that the total assets management of HBL and SCBNL is
better in comparision to the NABIL.

95
4.3.5 Trend of Receivables:

Graph no.: 5
RECEIVABLES

350 333
326
300 298
269 273
250 NABIL
Trend Index

200 223 222

221
194 179 HBL
150 161
158 160
142 SCBNL
100 100 99 97 90
74
50
(%)

0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year

Source: Appendix-A

The above graph highlights the receivable trends of three JVBs from
2000/2001 to 2006/07. The growth of receivable in comparision to the base
year (i.e. 100%) for 7 successive years of NABIL is 161%, 160%, 74%, 99%,
97%, 90% respectively whereas of HBL is 223%, 194%, 222%, 269%, 326%,
333% respectively and that of SCBNL is 158%, 142%, 221%, 179%, 298%,
273% respectively. The receivable of NABIL shows the decreasing trend
throughout the period understudy as there is constant fall in successive years
except in the year 2001/02. The receivable of HBL marked a fluctuating trend
throughout the period understudy. The receivable of the SCBNL also marked a
fluctuating trend throughout the period. This indicates that the receivable of
HBL and SCBNL is poor in comparision to the NABIL.

96
4.3.6 Trend of Owner Equity:

Graph no.: 6
OWNER EQUITY

350 342
300 293
250 236 NABIL
Trend Index

200 190 189 HBL

150 160 150 169
131 127 138 146 SCBNL
117
112 121
103 114
100 100 94
(%)

50
0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year

Source: Appendix-A

The above graph highlights the owner equity trends of three JVBs from
2000/2001 to 2006/07. The growth of owner equity in comparision to the base
year (i.e. 100%) for 7 successive years of NABIL is 112%, 121%, 131%,
150%, 169%, 189% respectively whereas of HBL is 117%, 160%, 190%,
236%, 293%, 342% respectively and that of SCBNL is 94%, 103%, 114%,
127%, 138%, 146% respectively. The owner equity of NABIL, HBL and
SCBNL all the three marked an increasing trend throughout the period
understudy but there is slow increase in NABIL and SCBNL as compared to
the high increase in the HBL.

97
4.3.7 Trend of Net Profit after Tax:

Graph no.: 7
NET PROFIT AFTER TAX

300
250
200 195 NABIL
Trend Index

171 186
168 156 159
149 150 HBL
150 142
133 141
123
121
109 120 128
100 100
100 109 102 SCBNL
50
(%)

0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year

Source: Appendix-A

The above graph highlights the net profit after tax trends of three JVBs
from 2000/2001 to 2006/07. The growth of net profit after tax in comparision to
the base year (i.e. 100%) for 7 successive years of NABIL is 123%, 109%,
102%, 156%, 171%, 195% respectively whereas of HBL is 121%, 168%,
142%, 128%, 159%, 186% respectively and that of SCBNL is 109%, 120%,
133%, 141%, 149%, 150% respectively. The net profit after tax of NABIL
shows the increasing trend in the year 2001/02, 2004/05, 2005/06 and 2006/07
and decreasing trend in the remaining years. The net profit after tax of HBL
marked an increasing trend throughout the period understudy except in the year
2003/04 and 2004/05. The net profit after tax of SCBNL marked an increasing
trend throughout the period understudy as there is gradual increase in the
successive years. This indicates that the net profit after tax of SCBNL is the
best among the rest and is able to give higher return to the shareholders,
creditors and is satisfying them.

4.4 Correlation Analysis and Probable Error

In simple term, the word correlation may be defined as a statistical tool

which helps to determine whether or not two or more variables are correlated
and if they are correlated, what is the degree and direction of correlation.

"When the relationship is of a quantitative nature, the appropriate statistical

tool for discovering and measuring the relationship and expressing it in a brief

98
formula, is known as correlation." 39

Thus, correlation analysis gives the extent to which two variables

correlate and the direction of movement. As mentioned earlier, the value of
correlation lies between 0 to ±1. The more is the value of correlation coefficient
the more it approaches to 1. The relationship may be positive or negative. In
case of positive correlation, the variable changes to the same direction and
vice-versa.

Probable error is a statistical technique by which significance of Karl

Pearson coefficient of correlation can be tested. If the value of correlation(r)
is less than 'P.E.', it means correlation is not significant at all. If 'r' is
greater than six times of 'P.E.', it means 'r' is significant.

Here the researcher has aimed to measure the degree of correlation

and probable error between some important variables and for this Karl
Pearson's correlation coefficient method has been used.

4.4.1 Karl Pearson's correlation coefficient and probable error of Cash

and Bank Balance and Current Assets of the three JVBs are
tabulated below-

Table no.: 16

Correlation
Banks P.E. 6×P.E. Correlation
(r)
NABIL 0.0939 0.2527 1.5161 r < 6 P.E. ; not significant
HBL 0.8295 0.0795 0.4771 r > 6 P.E. ; significant
SCBNL 0.7458 0.1131 0.6788 r > 6 P.E. ; significant

The above table highlights the seven years Karl Pearson's correlation
coefficient (r) and probable error (P.E.) in between cash and bank balance and
current assets of NABIL, HBL and SCBNL which are 0.0939 and 0.2527,
0.8295 and 0.0795, 0.7458 and 0.1131 respectively. We can conclude that the
highest degree of correlation in between cash and bank balance and current
assets is 0.8295 of HBL and the lowest is 0.0939 of NABIL among the three
JVBs. In the above figure, there is moderate degree positive correlation
coefficient in between cash and bank balance and current assets of NABIL but
since it is not 6 times more than P.E., it is not considered as significant and the
change in cash and bank balance does not affect the volume of current assets to
the great extent. On the other hand, there is high degree positive correlation
39
Croxton and Cowden, as quoted by S.P. Gupta, An easy approach to Statistics, 6th edition , S. Chand and
Company Ltd., Ram Nagar, New Delhi-110055, p.155.
99
coefficient in between cash and bank balance and current assets of HBL and
SCBNL and as it is 6 times greater than P.E., it is considered as significant and
thereby changes in cash and bank balance affects volume of current assets.

4.4.2 Karl Pearson's correlation coefficient and probable error of Cash

and Bank Balance and Total Assets of the three JVBs are tabulated
below-

Table no.: 17

Correlation
Banks P.E. 6×P.E. Correlation
(r)
NABIL 0.3654 0.2209 1.3254 r < 6 P.E. ; not significant
HBL 0.9407 0.0293 0.1760 r > 6 P.E. ; significant
SCBNL 0.7508 0.1112 0.6674 r > 6 P.E. ; significant

The above table highlights the seven years Karl Pearson's correlation
coefficient (r) and probable error (P.E.) in between cash and bank balance and
total assets of NABIL, HBL and SCBNL which are 0.3654 and 0..2209, 0.9407
and 0.0293, 0.7508 and 0.1112 respectively. We can conclude that the highest
degree of correlation in between cash and bank balance and total assets is
0.9407 of HBL and the lowest is 0.3654 of NABIL among the three JVBs. In
the above figure, there is moderate degree positive correlation coefficient in
between cash and bank balance and total assets of NABIL but since it is not 6
times more than P.E., it is not considered as significant and the change in cash
and bank balance does not affect the volume of total assets to the great extent.
On the other hand, there is high degree positive correlation coefficient in
between cash and bank balance and total assets of HBL and SCBNL and as it is
6 times greater than P.E., it is considered as significant and thereby changes in
cash and bank balance affects volume of total assets.

4.4.3 Karl Pearson's correlation coefficient and probable error of Current

Assets and Total Assets of the three JVBs are tabulated below-

Table no.: 18

Correlation
Banks P.E. 6×P.E. Correlation
(r)
NABIL 0.4783 0.1966 1.1796 r < 6 P.E.; not significant
HBL 0.8844 0.0555 0.3332 r > 6 P.E. ; significant
SCBNL 0.9996 0.0002 0.0012 r > 6 P.E. ; significant

100
 The table highlights the seven years Karl Pearson's correlation coefficient
(r) and probable error (P.E.) in between current assets and total assets of
NABIL, HBL and SCBNL which are 0.4783 and 0.1966, 0.8844 and 0.0555,
0.9996 and 0.0002 respectively. We can conclude that the highest degree of
correlation in between current assets and total assets is 0.9996 of SCBNL and
the lowest is 0.4783 of NABIL among the three JVBs. In the above figure,
there is moderate degree positive correlation coefficient in between current
assets and total assets of NABIL but since it is not 6 times more than P.E., it is
not considered as significant and the change in current assets does not affect the
volume of total assets to the great extent. On the other hand, there is high
degree positive correlation coefficient in between current assets and total assets
of HBL and SCBNL and as it is 6 times greater than P.E., it is considered as
significant and thereby changes in current assets affects volume of total assets.

4.4.4 Karl Pearson's correlation coefficient and probable error of Current

Assets and Current Liabilities of the three JVBs are tabulated
below-

Table no.: 19

Correlation
Banks P.E. 6×P.E. Correlation
(r)
NABIL 0.3547 0.2229 1.3374 r < 6 P.E. ; not significant
HBL 0.9041 0.0465 0.2793 r > 6 P.E. ; significant
SCBNL 0.9996 0.0002 0.0012 r > 6 P.E. ; significant

The above table highlights the seven years Karl Pearson's correlation
coefficient (r) and probable error (P.E.) in between current assets and current
liabilities of NABIL, HBL and SCBNL which are 0.3547 and 0.2229, 0.9041
and 0.0465, 0.9996 and 0.0002 respectively. We can conclude that the highest
degree of correlation in between current assets and current liabilities is 0.9996
of SCBNL and the lowest is 0.3547 of NABIL among the three JVBs .In the
above figure, the correlation coefficient in between current assets and current
liabilities of NABIL is positive but since it is not 6 times more than P.E., so it is
not considered as significant and the change in between current assets does not
affect the volume of current liabilities to the great extent. On the other hand, the
correlation coefficient in between cash and bank balance and current assets of
HBL and SCBNL is positive as well as 6 times greater than P.E., so it is
considered as significant and thereby changes in current assets affects volume
of current liabilities.

101
4.4.5 Karl Pearson's correlation coefficient and probable error of Return
and Current Assets of the three JVBs are tabulated below-

Table no.: 20

Correlation
Banks P.E. 6×P.E. Correlation
(r)
NABIL 0.7381 0.1160 0.6963 r > 6 P.E. ; significant
HBL 0.8803 0.0574 0.3443 r > 6 P.E.; significant
SCBNL 0.9322 0.0334 0.2004 r > 6 P.E. ; significant

The above table highlights the seven years Karl Pearson's correlation
coefficient (r) and probable error (P.E.) in between return and current assets of
NABIL, HBL and SCBNL which are 0.7381 and 0.1160, 0.8803 and 0.0574,
0.9322 and 0.0334 respectively. We can conclude that the highest degree of
correlation in between return and current assets is 0.9322 of SCBNL and the
lowest is 0.7381 of NABIL among the three JVBs. In the above figure, there is
high degree of positive correlation coefficient in between return and current
assets of NABIL, HBL and SCBNL. Since the correlation coefficient in
between return and current assets of NABIL, HBL and SCBNL is 6 times
greater than P.E., so it is considered as significant and thereby changes in return
affects the volume of current assets.

4.5 Testing of Hypothesis with the help of ANOVA Table (F-

Test)
4.5.1 Testing of Hypothesis on the basis of Current Assets:

The following null hypothesis has been tested by the help of applying the
f-test on the basis of Current Assets of three JVBs.

Null Hypothesis (H0): µ1=µ2 =µ3 i.e. there is no significant difference

in average current assets of the
three JVBs.

Alternative Hypothesis (H1): µ1≠µ2≠µ3 i.e. there is a significant difference in

average current assets of the
three JVBs.

102
Computation of test statistic:

Table no.: 21

Current Assets of NABIL, HBL and SCBNL

Banks NABIL HBL SCBNL
Year (X1) (X2) (X3)
2000/2001 11961.95 10988.05 12862.22
2001/2002 14788.91 15605.42 16650.32
2002/2003 13161.68 17359.84 19224.18
2003/2004 13312.39 14165.33 18330.82
2004/2005 13868.31 16881.45 20797.6
2005/2006 14243.92 18657.35 23225.83
2006/2007 14969.38 21326.26 21447.16
Total 96306.54 114983.70 132538.13
Source: Computed from previous tables (Table no. 1 to 15)

Sum of Squares of Current Assets:

∑ X12 =1331551272
∑ X22 =1954176424
∑ X32 =2580217935

T= ∑ X1+∑ X2+∑ X3
= 96306.54 + 114983.70 + 132538.13
= 343828.37

Correction Factor (C.F.) = T2 / N

= (343828.37)2 / 21
= 5629426096

Sum of Squares Between Sample Banks (SSB)

= (∑ X1)2 / n1+ (∑ X2)2 / n2 + (∑ X3)2 / n3 - T2 / N
= (96306.54)2 / 7 + (114983.70) 2 / 7 + (132538.13) 2 / 7 - 5629426096
= 5723222402.30 - 5629426096
= 93796306.3

Total Sum of Squares Between Banks (TSS)

=∑ X12+ ∑ X22 + ∑ X32 - T2 / N
=1331551272 + 1954176424 + 2580217935 - 5629426096
=5865945631 - 5629426096
=236519535
103
Sum of Squares Within Sample Banks (SSW)
=TSS - SSB
=236519535 - 93796306.3
=142723228.7

Source of Sum of Degree of Mean Sum

F-ratio
Variation Squares Freedom of Square
Between Banks 93796306.3 3-1=2 46898153.15 46898153.15
7929068.26

Within Banks 142723228.7 20 - 2 = 18 7929068.26 = 5.91

Total 236519535 21 - 1 = 20

From above:

Computed value of F = 5.91

Tabulated value of F0.05 for V1 = 2 and V2 = 18 is 3.55.

Decision:

Since computed value of F is greater than its tabulated value, H0 is

rejected i.e. there is a significant difference in average current assets of the
three JVBs. The difference can be seen as there is a significant difference in the
total of current assets of the three JVBs.

4.5.2 Testing of Hypothesis on the basis of Current Liabilities:

The following null hypothesis has been tested by the help of applying the
f-test on the basis of Current Liabilities of three JVBs.

Null Hypothesis (H0): µ1=µ2 =µ3 i.e. there is no significant difference in

average current liabilities of the
three JVBs.

Alternative Hypothesis (H1): µ1≠µ2≠µ3 i.e. there is a significant difference in

average current liabilities of the
three JVBs.

104
Computation of test statistic:

Table no. 22

Current Liabilities of NABIL, HBL and SCBNL

Banks NABIL HBL SCBNL
Year (X1) (X2) (X3)
2000/2001 11249.94 10698.75 11903.72
2001/2002 13977.29 15311.04 15781.19
2002/2003 17226.21 18742.46 18196.01
2003/2004 16384.73 19433.25 17150.05
2004/2005 15135.42 21899.93 19559.38
2005/2006 15112.45 22325.47 22090.48
2006/2007 15385.33 25837.29 20235.75
Total 104471.37 134248.19 124916.58
Source: Computed from previous tables (Table no. 1 to 15)

Sum of Squares of Current Liabilities:

∑ X12 = 1581302936.67
∑ X22 = 2723421309.13
∑ X32 = 2296007733.25

T= ∑ X1+∑ X2+∑ X3
= 104471.37+ 134248.19 + 124916.58
= 363636.14

Correction Factor (C.F.) = T2 / N

= (363636.14)2 / 21
= 6296725824.47

Sum of Squares Between Sample Banks (SSB)

= (∑ X1)2 / n1+ (∑ X2)2 / n2 + (∑ X3)2 / n3 - T2 / N
= (104471.37)2 / 7 + (134248.19) 2 / 7 + (124916.58) 2 / 7 - 6296725824.47
= 6362999375.22 - 6296725824.47
= 66273550.75

Total Sum of Squares Between Banks (TSS)

= ∑ X12+ ∑ X22 + ∑ X32 - T2 / N
= 1581302936.67+ 2723421309.13 + 2296007733.25 - 6296725824.47
= 6600731979.06 - 6296725824.47
= 304006154.59
105
Sum of Squares Within Sample Banks (SSW)
= TSS - SSB
= 304006154.59 - 66273550.75
= 237732603.84

Source of Sum of Degree of Mean Sum F-ratio

Variation Squares Freedom of Square
Between Banks 66273550.75 3-1=2 33136775.38 33136775.38
13207366.88

Within Banks 237732603.84 20 - 2 = 18 13207366.88 = 2.51

Total 304006154.59 21 - 1 = 20

From above:

Computed value of F = 2.51

Tabulated value of F0.05 for V1 = 2 and V2 = 18 is 3.55.

Decision:
Since computed value of F is less than its tabulated value, H0 is accepted
i.e. there is no significant difference in current liabilities of the three JVBs.

4.5.3 Testing of Hypothesis on the basis of Cash and Bank Balance:

The following null hypothesis has been tested by the help of applying the
f-test on the basis of Current Assets of three JVBs.

Null Hypothesis (H0): µ1=µ2 =µ3 i.e. there is no significant difference in

average cash and bank balance of
the three JVBs.

Alternative Hypothesis (H1): µ1≠µ2≠µ3 i.e. there is a significant difference in

average cash and bank balance of
the three JVBs.

106
Computation of test statistic:

Table no.: 23

Cash and Bank Balance of NABIL, HBL and SCBNL

Banks NABIL HBL SCBNL
Year (X1) (X2) (X3)
2000/2001 630.94 802.21 826.15
2001/2002 910.07 901.91 1020.46
2002/2003 812.91 1435.17 961.05
2003/2004 1051.82 1264.67 825.23
2004/2005 1144.77 1979.21 1512.3
2005/2006 970.49 2001.18 2023.16
2006/2007 559.38 2014.47 1111.12
Total 6080.38 10398.82 8279.47
Source: Computed from previous tables (Table no. 1 to 15)

Sum of Squares of Cash and Bank Balance:

∑ X12 = 5558715.85
∑ X22 = 17096168.67
∑ X32 = 10943299.42

T= ∑ X1+∑ X2+∑ X3
= 6080.38 + 10398.82 + 8279.47
= 24758.67

Correction Factor (C.F.) = T 2 / N

= (24758.67)2 / 21
= 612991740.17 / 21
= 29190082.86

Sum of Squares Between Sample Banks (SSB)

= (∑ X1)2 / n1+ (∑ X2)2 / n2 + (∑ X3)2 / n3 - T2 / N
= (6080.38)2 / 7 + (10398.82) 2 / 7 + ( 8279.47 ) 2 / 7 - 29190082.86
= 30522300.26 - 29190082.86
= 1332217.40

Total Sum of Squares Between Banks (TSS)

= ∑ X12+ ∑ X22 + ∑ X32 - T2 / N
= 5558715.85+ 17096168.67 + 10943299.42 - 29190082.86
= 4408101.08

Sum of Squares Within Sample Banks (SSW)

107
= TSS - SSB
= 4408101.08 - 1332217.40
= 3075883.68

Source of Sum of Degree of Mean Sum F-ratio

Variation Squares Freedom of Square
Between Banks 1332217.40 3-1=2 666108.70 666108.70
170882.43

Within Banks 3075883.68 20 - 2 = 18 170882.43 = 3.90

Total 4408101.08 21 - 1 = 20

From above:

Computed value of F = 3.90

Tabulated value of F0.05 for V1 = 2 and V2 = 18 is 3.55.

Decision:
Since computed value of F is greater than its tabulated value, H0 is
rejected i.e. there is a significant difference in cash and bank balance of the
three JVBs.

4.5.4 Testing of Hypothesis on the basis of Net Profit:

The following null hypothesis has been tested by the help of applying the
f-test on the basis of Current Assets of three JVBs.

Null Hypothesis (H0): µ1=µ2 =µ3 i.e. there is no significant difference in

average net profit of the three
JVBs.

Alternative Hypothesis (H1): µ1≠µ2≠µ3 i.e. there is a significant difference in

average net profit of the three
JVBs.

108
Computation of test statistic:

Table no.: 24

Net Profit of NABIL, HBL and SCBNL

Banks NABIL HBL SCBNL
Year (X1) (X2) (X3)
2000/2001 266.48 165.25 359.46
2001/2002 329.12 199.25 392.69
2002/2003 291.38 277.04 430.86
2003/2004 271.64 235.02 479.21
2004/2005 416.24 212.13 506.93
2005/2006 455.31 263.05 537.80
2006/2007 518.64 308.28 539.20
Total 2548.81 1660.15 3246.15
Source: Computed from previous tables (Table no. 1 to 15)

Sum of Squares of Net Profit:

∑ X12 = 987572.54
∑ X22 = 408224.68
∑ X32 = 1535643.00

T= ∑ X1+∑ X2+∑ X3
= 2548.81 + 1660.15 + 3246.15
= 7455.11

Correction Factor (C.F.) = T2 / N

= ( 7455.11)2 / 21
= 55578665.11 / 21
= 2646603.10

Sum of Squares Between Sample Banks (SSB)

= (∑ X1)2 / n1+ (∑ X2)2 / n2 + (∑ X3)2 / n3 - T2 / N
= (2548.81)2 / 7 + (1660.15) 2 / 7 + (3246.15) 2 / 7 - 2646603.10
= 2827145.75 - 2646603.10
= 180542.65

Total Sum of Squares Between Banks (TSS)

= ∑ X12+ ∑ X22 + ∑ X32 - T2 / N
= 987572.54 + 408224.68 + 1535643.00 - 2646603.10
= 284837.12

109
 Sum of Squares Within Sample Banks (SSW)
= TSS - SSB
= 284837.12 - 180542.65
= 104294.47

Source of Sum of Degree of Mean Sum F-ratio

Variation Squares Freedom of Square
Between Banks 180542.65 3-1=2 90271.32 90271.32
5794.14

Within Banks 104294.47 20 - 2 = 18 5794.14 = 15.58

Total 284837.12 21 - 1 = 20

From above:

Computed value of F = 15.58

Tabulated value of F0.05 for V1 = 2 and V2 = 18 is 3.55.

Decision:
Since computed value of F is greater than its tabulated value, H0 is
rejected i.e. there is a significant difference in net profit of the three JVBs.

4.5.5 Testing of Hypothesis on the basis of Receivables:

The following null hypothesis has been tested by the help of applying the
f-test on the basis of Current Assets of three JVBs.

Null Hypothesis (H0): µ1=µ2 =µ3 i.e. there is no significant difference

in average receivables of the three
JVBs.

Alternative Hypothesis (H1): µ1≠µ2≠µ3 i.e. there is a significant difference in

average receivables of the three
JVBs.

110
Computation of test statistic:

Table no. 25

Receivables of NABIL, HBL and SCBNL

Banks NABIL HBL SCBNL
Year (X1) (X2) (X3)
2000/2001 231.65 173.26 97.69
2001/2002 373.01 386.56 154.70
2002/2003 372.35 335.75 139.03
2003/2004 171.09 385.38 215.98
2004/2005 230.07 466.53 174.48
2005/2006 225.44 564.36 290.73
2006/2007 208.67 578.37 266.63
Total 1812.28 2890.21 1339.24
Source: Computed from previous tables (Table no. 1 to 15)

Sum of Squares of Receivables:

∑ X12 = 508013.06
∑ X22 =1311357.78
∑ X32 = 285510.89

T= ∑ X1+∑ X2+∑ X3
= 1812.28+ 2890.21 + 1339.24
= 6041.73

Correction Factor (C.F.) =T2 / N

=(6041.73)2 / 21
=1738214.35

Sum of Squares Between Sample Banks (SSB)

= (∑ X1)2 / n1+ (∑ X2)2 / n2 + (∑ X3)2 / n3 - T2 / N
= (1812.28)2 / 7 + (2890.21 ) 2 / 7 + (1339.24) 2 / 7 - 1738214.35
= 1918748.06 - 1738214.35
= 180533.71

Total Sum of Squares Between Banks (TSS)

=∑ X12+ ∑ X22 + ∑ X32 - T2 / N
= 508013.06 + 1311357.78 +285510.89 - 1738214.35
= 2104881.73 - 1738214.35
= 366667.38

111
Sum of Squares Within Sample Banks (SSW)
= TSS - SSB
= 366667.38 - 180533.71
= 186133.67

Source of Sum of Degree of Mean Sum F-ratio

Variation Squares Freedom of Square
Between Banks 180533.71 3-1=2 90266.85 90266.85
10340.76

Within Banks 186133.67 20 - 2 = 18 10340.76 = 8.73

Total 366667.38 21 - 1 = 20

From above:

Computed value of F = 8.73

Tabulated value of F0.05 for V1 = 2 and V2 = 18 is 3.55.

Decision:

Since computed value of F is greater than its tabulated value, H0 is

rejected i.e. there is a significant difference in receivables of the three JVBs.

4.5.6 Testing of Hypothesis on the basis of Net Working Capital:

The following null hypothesis has been tested by the help of applying the
f-test on the basis of Current Assets of three JVBs.

Null Hypothesis (H0): µ1=µ2 =µ3 i.e. there is no significant difference in

average net working capital of the
three JVBs.

Alternative Hypothesis (H1): µ1≠µ2≠µ3 i.e. there is a significant difference in

average net working capital of
the three JVBs.

112
Computation of test statistic:

Table no.: 26

Net Working Capital of NABIL, HBL and SCBNL

Banks NABIL HBL SCBNL
Year (X1) (X2) (X3)
2000/2001 712.01 289.30 925.67
2001/2002 811.62 294.38 832.92
2002/2003 (4,064.53) (1,382.62) 979.00
2003/2004 (3,072.34) (5,267.92) 1123.20
2004/2005 (1,267.11) (5,018.48) 1166.00
2005/2006 (868.53) (3,668.12) 1079.51
2006/2007 (415.95) (4,511.03) 1136.00
Total (8,164.83) (19,264.49) 7,242.30
Source: Computed from previous tables (Table no. 1 to 15)

Sum of Squares of Net Working Capital:

∑ X12 = 29658288.98
∑ X22 = 88822610.77
∑ X32 = 7586033.76

T= ∑ X1+∑ X2+∑ X3
= (-8,164.83) + (-19,264.49) + 7,242.30
= -13887.02

Correction Factor (C.F.) = T2 / N

= (-13887.02)2 / 21
= 9183301.17

Sum of Squares Between Sample Banks (SSB)

= (∑ X1)2 / n1+ (∑ X2)2 / n2 + (∑ X3)2 / n3 - T2 / N
= (-8,164.83)2 / 7 + (-19,264.49) 2 / 7 + (7,242.30) 2 / 7 - 9183301.17
= 70033704.74 - 9183301.17
= 60850403.57

Total Sum of Squares Between Banks (TSS)

= ∑ X12+ ∑ X22 + ∑ X32 - T2 / N
= 29658288.98 + 88822610.77 + 7586033.76 - 9183301.17
= 126066933.50 - 9183301.17
= 125148603.33
113
Sum of Squares Within Sample Banks (SSW)
= TSS - SSB
= 125148603.33 - 60850403.57
= 64298199.76

Source of Sum of Degree of Mean Sum F-ratio

Variation Squares Freedom of Square
Between Banks 60850403.57 3-1=2 30425201.78 30425201.78
3572122.21

Within Banks 64298199.76 20 - 2 = 18 3572122.21 = 8.52

Total 21 - 1 = 20

From above:

Computed value of F = 8.52

Tabulated value of F0.05 for V1 = 2 and V2 = 18 is 3.55.

Decision:

Since computed value of F is greater than its tabulated value, H0 is

rejected i.e. there is a significant difference in net working capital of the three
JVBs.

114
 CHAPTER-FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary

Banks are very important segment of financial infrastructure of any

country. The economic history of many countries reveals that economic
development and growth of financial infrastructures go hand in hand. Banks
tailor made deposit facilities rightly meet our needs in today's fast-paced
business world, ensures attractive returns to our surplus fund making our
personal banking convenient and efficient thus diversifying our portfolio to best
suit our investment plan. Thus, led by its vision to become a significant
contributor to the economic development of the nation, banks have devised
various deposits, loans and other facilities that suit the banking requirements of
its valuable customers, assisting them to cope with their personal and business
requirement, an endeavour to grow stronger mutually.

After the restoration of multiparty democracy in Nepal, government took

this step permitting opening up the commercial banking sector for foreign
participations in 1984. Thus, many JVBs established thereafter. Joint Venture
Bank is an effect of strategic alliances-an arrangement in which two
corporations combine forces to form a cooperative partnership in order to share
risk of development, to offset one's weaknesses with strengths of other and
alike others. Thus, these selected three JVBs named as Nabil Bank Limited,
Himalayan Bank Limited and Standard Chartered Bank Nepal Limited is such a
product of strategic alliances. They have been serving the nation since a long
time. They all are well equipped with designed products, schemes, policy,
strategy and are able to retain the customers that have made them as one of the
leading and competitive banks of the country.

In Nepal, the competitiveness among the commercial banks has grown

considerably as the number has reached 17 in due course of time with the
market remaining the same for all to cater. Thus, the banks have to develop
various strategies to gain competitive edge over the rest of the banks. Among
various strategies, the bank has to develop; one of the most important strategies
to develop is efficient and effective working capital management. As working
capital management is regarded as the life-blood and nerve knot of a business
firm, the present study aims to analyze the working capital management of the
three JVBs operating in Nepal with the help of secondary data for the period
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2000/2001 to 2006/07.

The present study is organized into five chapters which include

introduction, review of literature, research methodology, presentation and
analysis of data and last summary, conclusion and recommendation.

The first chapter is the introductory and deals with the background, focus
of the study, statement of the problems, research questions, hypothesis of the
study, objectives of the study, need and significance of the study, limitation of
the study and organization of the study.

The second chapter is devoted to theoretical analysis and brief review of

related literature. It explains theoretical framework and review of major studies
conducted earlier by the various scholars. The present study has been
accomplished with the assistance of a framework provided by the theoretical
and review of related literature conducted in this part.

The third chapter discusses briefly the research methodology, which has
been used to evaluate the working capital management of the banks under
consideration. It discusses the research design, population and sample, sources
of data, data collection and data analysis tools used.

The fourth chapter is the main part of the study which deals with the
empirical analysis of the study. It deals in presentation and major findings of
the study of working capital management.

The fifth and final chapter is devoted to summary of the four earlier
chapters. This chapter tries to fetch out a conclusions of the study and attempts
to offer various suggestions and recommendations for the improvement of the
future performance of the three JVBs under review.

In order to carryout this study, data have been mainly obtained from
secondary sources such as annual reports and financial statement, official
records, periodicals, journals and bulletins of selected companies, various
published reports, etc. Besides, personal contacts with the respondents of
selected companies have also been made. This is the last chapter in which
summary, conclusion and recommendations are included.

5.2 Conclusion
This study is based on the different aspect of working capital
management. The major findings or conclusions derived from study of analysis
of ratios, trend analysis, correlation analysis and probable error, and the
hypothesis testing are summarized below-
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5.2.1 Analysis of Ratios
The major findings or conclusions derived from the study of analysis of
ratios are summarized below-

After the study of cash and bank balance to current assets ratio of the
three JVBs , it has been found that both the banks NABIL and SCBNL have
been able to maintain quite similar and HBL slightly higher mean cash and
bank balance to current assets ratio. Again on the basis of C.V. of the ratio
during the study period, there is higher fluctuation in the ratio of NABIL and
SCBNL than the HBL.

After the study of cash and bank balance to total assets ratio of the three
JVBs, it has been found that both the banks NABIL and SCBNL have been
able to maintain quite similar and HBL slightly higher mean cash and bank
balance to total assets ratio. Again on the basis of C.V. of the ratio during the
study period, there is higher fluctuation in the ratio of NABIL and SCBNL than
the HBL.

After the study of current assets to total assets ratio of the three JVBs, it
has been found that SCBNL have been able to maintain higher mean current
assets to total assets ratio in comparison to the three JVBs. Again on the basis
of C.V. of the ratio during the study period, there is higher fluctuation in the
ratio of NABIL and HBL than the SCBNL.

After the study of current assets to fixed assets ratio of the three JVBs, it
has been found that SCBNL have been able to maintain higher mean current
assets to fixed assets ratio in comparison to the three JVBs. Again on the basis
of C.V. of the ratio during the study period, there is higher fluctuation in the
ratio of HBL and SCBNL than the NABIL.

After the study of net working capital to current assets ratio of the three
JVBs, it has been found that SCBNL have been able to maintain positive and
NABIL and HBL have been maintaining negative mean net working capital to
current assets ratio. Again on the basis of C.V. of the ratio during the study
period, there is higher fluctuation in the ratio of NABIL and HBL than the
SCBNL.

After the study of current assets to current liabilities ratio of the three
JVBs, it has been found that SCBNL have been able to maintain higher mean
current assets to current liabilities ratio in comparison to the three JVBs. Again
on the basis of C.V. of the ratio during the study period, there is higher

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fluctuation in the ratio of NABIL and HBL than the SCBNL.

After the study of net profit after tax to current assets ratio of the three
JVBs, it has been found that NABIL have been able to maintain higher mean
net profit after tax to current assets ratio in comparison to the three JVBs.
Again on the basis of C.V. of the ratio during the study period, there is higher
fluctuation in the ratio of NABIL and HBL than the SCBNL.

After the study of net profit after tax to total assets ratio of the three
JVBs, it has been found that SCBNL have been able to maintain higher mean
net profit after tax to total assets ratio in comparison to the three JVBs. Again
on the basis of C.V. of the ratio during the study period, there is higher
fluctuation in the ratio of NABIL and HBL than the SCBNL.

After the study of receivables on total assets ratio of the three JVBs, it
has been found that HBL have been able to maintain higher mean receivables
on total assets ratio in comparison to the three JVBs. Again on the basis of C.V.
of the ratio during the study period, there is higher fluctuation in the ratio of
NABIL and SCBNL than the HBL.

After the study of receivables on current assets ratio of the three JVBs, it
has been found that HBL have been able to maintain higher mean receivables
on current assets ratio in comparison to the three JVBs. Again on the basis of
C.V. of the ratio during the study period, there is higher fluctuation in the ratio
of NABIL and SCBNL than the HBL.

After the study of quick assets to current liabilities ratio of the three
JVBs, it has been found that SCBNL have been able to maintain higher mean
quick assets to current liabilities ratio in comparison to the three JVBs. Again
on the basis of C.V. of the ratio during the study period, there is higher
fluctuation in the ratio of NABIL and HBL than the SCBNL.

After the study of cash and bank balance to current liabilities ratio of the
three JVBs, it has been found that HBL have been able to maintain higher mean
cash and bank balance to current liabilities ratio in comparison to the three
JVBs. Again on the basis of C.V. of the ratio during the study period, there is
higher fluctuation in the ratio of NABIL and SCBNL than the HBL.

After the study of debt to equity ratio of the three JVBs, it has been
found that HBL have been able to maintain higher mean debt to equity ratio in
comparison to the three JVBs. Again on the basis of C.V. of the ratio during the
study period, there is higher fluctuation in the ratio of NABIL and HBL than
the SCBNL.

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 After the study of net worth to total assets ratio of the three JVBs, it has
been found that NABIL have been able to maintain higher mean net worth to
total assets ratio in comparison to the three JVBs. Again on the basis of C.V. of
the ratio during the study period, there is higher fluctuation in the ratio of
NABIL and HBL than the SCBNL.

After the study of return on owner's equity ratio of the three JVBs, it has
been found that SCBNL have been able to maintain higher mean return on
owner's equity ratio in comparison to the three JVBs. Again on the basis of
C.V. of the ratio during the study period, there is higher fluctuation in the ratio
of NABIL and HBL than the SCBNL.

5.2.2 Trend Analysis

The major findings or conclusions derived from the study of trend

analysis are summarized below-

After the study of current assets trends of three JVBs from 2000/2001 to
2006/07, it has been revealed that the current assets of NABIL shows the
fluctuating trend throughout the period understudy as there is rise and fall in
successive years. The current assets of HBL marked an increasing trend
throughout the period understudy except in 2003/04. The current assets of the
SCBNL also marked an increasing trend throughout the period understudy
except in 2003/2004 and 2006/07. This indicates that the current assets
management of HBL and SCBNL is better in comparison to the NABIL.

After the study of current liabilities trends of three JVBs from 2000/2001
to 2006/07, the current liabilities of NABIL shows the fluctuating trend
throughout the period understudy as there is rise and fall in successive years.
The current liabilities marked an increasing trend throughout the period
understudy. The current assets of the SCBNL marked an increasing trend
throughout the period understudy except in 2003/2004 and 2006/07. This
indicates that the current liabilities of HBL and SCBNL are greater in
comparison to the NABIL.

After the study of cash and bank balance trends of three JVBs from
2000/2001 to 2006/07, the cash and bank balance of NABIL indicates highly
fluctuating trend throughout the period understudy. The cash and bank balance
of HBL marked an increasing trend throughout the period understudy except in
2003/04 and 2006/07. The cash and bank balance of the SCBNL marked a
fluctuating trend throughout the period understudy. This indicates that the cash
and bank balance of NABIL and SCBNL is lower in comparison to the HBL
which may be termed as both good and worst as greater cash and bank balances
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is good for the banks because it will increase there working capital and they can
perform their operations smoothly whereas it is worst because greater cash
balance may indicate idle cash which incurs cost.

After the study of total assets trends of three JVBs from 2000/2001 to
2006/07, the total assets of NABIL show the increasing trend in the year
2000/01, 2002/03 and 2006/07 and decreasing trend in the remaining years.
The total assets of HBL marked an increasing trend throughout the period
understudy. The total assets of SCBNL marked an increasing trend throughout
the period understudy except in 2003/2004 and 2006/07. This indicates that the
total assets management of HBL and SCBNL is better in comparision to the
NABIL.

After the study of receivable trends of three JVBs from 2000/2001 to

2006/07, the receivable of NABIL shows the decreasing trend throughout the
period understudy as there is constant fall in successive years except in the year
2001/2002. The receivable of HBL marked a fluctuating trend throughout the
period understudy. The receivable of the SCBNL also marked a fluctuating
trend throughout the period. This indicates that the receivable of HBL and
SCBNL is poor in comparision to the NABIL.

After the study of the owner equity trends of three JVBs from 2000/2001
to 2006/07, the owner equity of NABIL, HBL and SCBNL all the three marked
an increasing trend throughout the period understudy but there is slow increase
in NABIL and SCBNL as compared to the high increase in the HBL.

After the study of the net profit after tax trends of three JVBs from
2000/2001 to 2006/07, the net profit after tax of NABIL shows the increasing
trend in the year 2001/02, 2004/05, 2005/06 and 2006/07 and decreasing trend
in the remaining years. The net profit after tax of HBL marked an increasing
trend throughout the period understudy except in the year 2003/04 and 2004/05.
The net profit after tax of SCBNL marked an increasing trend throughout the
period understudy as there is gradual increase in the successive years. This
indicates that the net profit after tax of SCBNL is the best among the rest and
is able to give higher return to the shareholders, creditors and is satisfying
them.

5.2.3 Correlation Analysis and Probable Error

The major findings or conclusions derived from the study of correlation
analysis and probable error are summarized below-

After the study of correlation coefficient and probable error between

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cash and bank balance and current assets of NABIL, HBL and SCBNL, the
highest degree of correlation in between cash and bank balance and current
assets is 0.8295 of HBL and the lowest is 0.0939 of NABIL among the three
JVBs. There is moderate degree positive correlation coefficient in between cash
and bank balance and current assets of NABIL but since it is not 6 times more
than P.E., it is not considered as significant and the change in cash and bank
balance does not affect the volume of current assets to the great extent. On the
other hand, there is high degree positive correlation coefficient in between cash
and bank balance and current assets of HBL and SCBNL and as it is 6 times
greater than P.E., it is considered as significant and thereby changes in cash and
bank balance affects volume of current assets.

After the study of correlation coefficient and probable error between

cash and bank balance and total assets of NABIL, HBL and SCBNL, the
highest degree of correlation in between cash and bank balance and total assets
is 0.9407 of HBL and the lowest is 0.3654 of NABIL among the three JVBs.
There is moderate degree positive correlation coefficient in between cash and
bank balance and total assets of NABIL but since it is not 6 times more than
P.E., it is not considered as significant and the change in cash and bank balance
does not affect the volume of total assets to the great extent. On the other hand,
there is high degree positive correlation coefficient in between cash and bank
balance and total assets of HBL and SCBNL and as it is 6 times greater than
P.E., it is considered as significant and thereby changes in cash and bank
balance affects volume of total assets.

After the study of correlation coefficient and probable error between

current assets and total assets of NABIL, HBL and SCBNL, the highest degree
of correlation in between current assets and total assets is 0.9996 of SCBNL
and the lowest is 0.4783 of NABIL among the three JVBs. There is moderate
degree positive correlation coefficient in between current assets and total assets
of NABIL but since it is not 6 times more than P.E., it is not considered as
significant and the change in current assets does not affect the volume of total
assets to the great extent. On the other hand, there is high degree positive
correlation coefficient in between current assets and total assets of HBL and
SCBNL and as it is 6 times greater than P.E.; it is considered as significant and
thereby changes in current assets affects volume of total assets.

After the study of correlation coefficient and probable error between

current assets and current liabilities of NABIL, HBL and SCBNL, the highest
degree of correlation in between current assets and current liabilities is 0.9996
of SCBNL and the lowest is 0.3547 of NABIL among the three JVBs. The
correlation coefficient in between current assets and current liabilities of

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NABIL is positive but since it is not 6 times more than P.E., so it is not
considered as significant and the change in between current assets does not
affect the volume of current liabilities to the great extent. On the other hand, the
correlation coefficient in between cash and bank balance and current assets of
HBL and SCBNL is positive as well as 6 times greater than P.E., so it is
considered as significant and thereby changes in current assets affects volume
of current liabilities.

After the study of correlation coefficient and probable error between

return and current assets of NABIL, HBL and SCBNL, the highest degree of
correlation in between return and current assets is 0.9322 of SCBNL and the
lowest is 0.7381 of NABIL among the three JVBs. There is high degree of
positive correlation coefficient in between return and current assets of NABIL,
HBL and SCBNL. Since the correlation coefficient in between return and
current assets of NABIL, HBL and SCBNL is 6 times greater than P.E., so it is
considered as significant and thereby changes in return affects the volume of
current assets.

5.2.4 Testing of Hypothesis with the help of ANOVA Table (F-

Test)
The major findings or conclusions derived from the study of hypothesis
testing with the help of ANOVA table (F-Test) are summarized below-

After the testing of Hypothesis on the basis of Current Assets, it was

found that the computed value of F i.e. 5.91 was greater than its tabulated value
i.e. 3.55. Therefore, null hypothesis (H0) is rejected and alternative hypothesis
(H1) is accepted i.e. there is a significant difference in current assets of the three
JVBs.

After the testing of Hypothesis on the basis of current liabilities, it was

found that the computed value of F i.e. 2.51 was less than its tabulated value
i.e. 3.55. Therefore, null hypothesis (H0) is accepted and alternative hypothesis
(H1) is rejected i.e. there is no significant difference in current liabilities of the
three JVBs.

After the testing of Hypothesis on the basis of cash and bank balance, it
was found that the computed value of F i.e. 3.90 was greater than its tabulated
value i.e. 3.55. Therefore, null hypothesis (H0) is rejected and alternative
hypothesis (H1) is accepted i.e. there is a significant difference in cash and bank
balance of the three JVBs.

After the testing of Hypothesis on the basis of net profit, it was found
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that the computed value of F i.e. 15.58 was greater than its tabulated value i.e.
3.55. Therefore, null hypothesis (H0) is rejected and alternative hypothesis (H1)
is accepted i.e. there is a significant difference in net profit of the three JVBs.

After the testing of Hypothesis on the basis of net working capital, it was
found that the computed value of F i.e. 8.52 was greater than its tabulated value
i.e. 3.55. Therefore, null hypothesis (H0) is rejected and alternative hypothesis
(H1) is accepted i.e. there is a significant difference in net working capital of
the three JVBs.

5.3 Recommendation
Many countries of the world after the end of world war have come under
economic liberalization and open market systems. In Nepal also, the elected
democratic government has endeavoured to enhance the pace of country's
economic development with its new economic policies, various reforms and
programmes like the declaration of new industry policy, foreign investment
under the one window policy, and so on. In this contest, it has been thought
irrelevant to influence business units by dictating their activities in certain lines.
Thus, any industry, business or financial unit operating because of HMG’s
liberal, benevolent policies and programmes require their responsibility and
commitment towards the society as well. The Nepalese companies cannot
overlook this necessary precondition of economic welfare. So time itself
demands some changes and alterations in the preconceived policies and
programmes no matter how well they were furnished. A few timely
recommendations for these companies have been prescribed below.

Based on the analysis and the findings of the study of the three JVBs,
following recommendations can be advanced to overcome weakness and
inefficiency and continue with the proper, systematic and smooth operation of
the bank-

1. The study is based on secondary data and includes only three JVBs and
seven years data due to time constraint. So research based on primary
data including more number of JVBs and maximum number of years
may be a good option to choose for.

2. All these three JVBs should have a regular check on current assets to
identify the adequate and inadequate amount of current assets as both
hampers the smooth operation of the banks as well as avoids risk in
management of working capital.

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3. The average net working capital of NABIL and HBL are negative so
these banks should try to increase these values.

4. The three JVBs should concentrate on the investment in receivables as it

tends to be quite high. To accomplish this objective, the bank should
concentrate on tight credit policy, providing reward to the good
customers or punishing the defaulters.

5. To generate more profit all these three JVBs should concentrate more on
safer loans and advances.

6. The fixed assets of all these three JVBs should be valued properly as per
the current market value and depreciate them accordingly.

7. The three JVBs should retain more of its profit, as they are doing during
the study, to reinvest and to increase net worth.

8. Since the average net profit of HBL is comparatively lower than the
NABIL and SCBNL, so HBL is suggested to improve its average net
profit in order to remain competent in the market. This objective can be
accomplished by increasing income sources as well as decreasing cost or
expenditures.

9. Since all these three JVBs are maintaining higher liquidity than the
directives of NRB, it is suggested that idle fund should not be
maintained as it incurs opportunity cost. They should provide short term
loan that matures within short span of time and can easily be
rediscounted instead of maintaining higher cash balances to remain
liquidity.

10. Since the average net worth of HBL is comparatively lower than the
NABIL and SCBNL, so HBL is suggested to improve its average net
worth. This objective can be accomplished by retaining earnings or
maintaining lower dividend pay out ratio.

11. It is well known that new players are entering the banking sector every
now and then with very modern technologies and innovative products
and services, creating immense competition within this sector. These
may allow them to attract more customers resulting in shifting from one
bank to another. So, all these three JVBs should keep on upgrading its
system in order to be competitive.

12. As Nepal has already become a member of the World Trade

Organization which provides tremendous opportunities to the banking
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 sector, the selected three JVBs should form different strategies and
maintain a competitive edge over others to catch such opportunities.

13. Finally, since all these three JVBs are profit-oriented, they should also
not forget their social responsibilities. Today, thinking about how to
make the banking system friendlier to the small and medium businesses
and the poor Nepalese more generally is what social responsibility
demands.

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