WORKING CAPITAL MANAGEMENT OF

SIDDHARTHA BANK LIMITED

A Project Report Proposal

By
Raksha Gautam
Symbol No.:
T.U. Regd. No.: 7-2-274-92-2019
Dillibazar Kanya Multiple Campus

Submitted To
The Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements of the degree of

Bachelor of Business Studies (B.B.S)

Kathmandu, Nepal
April , 2024
 ABBREVIATION

BBS = Bachelor in Business Studies

e.g. = Example

Etc. = et cetera

i.e. = That is

FY = Fiscal year

No. = Number

Viz. = Such as

Vs. = versus

T.U = Tribhuvan University

 CONTENTS

Page No.

1. Background of the 1

2. Introduction of SBL 3

3. Statement of the Problem 4

4. Objective of the Study 4

5. Rationale of the Study 4

6. Review of Related Study 5

7. Research Methodology 6

7.1 Nature and Source of Data 7

7.2 Population and Sample 7

7.3 Data Collection Tools and Techniques 8

7.4 Data Analysis and Interpretation 8

8. Limitation of the Study 14

9. Organization of the Study 14

BIBLOGRAPHY 15
 1

CHAPTER-I
INTRODUCTION

1. Background of the Study

Working capital, also known as net working capital (NWC), is the difference between a
company’s current assets, such as cash, accounts receivable (customers’ unpaid bills)
and inventories of raw materials and finished goods, and its current liabilities, such as
accounts payable. Working capital is a measure of a company's liquidity, operational
efficiency and its short-term financial health. If a company has substantial working
capital, then it should have the potential to invest and grow. If a company's current
assets do not exceed its current liabilities, then it may have trouble growing or paying
back creditors, or even go bankrupt (Adhikari, 2004).

Working capital in common parlance is the difference between current assets and
current liabilities. Current assets usually consist of cash, marketable securities,
receivables and inventory. A major component of current liabilities, on the other hand,
is the payables. Management of working capital refers to the practices and techniques
designed to control all the items of current assets and current liabilities. In the ordinary
sense, working capital management is the function that involves effective and efficient
use of all the components of current assets and current liabilities in order to minimize
total cost (Acharya, 2006).

Cash Management: Cash is one of the important components of current assets. It is

needed for performing all the activities of a firm, i.e. from acquisition of raw materials
to marketing of finished goods. Therefore, it is essential for a firm to maintain an
adequate cash balance. One of the important functions of a finance manager is to
match the inflows and outflows of cash so as to maintain adequate cash (Dahal, 2010).

Receivables Management: The term receivable is defined as any claim for money
owed to the firm from customers arising from sale of goods or services in normal
course of business. The term account receivable represents sundry debtors of a firm. It
is one of the significant components of working capital next to cash and inventories
(Basnet, 2010).

Inventory Management: Inventory constitutes a major part of total working capital.

Efficient management of inventory results in maximization of earnings of the
 2

shareholders. Efficient inventory management consists of managing two conflicting

objectives: Minimization of investment in inventory on the one hand; and maintenance
of the smooth flow of raw materials for production and sales on the other (Basel,
2012).

Accounts Payable Management: Payables or creditors are one of the important

components of working capital. Payables provide a spontaneous source of financing of
working capital. Payable management is very closely related with the cash
management. Effective payable management leads to steady supply of materials to a
firm as well as enhances its reputation. It is generally considered as a relatively cheap
source of finance as suppliers rarely charge any interest on the amount owed. However,
trade creditors will have a cost as a result of loss of enjoying cash discount on cash
purchases (Baral, 2014).

Working Capital Management there is two concepts of working capital viz.

quantitative and qualitative. Some people also define the two concepts as gross
concept and net concept. According to quantitative concept, the amount of working
capital refers to 'total of current assets'. What we call current assets? Smith called,
'circulating capital'. Current assets are considered to be gross working capital in this
concept. The qualitative concept gives an idea regarding source of financing capital.
According to qualitative concept the amount of working capital refers to "excess of
current assets over current liabilities." L.J. Guthmann defined working capital as "the
portion of a firm's current assets which are financed from long-term funds." The excess
of current assets over current liabilities is termed as 'Net working capital'. In this
concept "Net Working capital" represents the amount of current assets which would
remain if all current liabilities were paid. Both the concepts of working capital have
their own points of importance. "If the objectives 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. It is necessary to understand the meaning of current assets
and current liabilities for learning the meaning of working capital.

1.1.1 Introduction of Siddhartha Bank Limited.

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Siddhartha Bank Ltd

Siddhartha Bank Ltd. was incorporated in 1992 A.D. by distinguished business
personalities of Nepal in partnership with employee provident fund and Habib Bank
Limited, one of the largest commercial bank of Pakistan. Banking operation was
commenced from January 1993 A.D. It is the first joint venture bank managed by
Nepali chief executive. Besides, commercial activities, bank also offers industrial and
merchant banking facilities.

At present, the bank has five branches in Kathmandu valley namely Thamel, Newroad,
Maharajgung, Pulchowk and Suryabinayak. Besides these, it has nine branches outside
the Kathmandu valley namely Banepa, Tandi, Bharatpur, Birgunj, Hetauda,
Bhairahawa, Pokhara, Biratnagar and Dharan. The bank is also operating a counter in
the Royal Palace. The bank has a very aggressive plan of establishing more branches in
different parts of the country in near future.

Siddhartha Bank Ltd. has always been committed to providing a quality service to its
valued customers with a personal touch. All customers are treated with utmost courtesy
as valued clients. 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, Siddhartha Bank Ltd. 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 further 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.

3. Statement of Problem
The working capital management of Siddhartha Bank Limited requires careful analysis
due to its extensive branch network and varied banking services. Despite its
commitment to quality service and adoption of modern banking technology, there may
be challenges in optimizing cash flow, managing receivables effectively, and
maintaining an efficient inventory system across its branches. Additionally, with plans
for further expansion, there could be concerns about liquidity management, creditor
relations, and ensuring sufficient working capital for new branches. Therefore, a
detailed study is needed to evaluate the existing working capital practices and
recommend strategies for enhancing efficiency and sustainability.
 4

i. What are the existing practices of capital structure in Siddhartha Bank Limited?
ii. What are the performances of the Siddhartha Bank Limited?
iii. What are the impacts of capital structure on the profitability of Siddhartha
Bank Limited?
iv. What are the relationship of capital structure with variables such as earning
per share, dividend per share and net worth?

4. Objectives of the Study

The main objective of this study is to evaluate and analyze the capital structure
management of commercial banks in Nepal. Following are the specific objectives;

i. To examine the existing practices of capital structure in Siddhartha Bank

Limited.
ii. To evaluate the performance of the Siddhartha Bank Limited.
iii. To determine the impact of capital structure on the profitability of Siddhartha
Bank Limited.
iv. To analyze the relationship of capital structure with variables such as earning
per share, dividend per share and net worth.

5. Rationale of the Study

This study is based upon the study of overall capital structure by using various relative
measurement tools. It considered earning per share, dividend per share, return on total
assets etc. Optimal capital structure plays vital role in every organization. So, this
study tries to evaluate the optimality of their capital structure using various financial
variables for the purpose of comparative evaluation. Hence the focus of this study
mainly deals with the effects of the capital structure on the growth and profitability of
the firm and the extent to which the capital structure policy is followed by the
commercial banks. This study is importance to a certain groups of people or
organization, which are:

i. Lenders and borrowers, stockholders

ii. Management, policymaker and board of directors of bank
iii. Nepal government for making plans and policies iv. The study would help them
to take corrective action to optimize the value of the bank by using optimal
capital structure.
 5

v. Thus the analysis of selected company’s capital structure through this study
will lead to shed light on their financial performance and hope it will be useful
for further research.
vi. The case study is based on only one topic, i.e. Working Capital. The qualitative
environment factors like growth and expansion of banking policies, general
economic condition, changing management techniques, and political impacts
have been ignored.

It seems that more lecture classes or orientation classes are needed to make student
confident to go on site-visit and collect details, make question to the personnel. Extra
books relating to the field work must be referred so that students can find report
writing work easy.

6. Review of Related Studies

Joseph Jisha (2018) closely examined the study of working capital management in
Ashwok Leyland and points out that the liquidity and profitability position of the
company is not satisfactory, and needed to be strengthened in order to be able to meet
its obligations in time.

Ashok kumar (2019) studied the relationship between working capital management
and profitability of Jagdamba Cement Company, the leading cement manufacturer of
the country for assessing the impact of working capital management on profitability
during the period 1999-2000 to 2009-2019. The study is based on secondary data. The
main objective of the study was to find whether the working capital management
affects the performance of the firm. It can be deducted that there is a moderate
relationship between working capital management and the firm's profitability.

Chandra H (2020) analysed the working capital management of selected steel

companies in Nepal. The main objective of the study is to measure the effective
utilization of working capital, operating cycle and cash conversation cycle. The study
concludes with the observation that the size of a company plays a vital role in
determining the efficiency of its working capital management. The working capital
ratios across the small, medium and large sized steel companies have played a vital
role in determining the working capital management of the selected Nepalese steel
companies.
 6

Khan and Jain (2021) emphasized the modern approach of Khan and Jain views the
term financial management in broad sense and provides a conceptual and analytical
framework for financial decision making. According to them, “The finance function
covers both acquisitions of funds as well as their allocation; hence apart from the
issues of acquiring external funds, the main concern of financial management is the
efficient and wise allocation of funds to various uses.

Ahuja (2022) highlighted various financial factor in business a disclosed by a single set
of statement and a study of the trend of these fact as shown in a series of statements.
By establishing a strategic relationship between the item of a balance sheet and income
statements and other operative data, the financial analysis unveils the meaning and
signification of such items.

Metcalf and Tatar (2022) studied financial Performance analysis is a process of

evaluating the relationship between components parts of a financial statement to obtain
a better understanding of a firm’s position and performance.” Similarly, Khan and Jain
have defined that (2014) “The ratio analysis is defined as the systematic use of ratio to
interpret the financial performance so that the strength and weakness of firm as well as
its historical performance and current financial condition can be determined.

Shakya (2022) in “Financial Performance Of Nepal SBI Bank Limited and Everest
Bank Limited.” analyzed different ratio of NSBIBL and SBL for the period of five
years till fiscal year 2008. Here, in some cases the liquidity position of SBL is slightly
stronger where as in some cases the ratio of NSBIBL is higher. It concludes that
liquidity position of these two banks is sound. NBBL has better utilization of resource
in income generating activity than SBL. They are on decreasing trends while interest
earned to total assets and return or net worth ratio of SBL is better than NABIL. It
seems overall profitability position of SBL is better than NSBIBL and both banks are
highly leveraged.”

Mr. Regmi (2022). "A Comparative Study of the Financial Performance of HBL and
NBBL, he suggested NBBL to increase its current assets because the bank is not
maintaining adequate liquidity position in comparison with HBL. As capital structures
of both the bank are highly levered both the banks are recommended to maintain and
improve mix at debt and owner's equity by increasing equity share. He further suggests
to HBL to improve the efficiency in utilizing the deposits in loan and advance for
 7

generating the profit NBBL should try to maintain present position on this regards.
Profitability position of HBL is comparatively better than the same of NBBL. So,
NBBL is recommended to utilize its resources more efficiently for generating more
profit margins. If resources held idle, bank faces high cost and causes the low profit
margin. An ideal dividend payout ratio is based upon shareholders expectations and the
growth requirement of the banks. NBBL is suggested to increase its dividend payout
ratio.(Regmi, 2001, p.29)The two banks should extend their resources to rural areas
and promote the development of poor and disadvantaged group. In order to do so
banks should open their branches in the remote areas with objectives of providing
cheaper banking services especially HBL should initiated an this regard because it has
few branches in comparison to NBBL.

Because of the start competition between banking, sectors both the banks are suggest
to formulate and implement some sound and effective financial and non-financial
strategies to minimize operational expenses to meet required level of profitability. The
banks are further suggested to adopt modern banking technologies to enhance their
better and wide market.

Pandey (2023), in his book “Financial Management” defines financial management as

that managerial activity which is concerned with the planning and controlling of the
firm’s financial resources. I.M. Pandey believes that among the most crucial decision
of the firm are those, which relate to finance, and an understanding of the theory of
financial management provides the conceptual and analytical insights to make the
decisions skillfully. I.M. Pandey further identifies two kinds of finance functions: - (a)
Routine and (b) Managerial finance functions.

7. Research Methodology
Research methodology is the way in which the data are collected for a research project.
It refers to various sequential steps to be adopted by a researcher in studying a problem
with a certain objective on view. It describes the method and process of getting to the
solution process applied in the entire subject of the study. It is a way to systematically
solve a research problem (Kothari: 1990).

7.1 Research Design

 8

Research design is a plan, structure and strategy of investigations conceived so as to

obtain answer to research questions and to control variance (Wolff: 1975). It is the
arrangement of conditions for collection and analysis of data in a manner aiming at
combining relevance to the research purpose with economy in procedure. Considering
this study objectives, the analysis is based on certain research design. In order to
achieve the objectives, descriptive and analytical research design has been adopted.
Descriptive research design describes the general pattern of investors, business
environment, etc. The analytical research design carries out the analysis of information
and data. Most of the data and information of the study were related with the past
phenomenon. On this background it can be considered as a historical research.

7.2 Nature and Source of Data

The study will use secondary data. The various data required for the study will be
collected from the concerned annual report, economic indicators and official records
and other. Likewise, other related arid necessary information are also obtained from
the publication of security exchange center, Nepal Rasta Bank and other publications
used for the purpose are book & booklets magazine journals, newspaper school of
thought etc.

7.3 Population and Sample

There are 20 commercial banks are currently operating in Nepal. Among them
Siddhartha bank limited have been selected as a sample. The term population of data
denotes for the data of each organization which is within the boundary of specific
organization whereas sample data are the data of those organization which has been
selected from that whole population for study. Purposive sampling method is to be
used while selecting sample organizations for this study.

7.4 Data Collection Tools and Techniques

The study is mainly based in secondary data. Secondary data are those data that are
collected by someone else or used already and made available to other in the form of
published statistics such as annual reports, periodicals, newspapers, magazines etc.
Although the study mainly used secondary data, high level of efforts and more time
was paid to get data. The relevant secondary data has been collected mainly through
the annual report of selected commercial banks, from data bases of Nepal Rastra Bank
(NRB), various reports and other studies like studies in T.U central library, different
journals and websites.
 9

7.5 Data Collection Tools

Financial Tools

Financial tools are those, which are used for the analysis and interpretation of
financial data. These tools can be used to get the precise knowledge of a business,
which in turn, are fruitful in exploring the strengths and weaknesses of the financial
policies and strategies. For the sake of analysis following various financial tools have
been used in order to meet the purpose of the study.

i) Ratio Analysis

Ratio analysis helps to summarize the large quantities of financial data and to make
quantitative judgments about the firm's financial performance. Ratio is the expression
of one figure in terms of another. It is the expression of relationship between the
mutually independent figures, in financial analysis; ratio is use to as an index of
yardstick for evaluating the financial position and performance of firm. Ratio analysis
is very much powerful & widely used tool of financial analysis. It is define as the
systematic use of ratio to interpret the financial statements so that the strength and
weakness of a firm as well as its historical performance and current financial
condition can be determined. It helps the analysis to make qualitative judgment in
about the financial position and performance of the firm. Therefore, it is helps to
establish relationship among various ratios and interpret there on specially, based on
comparison between two or more firms or inters firm comparison and comparison
between present and past ratios for the same firm give enormous and fruitful results to
examine the financial performance. The obsolete accounting figure reported in the
financial statement does not provide a meaningful understanding of the performance
and financial position of the firm. An accounting figure conveys meaning when it is
related to some other relevant information. Therefore, the ratio is the relationship
between two accounting figures expressed mathematically. It helps to summarize
large quantitative relationship helps to form a quality judgment. However, " A single
 10

ratio itself does not is indicate favorable or unfavorable conditions. It should be

compared with some standard.

A ratio is simply a number expressed in terms of another number and it expresses the
quantitative relation between any two variables. Ratio can be calculated between any
two items of financial statements. It means there may be as many ratios as there are
the numbers of items. However, under the ratio analysis technique, it is not practical
to work out all the ratios. Hence, only the required ratios have been worked out. There
are numerous ratios to analyze and interpret the financial form once of the enterprise
or firm. However, for our purpose, only important and relevant ratios are used to
check the financial health of two JVBs in Nepal, which are as below;

 Liquidity Ratio

Liquidity ratios are used to judge the firm's ability to moot short-term obligation.
These ratios give insights into the present cash solvency of the firms and its ability to
remain solvent in the event of adversities. It is the comparison between short-term
obligation and the short –term resources available to meet these obligations. These
ratios are calculated to find the ability of banks to meet their short-term obligation,
which are likely to mature in the short period. The following ratios are developed and
used for our purpose to find the liquidity positions of the two joint venture banks.

 Current Ratio

This ratio indicated the current short-term solvency position of a current ratio is the
relationship between current assets and current liabilities. It is calculated by dividing
the current liabilities by current assets, which is expressed as follows:

Current Ratio = Current Assets- Current Liabilities

Current assets refer in those assets, which are convertible in cash within a year or so.
They includes, cash and Bank Balance, investment in treasury bills, money at short
call, or placement, loans and advances, bills purchased and discounted, overdrafts.
Other short-term loans, foreign currency loans, bills for collection, customer's
acceptance liabilities, pre-payment expenses, and other receivable. Similarly, current-
liabilities refer to those obligations maturing within a year. It includes, current
account deposits, saving account deposits, margin deposits, call deposits, intra-bank
 11

reconciliation A/c, bills payable, bank over-draft, provisions, accrued expenses, bill
for collection, and customer's acceptance liabilities etc.

A higher ratio indicates better liquidity position. However, "A very high ratio of
current assets to current liabilities may be indicative of slack management practice, as
it might signals excessive inventories for the current requirement and poor credit
management in terms of over-expanded account receivable.

Current ratio is a measure of firm's solvency. It indicates the availability of the current
assets in rupees for every one rupee of current liability. As a conventional rule, a
current ratio of 2 to 1 in considered satisfactory. However, these rules should not be
blindly followed, as it is the test of quantity not quality. In spite of its shortcoming, it
is a crude and quick measure of the firm's liquidity.

 Working Capital

Working capital is defined from two important views. Gross working capital is the
firm's total investment in current assets, whereas net working capital is difference
between current assets and current liabilities.

Working Capital (WC) = Current assets (CA) - Current Liabilities (CL)

7.6 Statistical Tools

Various statistical tools can be used to analyze the data available to the researcher.
These tools are used in research in order to draw the reliable conclusion through the
analysis of financial data. Following tools are used for purpose

• Arithmetic Mean

• Standard Deviation

• Coefficient of correlation

• Least Square Linear Trend

Arithmetic Mean

An average is a single value selected from a group of values to represent them in

same way, which is supposed to stand for whole group of which it is a pare, as typical
of all the values in the group(Waugh A.E). Out of various measure of the central
 12

tendency, arithmetic means is one of the useful tools applicable her, it is easy to
calculate and understand and based on all observations.

Arithmetic mean of a given set of observations is their sum divided by the number of
observation. In general, if X , X2, X3………Xn are the given observations, then
arithmetic mean usually denoted by X is given by,

Where, n = number of observation

Variance

It is a statistical measure of the variability of s set of observations. The symbol is

pronounced "Sigma Square". It is the measure of total risk. The smaller the variance,
the lower the risk of the stock and vice versa.

Where, n = No of observation X1= Average rate of Return

Standard deviation

It is the square root of the variance standard deviation

Where,

X = Expected return of the historical data.

N = Number of observations.

Coefficient of Variation

According to Prof. Karl Pearson, coefficient of variation is the percentage variation in

mean, standard deviation being considered as the total variation in the mean. It is one
of the relative measures of dispersion that is useful in comparing the amount of
variation in data groups with different mean. For comparing the variability of two
distributions, we compute the coefficient of variation for each distribution. A
 13

distribution with smaller CV is said to more homogeneous or uniform or less variable

than other, conversely a series with greater CV is said to be more variable or
heterogeneous than the other.

Karl Person's Coefficient of Correlation

It is a statistical tool for measuring the intensity or the magnitude of linear

relationship between two series. Karl Pearson's measure, known as Pearson's
correlation coefficient between two variable and series X and Y is usually denoted by
'i' and can be obtained as Where,

Where, n = Number of observations in series

∑x= Sum of observation in series X

∑y= Sum of observation in series Y

X = Sum of squared observation in series X

Y = Sum of squared observation in series Y

ΣXY sum of the product of observation in series X and Y value of r lies between -1
and + 1. r = 1 implies that there is a perfect positive correlation between the variable,
r = 1 implies that there is a perfect negative correlation between the variable r = 0
means the variable are uncorrelated. But r = 0 does not always mean that the variables
are uncorrelated; they may be related in some other form such as logarithm, quadratic,
exponential etc.

Least Square Linear Trend

Trend analysis is a very useful and commonly applied tool to forecast the future event
in quantitative term, based on the tendencies in the dependent variable in the past
period. The straight-line trend implies that irrespective of the seasonal and cyclic as
well as irregular fluctuation, the trend value increases or decreases by absolute
amount per unit of time. The linear trend values mathematically,

Y = a + bx
 14

Where,

Y= the Value of Dependent Variable a = Y- Intercept b = Slope of the Trend Line x

= Value of the Independent Variable i.e. time = Year

8. Limitations of the Study

The research was performed for the partial fulfillment of the requirement for the BBS.
So the study will be bounded by the following limitations.
This study is simple a partial requirement of BBS project work program. All the data
in this report are secondary type and published in Annual Report of SBL. The
researcher has collected these data from the Annual Report valid by SBL. Following
limitations are encountered while preparing this report:

• Although vast literature is available on working capital, only text books and
Annual Report were referred. And only secondary data were used as the source
of information.
• It is based on only one commercial bank i.e. Siddhartha Bank Limited.
• This study covers the six years data from FY 2017/18 to 2022/23.

9. Organization of the Study

The whole study is divided into three different chapters as below.

Chapter-I: Introduction: It included the background of the study, statement of the

problem, objective of the study, rationale of the study, review of related study,
research methodology, research design, population and sample, data processing
methods, data collection and procedure, limitation of the study and organization of the
study.

Chapter-II: Analysis and Finding: This chapter includes “results and finding” using
computer software like Microsoft Word, Microsoft Excel etc.

Chapter-III: Summary and Conclusion: which includes the summary of main finding
and conclusions of the study.
 15

BIBLIOGRAPHY

Ahuja, B. N. (2013). Financial Performance analysis is a study or relationship among

the various financial. Kathmandu: M. K Books Publishers.

Chandra H (2011) Working capital management of selected steel companies in Nepal.

Kathmandu: Asmita Publication.

Joseph J. (2009). A study of Working Capital Management. Kathmandu: Asmita

Publication.

Metcalf, R. W. and Tatar, P. H. (2014). Financial Performance analysis is a process of

evaluating the relationship between components. Kathmandu: Asmita
Publication.

Pandey, I. M. (2018). Financial Management. Kathmandu: Sheela Books and Printers

Regmi, S. (2017). A Comparative Study of the Financial Performance of HBL and

NBBL. Kathmandu: Asmita Publication

Shakya, S. (2016). Financial Performance of Nepal SBI Bank Limited and Everest
Bank Limited. Kathmandu: Sheela Books Publication

Van Horne (2015). The Working Capital and Financial ratio can be derived from the

balance sheet and the income statement. Kathmandu: Bhrikuti Publication