An Analysis of Financial

Performance of Nepal Telecom

Submitted By:
Rajesh Kumar Chaudhary
Post Graduate Campus
Biratnagar
T.U. Reg.No. 7-2-12-720-2004

A Thesis Submitted to:

Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements of the degree of

Masters of Business Studies (M.B.S.)
Biratnagar
July, 2012
 TRIBHUVAN UNIVERSITY
Faculty of Management
POST GRADUATE CAMPUS
Biratnagar Morang, Nepal
Tel no.:- 021-526327
Ref. No. :- 021-522204

RECOMMENDATION

This is to certify that the thesis

Submitted by:
Rajesh Kumar Chaudhary
Entitled

“An Analysis of Financial Performance of Nepal Telecom ”

has been prepared as approved by this Department in the prescribed

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

Supervisor Head of Department

Mr Ram Prakash Upadhaya Prof. Dr. Khagendra Acharya

Signature ……….…… Signature ……….……

Campus Chief

Mr. Dilli Prasai

Signature……….……

Date : ………………….
 TRIBHUVAN UNIVERSITY
Faculty of Management
POST GRADUATE CAMPUS
Biratnagar Morang, Nepal
Tel no.:- 021-526327
Ref. No. :- 021-522204

VIVA VOCE SHEET

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

Rajesh Kumar Chaudhary

entitled

"An Analysis of Financial Performance of Nepal Telecom "

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 :……………………………………...

Member (Thesis Supervisor) :……………………………………...

Mr Ram Prakash Upadhaya

Member (External Expert) : ………………………………………...

Date:-……………
 DECLARATION

I hereby declare that this thesis entitled “An Analysis of Financial

Performance of Nepal Telecom" submitted to Post Graduate
Campus, Faculty of Management, Tribhuvan University is my
original work done for the partial fulfillment of requirement of the
degree of Masters of Business Studies (MBS), which is prepared under
the supervision of Mr. Ram Prakash Upadhay, lecturer Post Graduate
Campus Biratnagar.

…………………………
Rajesh Kumar Chaudhary
Researcher

Date : ……………
 ACKNOWLEDGEMENTS
The research work “An Analysis of financial Performance of Nepal
Telecom” is a master degree thesis prepared to fulfill the partial
requirement of the master of business studies (MBS).The main objective
of this study is to examine the revenue collection, asset and liabilities
management, utilization of revenue Any accomplishment requires the
synergetic effort of many people and this work is not also an exceptional. I
would take pleasure to extend my sincere gratitude to Mr. R.P Upadhyay
lecturer of Post Graduate Campus for their consistent readiness and
guidance to go through in-depth vision and analysis of each topic. The
ways he induced and motivated me always keep me in good compliance to
my academic discipline.

My thanks go to account Officer of Nepal Telecom for his assistance in

collection of secondary data. Similarly, I express sincere gratitude to
Senior Officers of Nepal Telecom for their valuable in formations.

I am thankful to my family for their great support in each and every step of
my life. Whose untiring support and inspiration excelled my work to
achieve desirable objectives and complete the job in time.

Many theories, statement and analysis are the results of a collection from
various sources, such as newspapers, magazines, speakers and writers over
the past time. Regardless of the source, I wish to express my gratitude to
those who may have contributed to this work, even though anonymously.

…………………………….
Rajesh Kumar Chaudhary
Researcher
 TABLE OF CONTENT

RECOMMENDATION LETTER

VIVA VOCE SHEET

DECLARATION

ACKNOWLEDGEMENTS

ABBREVIATIONS

CHAPTER-I
INTRODUCTION

S.N PARTICULARS PAGE NO.

1.1 Background of the Study 1

1.2 Statement of the Problem 6
1.3 Objective of the Study 8
1.4 Significance of the study 8
1.5 Limitation of the study 9
1.6 Organization of the study 10

CHAPTER-II
REVIEW OF LITERATURE
2.1 Theoretical review 11
2.1.1 Financial statements 11
2.1.2 Financial Analysis 13
2.1.3 Objectives of Financial Analysis 16
2.1.4 Need of Financial Analysis/ Financial Statement Analysis 17
2.1.5 Significance of Financial Analysis 17
2.1.6 Process of Financial Analysis 19
 2.1.7 Types of Financial Analysis 20
2.1. 8 Techniques of Financial (Statement) Analysis 21
2.1.8 Limitations of Financial Analysis 28
2.2 Review from Articles \ Journal 30
2.3 Review of Related Dissertations 32

CHAPTER - III
RESEARCH METHODOLOGY

3.1 Research Design 38

3.2 Population and sample 39
3.3 Types and sources of data 39
3.4 Data Collection Procedure 40
3.5 Data processing 40
3.6 Analytical Tools Used in the Study 40
3.6.1 Ratio Analysis 41
3.6.1.2 Types of Ratio Used 42
3.6.1.3 Comparison of Standards 51
3.6.2 Statistical Analysis 52
3.6.2.1 Arithmetic Mean 52
3.6.2.2 CORRELATION ANALYSIS 53
3.6.2.3 Regression Analysis 55
3.6.2.4 Lines of Regression 55
3.7 Methods of Presentation and Analysis 57

CHAPTER - IV
PRESENTATION AND ANALYSIS OF DATA

4.1. Introduction 58
4.2. Financial Analysis 58
 4.2.1 Liquidity Ratio 59
4.2.1.1 Current Ratio (CR) 59
4.2.1.2 Quick Ratio/ Acid Test Ratio 61
4.2.2 Turnover Ratio / Activity Ratio 62
4.2.2.1 Inventory Turnover Ratio (Itr) 63
4.2.2.2 Average Age of Inventory 64
4.2.2.3 Debtors Turnover Ratio ( DTR) 65
4.2.2.4 Average Collection Period (ACP) 67
4.2.2.5 Total Assets Turnover Ratio 68
4.2.2.6 Fixed Assets Turnover Ratio (FATR) 70
4.2.2.7 Working Capital Turnover Ratio (WCT) 71
4.2.2.8 Capital Employed Turnover Ratio (CET) 73
4.2.3 Leverage Ratios 75
4.2.3.1 Total Debt Ratio (TDR) 75
4.2.3.2 Debt Equity Ratio (DE) 77
4.2.3.3 Long Term Debt to Capital employed ratio (LTD TO CE) 78
4.2.3.4 Interest Coverage Ratio(IC) 80
4.2.4 Profitability Ratio 81
4.2.4.1 Net Profit Margin (NPM) 82
4.2.4.2 Modified Net Profit Margin (MNP) 84
4.2.4.3 Operating Expenses Ratio (OE) 85
4.2.4.4 Return on Assets Ratio (ROI) 86
4.2.4.5 Return on Capital Employed (ROCE) 88
4.2.4.6 Return on Equity (ROE) 89
4.3 Statistical Analysis 91
4.3.1 Correlation and Regression Analysis 91
4.3.1.1 Correlation & Regression analysis of Gross Domestic
Product (GDP) and Sales Revenue 91
4.3.1.1 Correlation & Regression Analysis of Investments (Total
 Assets) and Profit 93
4.3.1.2 Correlation & Regression Analysis of sales revenue and
Total Cost 94
4.4.1 Ratio Analysis 96
4.4.1.1 Liquidity Position 96
4.4.1.2 Turn over position 96
4.4.1.3 Long term Solvency Position 97
4.4.1.4 Profitability Position 98
4.4.2 Regression and Correlation Analysis 99

CHAPTER V
SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary 101

5.2 Conclusion 102
5.3 Recommendations 104

BIBLIOGRAPHY
Journals / Articles/ Reports

Appendixes
 LIST OF TABLE

S.N PARTICULARS PAGE NO.

Table 4.1 Calculation of current ratio and its straight

line trend equation 60

Table 4.2 Calculation of quick ratio and its straight line

trend equation 61

Table 4.3 Calculation of inventory turnover ratio and

its straight line trend equation 63

Table 4.4 Calculation of Average Age of Inventory (days) 64

Table 4.5 Calculation of Debtors Turnover Ratio and

its straight line trend equation 66

Table 4.6 Calculation of Average Collection Period 67

Table 4.7 Calculation of Total Assets Turnover Ratio

and its straight line trend equation 68

Table 4.8 Calculation of fixed assets turnover ratio and its

straight line trend equation 70

Table 4.9 Calculation of Working Capital Turnover ratio

and its straight line trend equation 72

Table 4.10 Calculation of Capital Employed Turnover

Ratio and its straight line trend equation 74

Table 4.11 Calculation of Total Debt Ratio and its straight

line trend equation 76

Table 4.12 Calculation of Debt Equity Ratio and its

straight line trend equation 77

Table 4.13 Calculation of Long - term debt to capital employed

ratio and its straight line trend Table 79

Table 4.14 Calculation of Interest Coverage Ratio and its

straight line trend equation 80

Table 4.15 Calculation of net profit margin ratio and its straight

line trend equation using net profit after tax as profit 83

Table 4.16 Calculation of net profit margin ratio and its

straight line trend equation using earnings after

tax + interests after tax as profit 84

Table 4.17 Calculation of operating expenses ratio and its

straight line trend equation 85

Table 4.18 Calculation of Return on Assets ratio and its

straight line trend equation 87

Table 4.19 Calculation of Return on Capital Employed

ratio and its straight line trend equation 88

Table 4.20 Calculation of return on equity ratio and its

straight line trend equation 90

Table 4.21 Computation of Correlation & Regression Co-efficient

from the variables GDP and Sales Revenue 92

Table 4.22 Computation of Correlation & Regression co – efficient

from the variables investments and profit 93

Table 4.23 Computation of Correlation & Regression co–efficient from

the variables sales revenue and total cost 95
 ABBREVIATIONS

ACP = Average Collection Period

AT = After Tax
B/S = Balance Sheet
BS = Bikram Sambat
CE = Capital Employed
CET = Capital Employed Turnover
CR = Current Ratio
CVP = Cost Volume Profit
D/E = Debt-Equity
D-E RATIO = Debt Equity Ratio
DTR = Debtors Turnover Ratio
EBIT = Earning Before Interest and Tax
EPS = Earning Per Share
EPS = Earning Per Share
etc. = Etcetera
F/Y = Fiscal Year
FAT = Fixed Assets Turnover
GDP = Gross Domestic Products
GOVT. = Government
i.e. = That is
I/C = Interest Coverage
ISD = International Subscriber Dialing
JICA = Japan International Cooperation Agency
Kbps = Kilo bit Per Second
LTD = Long Term Debt
Ltd. = Limited
Mbps = Mega bit Per Second
MPS = Market Price Per Share
NFA = Net Fixed Assets
NO. = Number
NPAT = Net Profit after Tax
NPC = National Planning Commission
NPM = Net Profit Margin
NRs = Nepalese Rupees
NTC = Nepal Telecom
NW = Net Worth
NW = Net Worth
OE = Operating Expenses
P/E = Price Earnings Ratio
P/L A/C = Profit and Loss Account
PE = Public Enterprise
Pvt. = Private
QR = Quick Ratio
ROA = Return on Assets
ROCE = Return on Capital Employed
ROCE = Return on Capital Employed
ROE = Return On Equity
ROI = Return on Investment
ROSE = Return on Shareholders Equity
SMS = Short Message Service
STD = Subscriber Trunk Dialing
TA = Total Assets
TAT = Total Assets Turnover
TC = Total Cost
TD = Total Debt
TDR = Total Debt Ratio
TE = Total Expenditure
TR = Total Revenue
UHF = Ultra High Frequency
UTL = United Telecom Limited
VDC = Village Development Committee
VHF = Very High Frequency
VIZ. = Namely
VMS = Voice Mail Service
WCT = Working Capital Turnover