A STUDY ON ASSETS AND LIABILITIES MANAGEMENT OF

NEPAL TELECOM

Submitted By
Damodar Acharya
Shanker Dev Campus
Exam Roll No. 4034/063
T.U. Regd. No. 4279-93
Campus Roll No. 795/061

Thesis Submitted To
Office of the Dean
Faculty of Management
Tribhuvan University

In Partial Fulfillment of the Requirements for the Degree of

Master of Business Studies (M.B.S.)

Putalisadak, Kathmandu
September 2008

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 CHAPTER – I
INTRODUCTION

1.1 General Background of the Study

Nepal has abundant natural resources, but still is backward in term of socio-
economic development because of the inability in exploiting the resources.
Proper utilization of the available resources helps to make economy of the
nation strong through various development works. In order to development of
the nation, there should be good situation of political, economic, socio-cultural,
science and technological and legal environment. Since some years the
economic condition of Nepal is very poor because it was suffering the Maoist
problem. Due to Maoist problem, the government was unable to do any kinds
of development works properly at the time. But now, the Maoist problem has
been solved up to some level. So, the economic growth of Nepal is hopeful.
The primary needs of people are communication, education, health water
sanitation, electricity, transportation, security etc. so the government of the
nation has to provide such types of facility to people in cheap price and easy
way.

Several enterprises were established in the public sector during the 60’s and
70’s with the industrial sector enterprises mainly set up under the financial and
technical assistance of bilateral donors.

“Public Enterprises (PEs) are a kind of state agencies established in order to

distribute state resources to the people. Their basic goal is to create social
justice under the Economy Laissez faire, no existences of such PEs were
accepted. But this kind of notion could not remain static. It was the post second
world war period which had contributed to the inception of PEs. Both the
capitalist and socialist countries have established the PEs with similar
expectations. According to Friedman, Public Enterprise is an institution
operating a service of an economic or social character, on behalf of the

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government, but as an independent legal entity, largely autonomous, though
responsible to the public through the government” (Chandra, 1997:2).

The World Bank Report defines State Owned Enterprises (PEs) as government
owned or government controlled economic entities that generate the bulk of
their revenues from selling goods and services. The term ‘Public Service
Corporation’ referred to indicate PEs in the USA (World Bank, 1995:4).

The PEs were established to enhance in production, to develop the society and
for the welfare of people. But they are not succeeded to meet the goal.
Basically, they suffered from poor management, over staffing, political
pressure, pressure of donor agency, corruption, huge losses, inadequate
planning, lack of contestability, debts. The features of the problems are mostly
similar in the nations where PEs are existed. From the second to the seventh
plan, Nepal accorded significant priority to Public Sector Undertakings as a
vehicle of development. These were envisaged as instruments for production
and for carrying out socioeconomic policies in Nepal. Public Sector
Undertaking contributed noticeably in:

a) Creating an industrial base in the country;

b) Enhancing domestic production;
c) Substituting imports;
d) Generating employment opportunities; and
e) Contributing to the national treasury

“However the performances of PSU’s did not prove to be satisfactory. Many

suffered from various types of problems and handicaps resulting in economic
and financial losses as the government controlled output pricing and internal
management decisions”(Bajacharya, 1995:22).

In the context of Nepal, public enterprises in Nepal deserve a crucial role for
the socio-economic development of our country. It enjoys a strategic and

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crucial position in our mixed economic. They have been established in many
sectors for overall development of the country with different goals and
objectives. Accordingly, Nepal Doosanchar Company Limited (Nepal
Telecom) has been established under public utility and social- sector.

In the context of third world developing countries the growing for rapid socio-
economic development and nation building process in order to bridge the
development gap within the shortest possible time, seems to have provided the
rational basis for the choice and growth of the Public Enterprises.

As the political scenario of the country has profoundly changed in the last few
months, it is having impact on telecommunication sector also. The demand for
all kinds of telecom services, especially GSM mobile and CDMA has increased
exponentially all over the country in unprecedented manner. Although this
phenomenal growth in demand could be construed as a good news from
business point of view, the resulting demand-supply gap with long waiting loss
in all cities, towns and villages is being misrepresented as the result of the
incumbent Nepal Telecom' inefficiency.

The crux of the matter is that combined result of sudden improvement in the
security situation throughout the country as well as affordability of telecom
services especially GSM mobile and CDMA due to low pricing policy adopted
by Nepal Telecom has created this avalanche of demand which under no
circumstances could be fulfilled within next few months time. Of course, Nepal
Telecom has already initiated steps to expand both GSM and CDMA on
massive scale with an ambitious plan of increasing Tele-density from present
4.7% to about 20% within the next three years. But due to inherent time
consumed in procurement procedures and installation time, visible result
encompassing the entire country will start coming only after one or two years
time.

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1.1.1 Profile of the Nepal Telecom (NTC)

Nepal Doorsanchar Company Limited (Nepal Telecom) was registered on

2060/10/22 under company act 2053 and notice to this effect was published in
Nepal Gazette the dated 26th Chaitra 2060, after dissolving then Nepal
Telecommunications Corporation (NTC). However, the company names was
officially effective from 1st Baiskh 2061 (13th April 2004) and the general
public knows it by the name of NEPAL TELECOM as its registered trademark.

Nepal Telecom, as a progressive, customer spirited and consumer responsive

entity, is committed to provide nation-wide reliable telecommunication
services to serve as an impetus to the social, political and economic
development of the country. Vision of Nepal Telecom is to remain a dominant
player in telecommunication sector in the country while also extending reliable
and cost effective services to all. Goal of Nepal Telecom is to provide cost
effective telecommunication services to every nook and corner of the country.
Since 1913 establishment of first telephone line in Kathmandu, it has making
94 years long history in the field of communication services. But various
constraints, it is unable to provide services as per the requirement of people in
the rural area. Communication is essential means of information to every
person.

1.2 Statement of the Problem

The prime concern of every nation of the world is economic development.

Under developed countries are facing several problems in the process of
economic development. Nepal is not exception to this condition. The majority
of people have not been able to get even basic facilities. Government has
established several public enterprises for the sake of providing necessary
facilities. Most of PEs is found to be operating unsatisfactory the financial loss
and managerial responsibilities for these ailing units have to be borne by the

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government. This is definitely not contributed to the countries economic
growth.

In the communication sector, the government has liberalized its policy and
authorized private sector to run communication service. Although up to now
profit trend of NTC is increasing trend but now on ward they have to compete
with private sector. So NTC should prepare it self to face many challenges
which may come for other private company. To meet this challenge NTC
should prepare it self and have to realize its management capacity.

NTC is the successful public enterprise of the Nepal, which are still running in
the public sector service business. Nepal Telecom is operating in profitable
from several years. Now-a-days private telecom companies are also opened in
our country i.e. UTL, Mobile to compete it. But NTC is not any effect because
public use its service too much than that of private only a few percent public
use private companies’ phone services. Recent entry of private operators in the
sector should, therefore, be considered as government’s initiative to make the
sector grow at faster pace both in term of quantity and quality. But the facts
remains that in spite of new liberal Telecom Act 2053, due to various reasons
the market share achieved by private sector is still less than 10 percent of the
total telecom business volume. Hence, the incumbent Nepal Telecom shall
have to take responsibility of expanding infrastructure at faster pace covering
nooks and corners of the country, not only as a competitive strategy but also to
cater-ever-increasing demand from general public for both voice as well as data
services.

NTC is found to be facing many problems, some the major problems being:

1. Very low revenue in comparison with the investment on total assets

2. Inability to generate required funds to operate its activity.
3. Paying a large amount as interest every year.
4. Increasing trend of the operating expenses.

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 5. Maintenance of the budget discipline.
6. Huge amount of cash and bank balance lying idle.
7. Lengthy process of decision making due to government intervention.

Different research studies on the assets and liabilities management of Nepal

Telecom have pointed out the inefficiency of Nepal Telecom management in
utilization of its current assets. The balance sheet shows the huge amount of
cash and bank balance lying idle. Volume of sundry debtors seems to be very
large and the studies also have pointed out the problem of its outstanding debt
collection. They have suggested utilizing its own internal fund rather than
accepting high interest bearing loans for capital investment, the studies have
shown that the liquidity position of the corporation is quite high as it keeps
capacity to pay off whole debt at once.

The main problems, as seen at a glance from outside of assets and liabilities
management of Nepal Telecom are as follows:

i) Is there any significant relationship between assets and

liabilities?

ii) Even being high demand of the service in the country, is the
Nepal Telecom utilizing its assets effectively to meet the
demand?

iii) Is there any significant relationship between amount of total

acquiring assets and service generation?

iv) Whether there is equal distribution of assets in all the

development regions or not?

1.3 Focus of the Study

The present study is focused in the following four subject of study of Nepal
Telecom Company Ltd.

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Revenue Collection, Utilization of Collected Revenue, Assets Management and
Liabilities Management above four subjects (items) are described in brief as
follows:

Revenue Collection: Revenue collection means, all the source of revenue of

NTC from which collect money by different billing system. Utilization of
Collected Revenue: Collected money (revenue) of the public enterprises (NTC)
is used in different expenditure heading are called utilization of collected
revenue. Assets Management: NTC PE’s how manage their different types of
assets, study in the Assets Management. Liabilities Management: NTC
Company (PE) how manage its different types of liabilities, study in the
liabilities management.

This proposed research work is mainly designed to solve the above mentioned
problems by taking into account the role of assets and liabilities management.

This research work highlights the assets and liabilities management of the
Public Enterprises.

1.4 Objectives of the Study

The main objective of the study is to study on assets and liabilities

management of Nepal Telecom. The specific objectives are listed as follows:

i) To receive the assets and liabilities management of Nepal

Telecom.

ii) To evaluate the strengths and weaknesses regarding assets and

liabilities of Nepal Telecom.

iii) To identify the reason why Nepal Telecom has partially failed
to tap its pre-determined objectives.

iv) To identify the sources, uses and volume of the revenue of

NTC.

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 v) To provide suggested course of action, this will strengthen its
assets and liabilities position so that it can take concrete steps
in achieving its objectives.

1.5 Significance of the Study

The study is needed to frame out the revenue collection and utilization position
of NTC. This study aims will provide basic information to public about total
revenue and total expenditure of public enterprise for the development of the
economy such as trade and industry service, agriculture etc.

Communication development is most necessary. Without the development of

NTC, no sector of the economy can flourish. In every country to develop the
economic condition, communication services is used.

This research will help to both public and company. Research is made basically
on the secondary data, which is provided by the concerned institutions.

However, some significance as follows:

 To know the existing loan position

 To know the strength and weakness of the corporation
 To know the financial position
 To know the sources of revenue/volume of revenue
 To know the revenue collection procedure
 To know the uses of revenue
 To know the assets mgmt method
 To know the liabilities mgmt method
 To know the revenue effectiveness
 It is useful for lenders and shareholders
 It is useful for future plan of the corporation
 It is useful for the public and government

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1.6 Limitations of the Study

This study is a partial requirement of Master of Business Study programs. So

this study will be limited by following factors.

1. The study cannot cover the company or corporation whole operating

period i.e. it only cover 5 years (2001/02-2005/06) operation periods
2. The study aims at finding the facts or revenue collection and utilizations.
3. The completed study is based on the data that provided by
corporation/company officer (Annual report of NTC)
4. The study only covers the four subject matters of the company i.e.

i) Revenue collection
ii) Utilization of the collected revenue
iii) Position of Assets and
iv) Position of liabilities.

1.7 Organization of the Study

This study is divided into five chapters. The format of the chapters is organized
in the following framework.

i) Chapter – One

The first chapter is introduction, which contains the following subjects,

background of the study, Focus of the study, brief introduction of company,
statement of the problem, objective of the study, limitation of the study,
significance of the study and organization of the study.

ii) Chapter – Two

The second chapter is literature review, which contains the following subjects,
Conceptual review and review of the previous study.

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iii) Chapter – Three

This third chapter contains methodology of the study which is as follows,

Research Design, Population and Sample, Data Collection and Method of Data
Analysis

iv) Chapter – Four

The four chapters contains following subjects, Data Presentation and Major
Findings by Analysis

v) Chapter – Five

The five chapter is related to the Summary, Conclusion and Recommendations

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 CHAPTER - II
REVIEW OF LITERATURE

2.1 Conceptual Review

2.1.1 Meaning of Revenue

Economists defined the term revenue in the sense of total sale proceeds. A term
which is used sometimes to describe: the income of business firms or company
and the income received by the government from taxation. The wealth that is
additionally produced is known as revenue or profit. Suppose a trader has a
capital of Rs. 10,000. During the course of a year he earns profit of Rs. 1000.
The revenue for that year is Rs 1000.

Capital is the source of revenue: revenue comes out of capital. Capital is

invested so that it may give rise to revenue. Revenue receipts are the moneys
received in the ordinary course of business; e.g. by selling Merchandise or in
the form of discount, commission or interest. Money obtained by selling waste
paper, packing cases etc, is usually treated as revenue receipt (Agrawal,
1994:139).

Every firm will sell its products or services to collect the revenue. The profit of
the firm depends upon the cost and revenue. The profit earned by any firm is
the difference between the cost of production and the revenue colleted by
selling products or services in the market. The revenue of a firm can be divided
into three parts. They are,

1. Total Revenue
2. Average Revenue
3. Marginal Revenue

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1. Total Revenue

The total amount collected by a producer after selling certain quanity of goods
in the market is known as Total Revenue. It is necessary for a firm to know its
total revenue is for more than the total cost, and then the firm will be in the
state of earning profit. This can be shown graphically as blow.

TL
Y

P TR
Revenue and cost

J
R

O X
Q1 Q2 Q3 Q4
Quantity

Fig. 2.1 Relation of Revenue and Quantity

In fig 2.1 quantity of output is measured along x-axis (OX) and total revenue
with cost are measured along y-axis (OX). TR is the total revenue curve and Te
is the total cost curve. Theses curves gives the total revenue and total cost at
various level of output. The firm will be earning maximum profit when the
distance (gap) between the TR curve and Te curve is the greatest. When a
producer sells OO, quantity of output, hen the revenue earned will be equal to
MQ. But when the output sold is OQ2 then the total revenue earned is KQ2 and
respectively (Subedi, 2060:181).

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So the total earning of a firm from the selling of the goods at certain price is the
total revenue. There fore total revenue is the total amount earned by a producer
on a firm by selling the goods. Total revenue can be calculated by multiplying
per unit cost with the total quantity.

Mathematically,

TR = P  Q

Where, TR = total revenue

P = per unit price of goods

Q = Quantity sold

2. Average Revenue

The amount earned by a producer after selling one unit of a produced

commodity is known as the average revenue. In other words, if the total
revenue earned by a producer is divided by the total units of goods sold, then
the quotient is the average revenue.

Mathematically

AR = TR/Q

Where,

AR = Average Revenue

TR = Total Revenue

Q = Quantity of goods sold

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3. Marginal Revenue

The net revenue earned by a producer by selling one additional unit of goods is
known as the marginal revenue.

MR = TRn+1 - TRn

Where,

MR = Marginal Revenue

TRntl = Total revenue received by total quantity sold

TRn = Total revenue received before selling additional unit.

So, marginal revenue (MR) is the revenue received from the sale of one
additional unit of goods.

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2.1.2 The Relationship of Cost, Revenue and Profit Planning In
Flows and Out Flows of an Enterprise

Managerial Manipulation of

Inflows Outflows

People Planning and control Productio

n
ENTERPRISE
Capital Services
OPERATIONS
Materials Social-
Planning Decisions contribution
(costs)Activating Decisions control
(Revenues)
Profit

INVESTMENT

RETURN ON INVESTMENT

Fig. 2.2 Relationship of Cost Revenue and Profit Planning

2.2 Revenue Collection

Revenue collection means the sale proceeds of a firm or company which is

collects during the specific period of time, collection through counters,
collections throngs the banks and collection through auction of customer
property.

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2.2.1 Revenue Collection Process of Nepal

Nepal telecom generates its revenue by providing different type of services like
basic fixed line services, GSM mobile, internet, lease line etc. Apart from these
the source, which generates significance revenue for the company, is
international settlements from international call. Nepal telecom, due to its
nature of business, has to transact with significant number of customers in
addition to dealing with foreign carriers for its international sharing revenue.
Basically, Nepal telecom has two different ways of revenue collocation
process.

(i) Collection through Counters

In smaller exchanges collection being done manually but in almost 50 places

collection of cash has been done through online cash collection process, which
has far better efficiency than manual cash collection. For the sake of increasing
efficiency Nepal telecom is collecting its revenue online its exchanges having
more than 1000.

(ii) Collection Through the Banks

Now Nepal telecom has stated collecting its revenue through the banks also.
Like in mobile’s cash Nepal Investment Bank, Bank of Kathmandu, Kumari
Bank is collecting revenue through their counters. As a result, subscribers are
able to pay their dues at their nearest banks counters as per their convenience.
Similarly also in PSTN’s case here in Kathmandu valley, already Bank of
Kathmandu, Kumari Bank, Nepal Investment Bank, Nepal Industrial and
commercial bank, Machhapuchare Bank, Laxmi Bank, Banija Banks are
collecting the revenues of Nepal Telecom. And in near future, few other banks
will also be participating in PSTN’s revenue collection process.

Likewise in 50 places different banks visit company premises to collect the

cash and these banks are providing interest at the rate of 4.25 percent per

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annum. Few years which deserve appreciation in our collection, strategy in
establishment of advance payment facility, weekly bill payment facility for
high paying subscribers, anywhere payment Kathmandu valley introduction of
token system at counters. Presently, Nepal Telecom has made a policy for
disconnect telephone line for that customer who doesn’t pay in time (3.5 %
fine) that generates excess cash to company. Apart from other services
provided by the Nepal Telecom, 93% of the total income which was 4956
million in 2057/58, 5487 million in 2058/59 and 6156 million in 2060/61 is
achieved from telephone only. In this, ISD takes 36%, STD contributes 23%
and 34% and 34% from local call services. Still, Nepal telecommunication is
unable to meet the demand of the public. This may be due to lack of proper
planning, financial resources and technical known-how. This has directly
hampered the other activities of the country (Devekota, 2006:9-10).

2.2.2 Revenue Collection Sources of NTC

NTC collect revenue by the following different types of sources.

(i) Local telephone

(ii) Domestic Trunk Telephone
(iii) International Telephone
(iv) Domestic Telegraph
(v) International Telegraph
(vi) International Telex
(vii) Tele fax
(viii) Mobile & Internet
(ix) Interconnection
(x) Sale of Tele set/ other material
(xi) Interest on Bonds/T-Bills
(xii) Interest from Bank Deposits
(xiii) Interest from Pension Funal
(xiv) Income from Intelsat Investment

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 (xv) Others

2.3 Utilization of Revenue

Collected revenue utilized by a firm means total expenditure indifferent head

during the specific period of time of that company/firm.

2.3.1 Revenue Utilization by NTC

Collected revenue utilized by the Nepal Telecom Company Ltd on the

following expenditure headings.

(i) Employees Costs

(ii) Operation and Maintenance Cost
(iii) Interest on Subscribers Deposit
(iv) Operation
(v) Incentive Package
(vi) Provision for Tax
(vii) Interest on Loan
(viii) Loss (Gain) on Foreign Exchange
(ix) Bonus Paid
(x) Other Expenditure
(xi) Balance Transferred to Balance Sheet.

2.4 Assets Management

2.4.1 Meaning of Assets

All the properties possession and debt owing to a business house are known
collectively as assets (Agrawal, 1994:6).

In accounting, it refers to any physical property or right that is owned and has a
money value. Accountants view an assets as a soiree of wealth, generally
expressed in terms of its costs capable of giving its owner future benefits.

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2.4.2 Classification of Assets

Assets are classified (a) Fixed, (b) Floating and (c) Fictitious.

a) Fixed Assets

Fixed assets are assets of a durable nature which are used in business over and
over again, e.g. Machinery and buildings. These assets are not meant for
resealed. They are also sometimes called as capital assets or fixed capital
expenditure or long-lived assets.

b) Floating Assets

Floating assets are those temporarily held assets which ae meant for resale or
which frequently undergo change e.g. cash, stock, stores, debtors and bills
receivable are example of floating assets.

c) Fictitious Assets

Fictitious Assets are those assets which are not represented by any thing
concrete or tangible: there are no tangible properties behind such assets.
Preliminary expenses goodwill, prepaid expenses, and debit balance of P&L a/c
are examples of such assets.

2.4.3 Assets Management by NTC

A company or corporation managed of its own assets in specific format. Assets

management by Nepal Telecom Company is given prescribed format. Assets
management means application of fund of any firm or company.

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 Assets Management of NTC

Application of Fund

Fixed Assets Fixed Assets Fixed Assets Fixed Assets Fixed Assets

Land W.I.P. Govt. Stores & Spares

Securities
Building Capital Stock Sundry Debtors
Pension fund
Plant and Advance, Int. Accrued on Inv.
Claims Plant and
Machinery
Intelsat Unexposed L/C
Heating and
Lighting Advances & Loan to

Office Employees
Equipment
Inter Brach Balance
Vehicles
Bank Balance

Cash Balance

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2.5 Liabilities Management

2.5.1 Meaning of Liabilities

Capital of the proprietor and the debits which are due by the firm to other
parties are known collectively as liabilities (Agrawal, 1994:6). An amount
which a business is legally bound to pay, it is a claim by an outsider on the
assets of a business.
2.5.2 Classification of Liabilities
Liabilities of a concern can be classified into
(i) Fixed Liabilities
(ii) Current Liabilities and
(iii) Contingent Liabilities
(i) Fixed Liabilities
Fixed Liabilities are those liabilities which will be redeemed after a long period
of time. These include long-term (loans land capital, only if capital is treated as
a liability).
(ii) Current Liabilities
Current liabilities are those liabilities which have to be redeemed in the near
future, usually within a year. Trade creditors, bank loans, bills payable etc. are
examples of current liabilities.
(iii) Contingent Liabilities
Contingent liabilities are not actual liabilities, but their becoming actual
liability is contingent on the happening of a certain event.
2.5.3 Liabilities Management by NTC
Liabilities management is also called sources of fund of a firm. A firm or
company or public enterprise managed of it’s liabilities to own prescribed
format. Liabilities management by Nepal Telecom is given format.

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 Liability Management of NTC

Liability Management of NTC

Share Capital Reserve and surplus Loans Current Liabilities Provision

Equity Capital Capital Reserve Secured long Sundry Creditors Income tax
term loan
Govt. Sinking fund for Loan from Int. Accrued & Proposed Dividend
Contribution Repayment of other govt. Due
loans Pension & Gratuity
Contribution Other liabilities
form other Share Capital
countries govt. Accumulated Leave
Deposit &
Advance
Bonus Provision

Incentive Provision

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2.6 Accounting Polices of Assts and Liabilities Management and
Revenue of NTC

2.6.1 General Basis of Accounting

The financial statements are prepared under the historical cost contention in
accordance with relevant international accounting standards and presentational
requirement of the communications corporation act, 2028 and amendment of
there on.

2.6.2 Revenue

(a) Revenue earned from telephone related services operating income

and non operating income comprises mainly interest on
investments and bank deposits. Inter administration revenue is
accounted for as per statement /in voice provided/received
to/from inter administrator.

(b) Revenue from Internet E-mail, Prepaid Card, Rechard Card,

Payphone Car Services are accounted for on cash basis.

2.6.3 Fixed Assets

(a) Fixed assets are stated at cost and are inclusive of all expensive,
which are incidental to commissioning/putting the assets to use.

(b) Gain and/or loss on disposal of fixed assets arising in the ordinary
course of business are taken into profit and loss account as non-
operating income/expenditure for the year.

(c) Assets such as tools and office equipment costing less than Rs.
5000 per unit are fully charged to expenses. Quantitative records
of such assets are magnetized.

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 (d) Assets which are damaged beyond economic repair or become
obsolete due to change in technology are written off wherever
identifiable.

2.6.4 Capital Work-in-Progress

Capital work in progress includes capital stock, advances to contractor and

suppliers an capital account.

2.6.5 Depreciation

(a) Depreciations provided on the straight line method on all the

items of fixed assets at the rates shown in below which have been
determined by the management based on the useful life of the
assets.

Description Depreciation Rate

Land –
Building 2.8-6.7%
Plant and Machinery 4.20%
Heating and Lighting 10%
Furniture 20%
Office Equipment 20%
Vehicles 20%
Source: Income Tax Act, 2002

(b) Depreciation on assets has been charged from the following

month of capitalization for assets, which are added during the
year.

(c) No depreciation is charged on the assets under work-in -progress

until they are transferred to fixed assets.

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2.6.6 Investment

(a) Investment comprises of national saving bonds and treasury bills.

Debenture and is stated at cost.

(b) Investment in Intelsat amounting to and $ 1439.40 k has been

revalued at the exchange rate prevailing on the balance sheet
date.

2.6.7 Foreign Currency Conversion

(a) Foreign currency balances relating to current assets are booked at

original value and any profit or loss arising from exchange rate
fluctuation on such assets at balance sheet date is recorded in the
profit and loss account as foreign exchange loss/gain.

(b) In the cause of long-term liabilities incurred for the acquiring of

assets gain or loss, if more than 2% is normally regarded as an
adjustment of cost and included in the carrying amount of the
related fixed assets. Otherwise the gain or loss is dealt with in the
profit and loss account.

(c) Loss or gain on interest payable on foreign loan is changed to

profit and loss account.

2.6.8 Provision for Doubtful Debt/Advances/Transit Items

(a) Bad debts are written off, as they become known.

(b) Debtors are reviewed each year and one hundred percent
provisions made in respect of debtors outstanding for more than a
year. Except the dues from the govt. and inter administrations. In
case of dues from the government and inter administration

25
 outstanding for more than tree years, one hundred percent
provision has been made.

(c) Provisions made against doubtful advances, cash-in -transit,

stock-in-transit and claims if required.

2.6.9 Pension and Gratuity

(a) Provision for person eligible employees has been made on the
basis of approved years fixed by the corporation.

(b) Provision for gratuity has been made on actual basis.

2.6.10 Provision for Accumulated Leaves

A provision has been made to meet the cost of home and sick leave
accumulated up to the year on actual basis

2.6.11 Inventory

(a) Cost of spare ports, the unit price of which is less than Rs. 100.00
is directly changed to profit and loss account at the tie of
purchase. A quantitative record of such items is maintained.

(b) Inventory is valued at cost on the basis of the FIFO method of

inventory accounting provision is made for slow moving - non -
moving and obsolete items at the rate of 25%, 50% and 100%
respectively.

2.6.12 Royalty and VAT

Royalty has been calculated at 4% and 2% for contribution to Rural

Development fund on operating revenue including sharing loss.

VAT and TSC are accounted for on cash basis.

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2.6.13 Transformation of Corporation to Company

With effect from Aprils, 2004, Nepal Telecommunication Corporation has been
transformed into M.S Nepal Doorchanchar Company Limited (Nepal
Telecom), a company registered under the companies Act. of Nepal. All the
assets and liabilities of the coronation are transferred to Nepal Door searcher
company limited (Nepal Telecom) with effect from that date.

2.6.14 Equity

As per the communication corporation act 2028, share capital of corporation is

to be allocated 51% to government, 25% to the employees of the corporation
and 24% to the general public. However government has not confirmed the
above allocation as well as issue of shares.

2.6.15 Dividend

Dividend has been provided at the rate of 15% of net profit after tax.

2.6.16 Sinking Fund

Out of each years profit Rs. 5 millionis set-aside in the sinking fund for the
erred emption of long term dabt and replacement of the fixed assets. The
cumulative balance of the fund at the balance sheet date comprises of the
following.

Rs. In ‘000’
Balance at the beginning of the year 80,000
Amount transferred during the period 5,000
Total 85,000

27
2.6.17 Insurance

Insurance of assets has been done by the management considering the value
and importance of assets and also after considering the review and
recommendations made by the senior management committee.

2.6.18 Interest

Interest income on investments and deposit are shown in profit and loss
account as non-operating income. Interest accrued on long term debt is charged
to profit an doles a/c. Interest payable on subscriber’s deposits is provided at
the rate of 5% p.a. and is charged to profit and loss account.

2.6.19 Cash and Bank Balances

Cash in excess of current requirement is temporarily invested on fixed and

saving deposits of commercial banks. Foreign currency bank balances are
countered into Nepalese rupees at the exchange rate prevailing on the balance
sheet date. Margin money on L/C has been shown under the head supplier
advances.

2.6.20 Priority Fees on OYT

Priority fees collected from the subscriber under the Own Your Telephone
(OYT) scheme is taken into income.

2.6.21 Deferred Expenditure

Deferred expenditure are amortized over the average period of 35 years in

which the related benefits are expected to realize. However deferred
expenditure like lines fees and similar expenses are amortized over the period
cohered.

28
2.6.22 Capital Commitment and Contingent Liability

Commitments on Capital a/c not Provided for Rs.

Letter of Credit 912,484,139
Building construction Contract 8,959,037
Total 921,443,176
Contingent Liability Amounts
Head Office Land Registration Charge 12,000,000

2.7 Review of Previous Thesis

Review of literature is an essential part of all studies. It is way discover what

other research in the area of our problem has uncovered. It is also a way to
avoid investigating problems that have already been definitely answered.
Review of literature provides the foundation for developing a comprehensive
theoretical frame work from which hypothesis can be developed for testing. It
also minimizes the risk of pursuing the dead ends in research. But there are
very few research paper concerning comparative cost volume profit analysis
has been conducted. Few dissertations have been submitted relating to cost
volume profit analysis & the study is limited of various constraints. So this
study is attempted to review the previous research work on profit planning &
control as well as management accounting. As CVP analysis is one of the
major tools of PPC, the previous studies related to PPC are reviewed which
will helpful to further study.

Mr. Khagendra Prasad Ojha (1995) has done a research on “profit planning
and control in manufacturing public enterprises in Nepal”. For case study he
has selected two public enterprises namely Royal Drugs limited (RDL) &
Herbs production & processing company limited (HPPCL). His research was in
partial fulfillment of MBA, submitted to the central Department of
Management, Tribhuvan University. The study has covered a five years period
from FY 2046/47 to 2050/51.

29
The objectives are:

a) To analyze the trend of Profit planning.

b) To compare between production and sales plan.
c) To examine the variation between production plan and actual
production.

Mr. Ojha has pointed out various finding based on the analysis of data and
information. Some of the major findings are as follows:

a) Objectives of Nepalese public enterprise are 'not clear, conflict

between social objectives and profit objectives are hindering profit
planning program of PEs.

b) Inadequate planning's of profit due to lack of skilled planner.

c) Inadequate authority and responsibility to planning department.

d) Failure due to inadequate forecasting system.

e) Cost volume profit (price-cost-volume) relationships are not

considered when developing sales and pricing strategy.

f) Lack of entrepreneurship & commercial concept in overall

operations of the enterprises.

g) In adequate planning of profit due to lack of skilled manpower.

h) Inadequate evaluation of internal and external variables.

Mr. Gajendra Kumar Thakur (2001) has conducted research work on

topic of “cost control mechanism of Jankpur cigarette factory limited” for
partial fulfillment of MBA, Submitted to the central department of
management, Tribhuvan University. The study has covered five years of
period from FY 2051/52 to 2055/56. The general objective of the study was
to evaluate the cost control technique of JCF has for various finding by
Thakur.

The objectives are:

30
 a) To analyze the budget and cost control mechanism for the company.
b) To analyze the problems faced by company in terms of budget
formulation.
c) To analyze the cost and profit trend of the company in the light of
Budget.
d) To analyze the cost-volume-profit analysis for the company
e) To provide suggestions for improving the budgeting problems.

Major Findings:

 The cost volume profit analysis has indicated that contribution margin of
JCF is not sufficient to meet all its fixed costs. The factory's break even
sales during the study period always exceeded the actual sales volume. It
is absorbed that the company has not sufficient margin of safety, which
was loss figure. The high proportion of variable cost contribution margin
was not able to met increasing fixed costs. In the JCF observing the data
loss was occurring yearly but sale figure was fluctuating trend. It means
decreased sales over total cost did not bring profit but invite losses.

 Overtime, idle time and absenteeism are found most responsible for
labour cost increasing.

 JCF was funning in loss during study period due to high production cost,
high selling distributing cost, excess labour cost and material cost. So
JCF has to make proper plan to control unusual cost. It should b
entrusted with responsibility of categorizing the costs on product wise
basis.

Mr. Sagar Sharma (2002) has conducted a research work on

"Management Accounting practices in listed companies of Nepal." He has
focused his study to examine and study to practice of management
accounting tools in the listed companies of Nepal. Mr. Sharma's research
study is based only on primary data. Stratified random sampling with
proportionate allocation of percentage is followed to draw the sample.

31
 The objectives are:

a) To identify the areas where management accounting tools can be applied to

make strengthen the companies.
b) To identify the present practice of management accounting tools in
Nepalese Manufacturing Enterprises.
c) To identify the problem faced by Nepalese Manufacturing Enterprises in
applying management accounting tools.
d) To make recommendations to avoid difficulties in applying management
accounting tools in Nepalese Manufacturing Enterprises.

Major Findings are:

 Management accounting is to help managers in overall managerial

activities by providing information and helping in planning,
controlling and decision making.

 Lack of information & extra cost burden are the main reason behind
not practicing such tools.

 Different types of management accounting tools which are taught in

the colleges are not found applying by the listed companies of Nepal.

 Nepalese listed companies are in infant stage in practicing of

management accounting tool such as capital budgeting, annual
budgeting, cash flow, ratio analysis, activity costing, cost volume
profit relation etc.

 Regarding the tools practiced by the Nepalese manufacturing

companies for measuring and controlling their overall performance.
From the study it is cleared that 60% of the manufacturing
companies measure their performance on the basis of profit or loss
made by them during the year while 26% of the companies practiced
for measuring and controlling performance of the company. Where
as budgetary costing & break-even point both were followed by 7%.

32
 Regarding the techniques practiced by the Nepalese manufacturing
companies for pricing the product. From study it is cleared that 60 %
of the companies practice cost plus pricing, while 26 % of the
companies practice going rate pricing and 7 % of the companies
practiced target return pricing and break even pricing for their
product. Therefore, from the study it is cleared that cost plus pricing
technique is widely used by Nepalese manufacturing companies.

 Regarding the joint cost allocation tools practiced by the Nepalese

manufacturing companies. From the study 47 % of the companies
practiced joint cost allocation a unit or production basis. 40 % of the
manufacturing firm had their own method for joint cost allocation.
Such as ratio method, department wise and 13 % of the
manufacturing companies practice sales value methods for allocating
joint cost.

 Regarding the practice of transfer price in the Nepalese

manufacturing companies, it is cleared that 67 % of the
manufacturing companies practiced cost base transfer pricing 26% of
manufacturing companies practiced market based transfer pricing
whereas 7% of the manufacturing companies practiced negotiated
transfer price for their product.

 Regarding the decision-making and control process followed by

Nepalese manufacturing firm, it is cleared that 73% of Nepalese
manufacturing companies practiced control during the work period.
20% practiced control before work has to be start technique, where
as 7% practiced controls after finish the work. From the table,
control during the work period is most practiced techniques for
decision-making and control process.

 Regarding the cost and revenue estimation practice of Nepalese

manufacturing firm, it was found that 80 % of the manufacturing
companies practiced historical trend for cost and revenue estimation

33
 while 20 % manufacturing firm practiced market survey. Where as,
no one companies practiced zero based budgeting and judgment
analysis for their cost and revenue estimation purpose.

 Regarding the present problem faced by Nepalese manufacturing

companies in decision-making process, it is cleared that 53 %
Nepalese manufacturing companies face the problem of skilled
manpower in decision-making process. 27% of manufacturing
companies face the problem of undefined objective and 20%
companies face infrastructure problem in decision-making process.
While no one companies has lack of knowledge in decision-making
process.

Mr. Suraj Chandra Lamichhane (2003) has conducted the research work on
"Budgeting as tools of profit planning of public utility enterprises: A case study
of Nepal Telecommunication corporation" for master degree thesis submitted
to Shanker Dev Campus, Tribhuvan University.

The objectives are:

a) To study the present application of cost-volume-profit analysis system

of NTC.
b) To apprise and examine the practice and effectiveness of profit plan of
NTC
c) To identify Break Even Point (BEP) of NTC.
d) To provide necessary suggestions and recommendations based on
analysis for the company.

The major findings are:

 Achievement of sales is not satisfactory with are more variable than

budgeted sales.

 Sales budgets prepared by NTC, according to the nature of its

customers.

34
 NTC has prepared short range sales budget but long range budget is not
prepared in detail due to luck of effective programmed.

 Actual production lines in NTC are more fluctuated than budgeted

production line due to government influenced.

 There is a problem to analysis and control the cost due to overhead cost
is not classified systematically.

 Due to government direct interfere to PEs, has created problem of

autonomy in NTC.

 NTC has not practice to prepare projected profit and loss account &
balance.

 NTC is suffering from high fixed cost; there is idle cash and bank
balance and paying a huge amount of interest in every fiscal year.

 From the analysis of profit plan in NTC there is no proper practice of

cost segregation into fixed and variable and there is no systematic
approach to record manufacturing costs.

 NTC prepares various functional budgets to implement profit planning

system to some extent.

Mr. Durga Prasad Baral (2003) has conducted research work on topic of
“profit planning and control of Nepal Telecommunication Corporation” for
partial fulfillment of MBS, submitted to Shanker Dev Campus, T.U. the
study has covered five years period of FY 2051/52 to 2055/56 and has
pointed out various finding and recommendation.

The objectives are:

a) To analyze the trend of Profit planning.

b) To compare between production and sales plan.
c) To examine the variation between production plan and actual
production.

Major Findings are:

35
 The management of NTC is not success to utilize of its assets properly
and not able to sale telephone lines according to demand of customers.

 Customers' service and line maintained service are not satisfactory.

 Profit is earning but it is not satisfactory in monopoly situation of NTC.

 ISO sector is the main revenue sources but calling rate is decreasing day
by day.

 Cash budget shows the huge amount of current assets.

 NTC is completely ignored in variance analysis.

 Analysis shows that fixed cost of corporations highly incurred.

 The corporation has not proper practice of segregating cost into fixed
and variable.

 Overhead expenses are not classified systematically and it creates

problem to analyze expenses properly.

Mr. Prakash Khanal (2004) has conducted research work on the topic of
“Profit planning in public limited company of Nepal: A case study of Nepal
Telecom." For partial fulfillment of MBS, submitted to Central Department
of Management, T.U. This study has covered five year period from FY
1997 to 2002.

The objectives are:

a) To analyze the trend of Profit planning for the company.

b) To compare between profit and sales plan.
c) To examine the variation between production plan and actual sales.

Major Findings are:

 There is no proper or systematic way to classify the cost. It consolidates

all expenditure pertaining to operation, administrative, salary selling and
distribution under single roof as operation and maintenance expenditure
budget.

36
 The operating cost is not creating a drastic problem due to payment of
the low amount as interest on long term loan.

 NEA has adequately considered controllable and non controllable

variable affecting the organization.

 Break even analysis shows that the break even sales are lower than
actual sales which are the signal of good operational situation.

 NTC ignores CVPA, while developing the sales plan and pricing
strategy.

 There is a proper co-ordination among various directorates and

departments.

Miss Kalpana Bhattarai (2004) has conducted research on the topic

"Budgeting in public Enterprises: A case study of Nepal
Telecommunications Corporation” in partial fulfillment for MBA,
submitted Shanker Dev Campus, T.U. She has covered five years period
from FY 2053/54 to 2057/58. Bhattarai has stated some objectives and
finding.

The objectives are:

a) To analyze the Budget of company.

b) To analyze the problems faced by company in terms of budget
formulation.
c) To analyze the cost and profit trend of the company in the light of
Budget.
d) To provide suggestions for improving the budgeting problems.

Major Findings:

 NTC prepares both long term and short term budget but the long term
budget is confined only on the top level.

 The corporation is not able to maintain to proper coordination between

various directorates is required on the goals and objective of the

37
 corporations.

 Because of lack of skilled planners and budgeting experts, budgets are

prepared on adhoc basis. So there exists no consistency actual
performance with budget.

 Because of high demand of telephone line there exist small gap between
actual production and actual sales.

 All expenses are shown under only one budget name as "operating
expenses budget."

 CVP analysis shows that BEP is satisfactory. But CVP are not
considered while developing the sales plan and pricing strategy which is
a vital for profitability.

 Increasing trend in cost is another issue of NTC which needs to be

managed.

 Management is totally unknown to profit planning concept, corporate

planning and participative management.

Mr. Ramesh Ghimire (2005) has conducted the research work on the
"Profit planning in Nepal Telecom" for the partial fulfillment of MBS
submitted to Central Department of Management, Tribhuvan University.
The study has covered a five years of period from FY 2056/57 to 2060/61.

The objectives are:

a) To analyze the trend of Profit planning.

b) To compare between production and sales plan.
c) To examine the variation between production plan and actual
production.

Major findings:

 NTC prepares both tactical and strategic profit plan but strategic plan is
confined only to the top level executives.

 NTC sales revenue is in increasing trend during the study period.

38
  Operating costs have been controlled effectively during the study period.

 NTC is succeeding to achieve break even point in sales volume.

 NTC has utilized its available capacity satisfactorily.

 NTC has maintained sound liquidity during the study period.

 The net profit ratio of NTC indicates the sound position of profit. NTC
is earning profit in next running years.

 There is proper co-ordination between various directorates in regard of

the goals, objectives and strategies.

 NTC has not considered demand determinates such as family income,

price of mobile service, connection charges, cost of alternatives
available, cost of auto generation of PSTN phone and reliability of NTC
service while forecasting demand.

 All the expenses, such as manufacturing administrative and selling and

distribution are not separated systematically. Authority has combined all
expenses together and named it "Operation and maintenance expenditure
budget" like wise, operation and maintenance expenditure was very high
due to the higher amount of fixed cost and damage of high cost
infrastructure due Maoist insurgency.

Mr. Anil Shah (2005) has conducted a research on "cost volume profit analysis
a tools to measure effectiveness of profit planning and control; A case study of
Nepal Telecom." He has centered his study to examine CVP analysis as a tool
in service industry and to analyze the CVP and it s impact in profit planning.
For the practical fulfillment of MBS submitted to shaker Dev Campus,
Tribhuvan University, Shah has analyzed the five years financial statement and
has pointed out various objectives and findings:

The objectives are:

a) To analyze the cost –volume –profit for the company.

b) To compare between production and sales plan.

39
 c) To examine the variation between production plan and actual
production.

The major findings are:

 The company's variable cost is in proportion than fixed cost in total cost
amount, which contribute for lower contribution Margin.

 The company has high fixed cost (i.e. salary and wages, technical &
computer fees, deprecation, interest, provident fund & subsidies)

 Company has no any plan to reduce cost. There is lack of effective cost
control programs or techniques.

 The profit trend of the company is satisfactory. As compared to profit,

proportion is very high with fluctuated trend.

 The company has no detailed of any systematic expenses plan. The fixed
cost, variable cost, mixed expenses plan are the necessary elements for
profit planning & control.

 The company has no effective inventory policy. The inventory management,

raw material handling and controlling system are not efficient and effective.

 The government and Telecommunication Authority is the main authority in

price fixing and it directly interferes to price of telephone services.

 NTC has not proper practiced of segregating the costs into fixed and
variable or controllable and non controllable.

 There is no proper co-ordination among production, administration,

distribution, inventory and sales department.

 NTC has not utilized its capacity.

Mr. Samir Shakya (2005) has conducted research work on "Cost volume
profit analysis as a tools to measure the effectiveness of profit planning and
control: A case study of Nepal Telecom" in the partial fulfillment for MBS,
submitted to Shanker Dev Campus, T.U. Shakya has covered five years
period for FY 1998/99 to 2002/03 and listed some objectives and finding.

40
The objectives are:

a) To analyze the cost –volume –profit for the company.

b) To measure the effectiveness of profit planning and control tools.
c) To examine the variation between production plan and actual
production.

Major Findings are:

 Sales plan of NTC is not properly maintained. The company uses the
various methods for sales planning like market survey, distribution
network etc. but up to date record are not maintained. So they have lack
of proper budgeting system.

 NTC is not practicing the scientific and appropriate cost classification

technique costs are classified into fixed and variable as per the decision
of the management.

 Out of the total cost of NTC, variable cost is almost 60% in every year
which cause the low contribution margin.

 NTC is in high interest bracket, out of the total fixed costs almost 60%
is to be paid for interest. And the profitability of the company is greatly
influenced by high fixed cost.

 This company does not have any detailed and systematic practice of
planning of cost which is one of the essential elements of profit planning
and control.

 Lack of coordination between top and lower level of management.

 NTC is facing problem fluctuating international price of ISTD service.

Sometimes it also faces the problem of illegal calling of ISTD call.

 Out of the many main services, the cellular mobiles services are more
profitable than PSTN phone services as shown by the product
contribution margin.

 The financial position of the company is satisfactory. Gross profit

41
 margin ratio and net profit margin ration are satisfactory.

Mr. Kailash Poudyal (2005) has submitted a research on "profit planning

system and financial condition of Nepal Telecom." He has covered five years
period from 1996/97 to 2001/02

The objectives are:

a) To analyze the profit planning tools for the company.

b) To analyze the cost –volume –profit for the company.
c) To segregate the costs of company into fixed and variable costs and
unit variable cost.

Major Findings are:

 NTC has a practice of preparing both systemic (long range) and (tactical
short range) profit plan.
 Overheads are not classified systematically and it creates problem to
analyze is expenses properly.
 NTC is playing a huge amount of interest every year and it is suffering
from high fixed costs due to damage of infrastructure.
 CVP analysis of the authority has the satisfactory position and also
flexible budget analysis, the Telecom is able to earn operating profit of
its utilized capacity.
 The NTC does not maintain its periodic performance report
systematically.
 The company had not practice of classification of costs in to fixed costs
and variable cost.
 The total fixed costs of the company were increasing annually.
 Advertisement, salary and allowance, communication expenses,
insurance premium, depreciation and interest on long term loan were
higher portion of total fixed cost and the amount of these items were
highly incremental condition.
 The variable costs were also at increasing trends, and vital items were
material with direct expenses on purchase, royalty, sales promotion

42
 expenses, transportation and insurance expenses, salary and wages,
illegal call and breakage, complementary expenses, traveling expenses,
and fuel.

2.8 Research Gap

Many public or private enterprises are not practicing various accounting tools
and techniques to measure its performance in Nepal. Researcher should face
problem for analyzing financial statement. Though there is significant gab
between present researcher work and the previous research works. Most of the
researches, profit planning tools are analyzed in one way or the other but
impacts are rarely explained. Especially assets and liability management
analyses in public or private enterprises have not been done yet by other
researcher. For this purpose assets and liability management in NTC is studied.
It will also clear the contribution of public enterprises to build strong economic
condition of the nation. So, this study will be fruitful to those interested person
parties, scholars, professor, students, businessman and government for
academically as well as policy perspective.

43
 CHAPTER - III
RESEARCH METHODOLOGY

3.1 Introduction

“Research may be defined as the systematic and objective analysis and

recording of controlled observations that may lead to the development of
generalization principles or theories, resulting in prediction and possibly
ultimate control of events”(Kothari, 1990:56).

Since the definitions of this sort are rather abstract, a summary of some of the
characteristics of research may help to clarify its spirit, meaning and
methodology.

Thus the research:

 Is directed towards the solution of the problem

 Is based upon observable experience or empirical evidence.
 Demands accurate observation and description.
 Involves gathering new data from primary or first hand sources or using
existing data for a new purpose.
 Requires expertise and courage necessary to carry out investigation,
search the related literature and to understand and analyze the data
gathered.
 Involves the quest for answers to unsolved problems.

To sum up research is the process of a systematical and in depth study or

search of any particular topic, subject or area of investigation backed by the
collection, compilation, presentation and interpretation of relevant details or
data (Kothari, 1990:60).

44
Research Methodology refers to the various sequential steps to be adopted by
researcher in studying a problem with certain objectives in view. There for this
chapter deals with the following aspects of Methodology.

 Research Design
 Population and sample
 Sources of Data
 Data collection and procedure
 Data processing
 Research Variables
 Analytical Tools

3.2 Research Design

A research design is the specification of methods and procedures for acquiring

the information needed. It is the overall operational pattern of framework of the
project that stipulates what information is to be collected from which sources
by what procedure. If it is a good design, it will ensure that the information
obtained is relevant to the research questions and that it is collected by
objective and economical procedures.

“Research design is the plan structure and strategy of investigation convinced

so as to obtain answer to research questions and to control variance. The plan is
the overall scheme of program of the research. It includes an outline of what
the investigator will do from writing the hypothesis and their operational
implication to the financial analysis of data” (Kothari, 1990:72).

The research design is a plan to obtain the answer of research questions

through analysis of data. The research design of this study is analytical and
descriptive as this study is an examination and evaluation of assets and
liabilities management and revenue collection procedure in the Nepal Telecom.
The study is closely related with the various financial sections and other
accounting statements. This information is used to analyze and evaluate the

45
revenue collection and utilization and Assets and Liabilities Management
system of Nepal Telecom.

3.3 Population and Sample

In this study Nepal Telecom is taken for the research. So in this study, the
population as well as sample for the research is same. This unit represents the
total population and is studied in various aspects.

3.4 Nature and Sources of Data

Collection of data is the first step on statistical investigation. The structure of

statistical analysis and decision making is built on the data collected. Thus
government, business house and individuals collect requisite statistical data to
carry out their activities efficiently and effectively. The statistical data are
collected primarily due to the realizations that better decisions are possible with
more information. But, the data are inaccurate and inadequate may be wrong.
Hence, utmost care must be taken while collecting data.

The persons or organizations that have collected the data and the reports and
publications in which data are published are known as sources of data. Data
may be obtained either from the primary source or secondary source. A
primary source is one that itself collects the data as secondary source is one that
makes available the data through some other agency. For example, the records
and publications of the Ministry of Agriculture are illustrations of primary
source for agriculture data. If we take such data from publications of some
other sources say Trade promotion center this will constitute secondary sources
for these data.

Data collection by the research or through agent for the first time from related
field and possessing original character are known as primary source (data).
Primary data are also called field source. On the other hand, data collection by
some one else, used already and are made available to others in the form of

46
published statistics are known as secondary data. Once primary data have been
used, it loses its primary characteristics (originality) and becomes secondary
(Kothari, 1990:79).

3.5 Data Collection Procedure

The main source of the data is Nepal Telecom which is basically related with
secondary data. The secondary data for research is collected from published
and unpublished reports, articles and dissertations on concerned subjects.

Secondary data have been collected from the annual reports of Nepal Telecom.
Similarly other necessary data have been collected form the publication of
corporation, coordination council of Ministry of Finance (MOF), Central
Bureaus of Statistics (CBS), National Planning Commission, official
accounting and planning records of Nepal Telecom and related publication. For
the reference of materials, the researcher visited library of Shanker Dev
Campus and Central Library of T.U.

3.6 Research Variables

Revenue from sale of communication service in different types of consumers of

Telecom, Expenses, inventories, capacity utilization, profit and loss, Balance
sheet (NTC), Accounting policies are the research variables of the present
study.

3.7 Analytical Tools

Primary and secondary data which collected from the different sources are used
for analytical study by using the following statistical and financial tools.

 Financial Tools
 Statistical Tools

47
3.7.1 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 the
enterprises, which in turn are fruitful in exploring the strengths and weakness
of the financial policies and strategies. In order to meet the purpose of the
study, Ratio analysis has been used.

Ratio analysis helps us to summarize the large quantities of financial data and
to make quantitative judgments about the organization’s financial performance.

Types of Financial Ratios

a) Liquidity Ratio:

Liquidity ratios measure the firm’s ability to meet its maturing obligations.

i) Current Ratio: The current ratio is computed by dividing current

assets by current liabilities.

current assets
Current ratio =
current liabilities

Standard of current ratio = 2:1

ii) Quick Ratio: The quick ratio, or acid test, is calculated by

deducting inventories from current assets and dividing the
remainder by current liabilities.

current assets  Inventies

Quick ratio or acid test =
current liablities

Standard of quick ratio = 1:1

b) Leverage Ratios

48
Leverage ratios measure the degree to which the assets of the firm have been
financed by the use of debt.

i) Debt Equity Ratios (D/E Ratio): D/E ratio can be calculated by dividing
Long Term Debt (Total Debt) by shareholders Equity.

Long term Debt (total Debt )

Debt Equity Ratios =
Shareholders Equity

ii) Debt to total capital Ratio (DTC Ratio): DTC ratio can be calculated by
dividing Long Term Debt by permanent capital.

Long Term Debt

Debt to Total Capital Ratio (DTC) =
Parmanent Capital

iii) Interest coverage Ratios (IC Ratio): IC Ratio is determined by dividing

earnings before interest and taxes (EBIT) by the interest charges.

EBIT
Interest coverage Ratio (IC Ratio) =
Interest

c) Asset Management Ratio

A set of ratios which measure how effectively a firm is managing its assets and
whether or not the level of those assets is properly related to the level of
operation as measured by sales.

i) Inventory turnover ratio (It Ratio): The inventory turnover is defined as

the cost of goods sold divided by inventory.

Cost of good sold (Sales)

Inventory turnover ratio: =
Inventory (Closing stock)

ii) Debtor Turnover Ratio (DT Ratio): The DT is defined as the sales
divided closing debtors.

49
 Sales
Debtors Turnover Ratio =
Closing Debtors

iii) Average collection period (ACP): The ACP is calculated by dividing

Days in year by Debtors turnover Rations:

Days in a year
Average collection period (ACP) =
Debtors Turnover Ratio

iv) Fixed Assets Turnover Ratio (FAT Ratio): The Ratio of sales to total
fixed assets. It measures how effectively the firm uses its plant and
equipment to generate sales.

Sales
Fixed Assets Turnover Ratio =
Total Fixed Assets

v) Total Assets turnover Ratio (TAT Ratio): The total assets turnover ratio
is calculated by dividing sales by total assets.

Sales
Total Assets Turnover Ratio (TAT) =
Total Assets

vi) Capital Employed Turnover Ratio (CET Ratio): The CET ratio is
calculated by dividing sales by capita Employed.

Sales
Capital Employed turnover Ratio =
Capital Employed

d) Profitability Ratio:

Profitability ratios measure management effectiveness by the returns generated

on sales and investment.

i) Operating profit Ratio (OP Ratio): The operating profit is calculated by

dividing operating profit by sales:

50
 Operating profit
Operating profit Ratio (OP Ratio) =
Sales

ii) Net Profit Ratio (NP Ratio): The Net profit ratio is calculated by
dividing Net profit After Tax (NPAT) by sales.

Net profit After Tax

Net profit Ratio (NP) =
Sales

iii) Operating Expenses Ratio (OE Ratio): The operating Expenses Ratio is
calculated by dividing operating Expenses by sales.

Operating Expenses
Operating Expenses Ratio (OE Ratio) =
Sales

iv) Return on Assets (ROA): The return on assets ratio is calculated by

dividing operating income (NPAIT Interest) by Total Assets.

NPAT  Interest  (Operating Income)

Return on Assets =
Total Asset

v) Return on shareholders Equity (ROSE): ROSE ratio is calculated by

dividing NPAT (NET profit After Tax) by shareholders Equity.

NPAT
Return on Shareholders Equity (ROSE) =
Shareholders Equity

3.7.2 Statistical Tools

Some statistical tools which are useful to the research for the Analysis and
presentation of the data are as follows:

a) Arithmetic Mean (A.M)

b) Standard Deviation (S.D)
c) Co-efficient of Variation (C.V)
d) Correlation and Regression Analysis and P.E

51
 e) Diagram and Graphic Representation:

(a) Arithmetic Mean (A.M):

Arithmetic mean of a given set of observations is the sum divided by the

number of observations.

In general, if x1, x2 ….. xn are the given observations, then their

arithmetic mean, usually denoted by X is given by :

X 1  X 2  .....  x n
X 
n


X
n

Where, n = no. of observations

Σx = sum of the observation

 fx
If frequency is given then X 
N

(b) Standard Deviation (S.D):

Standard deviation is defined as the position square root of the arithmetic mean
of the squares of the deviations of the given observations from their arithmetic
mean. Thus if x1, x2 ….. xn is a set of n observations then its standard deviation
is given by:

Standard deviation, usually denoted by the letter b (small sigma)

 X  X 
1 2

n

1
where, X   x is the arithmetic mean of the given values.
n

52
(c) Coefficient of Variation (C.V)

According to professor Karl Pearson who suggested this measure, “coefficient

of variation is the percentage variation in mean, standard deviation being
considered as the total variation in the mean”.

S.D. 
Coefficient of variation (C.V) =
Mean ( X )

For the comparison the variability of two distributions are computed by the co-
efficient of variation for each distribution. A distribution with smaller C.V. is
said to be more homogeneous or uniform or less variable than the other and the
series with greater C.V is aid to be more heterogeneous or more variable than
the other.

(d) Correlation and Regression Analysis

i. Correlation analysis deals with the statistical techniques which measures the
degree of relationship or association between the variables. In other words it
helps us in analyzing the co-variation of two or more variables.

Karl Pearson’s coefficient of correlation or product moment correlation

coefficient or co-efficient of correlation measures the degree of association
between the two variables say x and y and is defined by

N  ZY   X  Y
r
N  X 2   X 2 N  Y 2  Y 2

Where,
N = number of observation in series x and y
ΣX = sum of observation in series x
ΣY = sum of observation in series y
ΣX2 = sum of squared deviation in series x
ΣY2 = sum of the squared deviation in series y

53
ΣX ΣY= sum of the product of observation in series x and y.
r = co-efficient of correlation
Value of r lies between -1 to +1

i.e. -1< r < +1

a) If r = 1, there is perfect positive relationship

b) If r = 1, there is perfect negative relationship
c) If r 0, there is no any relation between the series.

ii. Regression Analysis

Regression analysis is a mathematical measure of the average

relationship between two or more variables in terms of the original units of the
data.

iii. Probable Error:

After computing the value of the correlation coefficient the next step is to find
the extent to which it is dependable. Probable error of correlation coefficient,
usually denoted by P.E (r).

Probable error of the correlation co-efficient is given by:

P.E. (r) = 0.6745 x SE (r)

 0.6745
1 - r 2 
n

Where , r = correlation coefficient

n = no. of observation

d) Diagram and Graphical Representation

54
Diagrammatic and graphic presentation has a number of advantages, some of
which are enumerated below (Gupta, 1981).

i) Diagrams and graphs are visual aids which give a bird’s eye view of a
given set of numerical data. They present the data is simple, readily
comprehensible form.
ii) Diagrams are generally more attractive, fascinating and impressive than
the set of numerical. They are more appealing to the eye and leave a
much lasting impression on the mind as compared to the dry and
uninteresting statistical figures. Even a layman, who has no statistical
background, can understand them easily.

55
 CHAPTER-IV
DATA REPRESENTATION AND ANALYSIS

4.1 Introduction

The main purpose of this study is to examine the revenue collection, utilization
of collected revenue, assets management, and liabilities management of Nepal
Telecom. To achieve these objectives this chapter has analyzed the various
aspects of revenue collection, utilization, assets and liabilities from income
statement, balance sheet, accounting policies of the company and its related
variance of the company.

This chapter highlights the revenue collection sources and volume, assets and
liability management or position of assets and position of liabilities of NTC.
Some financial and statistical tools have been used to evaluate the financial
position of these organizations. Under the financial tools, ratio analysis is used
likewise under the statistical tools Arithmetic Mean (A.M), Standard Deviation
(S.D.), Correlation and probable Error (PE) is used. In ratio Analysis, liquidity
position is evaluated. With the help of ratio analysis financial performance of
NTC has been analyzed and interpreted, so that the strengths and weakness of
these organization as well as historical performance and financial condition can
be determined.

4.2 Revenue Collection of NTC

NTC collects its own revenue from sales of telephone service on different
sources to the different types of customers, which are as follows:

(a) Operation Revenue Sources:

(1) Local telephone, (2) Domestic Trunk Telephone, (3) International

telephone, (4) Domestic telegraph, (5) International telegraph, (6) International

56
 telex (7) Leased circuits, (8) Tele fax, (9) Mobile and Internet, (10)
Interconnection (11) Others.

(b) Non-Operating Revenue Source:

(1) Interest on Bonds/ T-bills (2) Interest from Bank Deposits (3)
Interest from pension fund, (4) Income from Intelsat Investment and (5) other.

Table 4.1
Revenue Collection Source and Volume
(NRs. In million)
Fiscal Year 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Source
Operating 3320.429 4321.053 4629.892 4956.376 5487.179 6159.520 7208.087 8093.89
revenue
Local 559.045 734.203 868.582 1072.736 1369.664 1533.157 1876.737 2047.005
telephone
Domestic T. 641.387 814.914 938.900 1123.786 1401.774 1535.094 1452.860 1540.769
Telephone
Int. Telephone 1874.516 2517.759 2529.431 2295.139 2134.614 2278.136 2732.728 2702.210
Domestic 1.167 1.021 0.829 0.682 0.574 0.768 0.231 0.289
telegraph
Int. Telegraph 1.325 0.931 0.989 0.770 1.454 0.950 0.754 0.78933
Int. Telex 34.880 29.992 30.645 19.673 19.192 14.597 10.446 6797
Leased circuits 39.770 48.593 49.318 32.137 38.150 30.395 15.628 20.016
Tele fax 0.874 0.745 0.231 0.225 0.110 0.06 0.117 0.09733
Mobile internet - - 8.276 185.285 292.804 428.558 719.164 1482.434
Interconnection - - - - - - - 17.103
Others 167.467 172.895 202.690 225.983 228.843 337.805 399.422 276.391
Non operating 196.360 267.046 310.473 372.006 441.469 396.472 461.197 445.589
Int. on Bond/ 21.716 0.820 - 102.612 99.305 94.305 110.974 134.311
T.Bills
Int. From Bank 39.782 56.063 179.525 218.361 306.056 284.559 308.572 269.380
Deposit
Int. from P. 45.505 66.358 92.502 - - - 4.234 9.527
fund
Income from 11.413 15.417 18.011 20.678 20.662 - - -
internet
Others 71.338 123.854 13.774 30.354 15.446 17.094 37.417 32.372
Sales of T.P. 5.606 4.533 6.660 - - - - -
Total revenue 3516.789 4588.099 4940.364 5328.382 5928.648 6555.992 7669.284 8539.486
Source: Nepal Telecom, Annual Report 2006/07

57
Above different sources can be categorized in two parts only (ii) Operating
revenue (ii) non operating revenue.

Table 4.2
Total, Operating and Non-operating Revenue
(NRs in million)
Source Total Revenue Operating Revenue Non-operating
Fiscal Year Revenue
1999 3516.789 3320.429 196.360
2000 4588.099 4321.053 267.046
2001 4940.364 4629.892 310.473
2002 5328.382 4956.376 372.006
2003 5928.648 5487.179 441.469
2004 6555.992 6159.520 396.472
2005 7669.284 7208.087 461.197
2006 8539.486 8093.897 445.589
Source: Nepal Telecom, Annual Report 2006/07

Figure 4.1
Total, Operating and Non-operating Revenue

9000
8000
7000
Nrs. in Million

6000
5000
4000
3000
2000
1000
0
1999 2000 2001 2002 2003 2004 2005 2006
Fiscal Year

Total Revenue Operating Revenue Non-operating Revenue

4.2.1 Operating Revenue Ratio (ORR)

Operating revenue ratio can be calculated by the following formula:

58
 Operating Revenue in the year
Operating Revenue Profit =  100%
Total Revenue in the year

Table 4.3
Operating Revenue Ratio (ORR)
(NRs. In million)
Fiscal Year Total Revenue Operating Revenue ORR (%)
1998/1999 3516.789 3320.429 94.42
1999/2000 4588.099 4321.053 94.18
2000/2001 4940.364 4629.892 93.72
2001/2002 5328.382 4956.376 93.02
2002/2003 5928.648 5487.179 92.55
2003/2004 6555.992 6159.520 93.95
2004/2005 7669.284 7208.087 93.99
2005/2006 8539.486 8093.897 94.78
Source: Nepal Telecom, Annual Report 2006/07

In above table operation revenue ratio shows that the ORR in 1998/1999 is
94.42% but it is in decreasing trend up to 2002/2003. From 2002/2003 to
2004/2005 it is going in increasing trend but less than the FY 1998/1999.

4.2.2 Non-operating Revenue Ratio (NORR)

It can be calculated by the following formula,

Non - operating Revenue

Non-operating Revenue Ratio =  100%
Total Revenue

Table 4.4
Non-operating Revenue Ratio (NORR)
(NRs. In million)
Fiscal Year Total Revenue Operating Revenue ORR (%)
1998/1999 3516.789 196.360 5.58
1999/2000 4588.099 267.046 5.82
2000/2001 4940.364 310.473 6.28
2001/2002 5328.382 372.006 6.98
2002/2003 5928.648 441.469 7.45
2003/2004 6555.992 396.472 6.05
2004/2005 7669.284 461.197 6.01
2005/2006 8539.486 445.589 5.22
Source: Nepal Telecom, Annual Report 2006/07

59
In above table shows that the NORR in year 1998/1999 is 5.58% and it is in
increasing trend up to F. year 2002/2003. But, from fiscal year 2003/2004 to
2004/2005 it is in decreasing trend and decreased to 5.22%.

4.3 Revenue Collection of NTC

Revenue of different years (1999 to 2006) of NTC is shown by the following

table:

Table 4.5
Revenue Collection Year Wise
(NRs. In million)
Year Total Revenue of NTC % increase
1998/1999 3516.789 -
1999/2000 4588.099 30.46
2000/2001 4940.364 7.68
2001/2002 5328.382 7.85
2002/2003 5928.648 11.27
2003/2004 6555.992 10.58
2004/2005 7669.284 16.98
2005/2006 8539.486 11.35
Source: Nepal Telecom, Annual Report 2006/07

Figure 4.2

Total Revenue of NTC

40
% increase

30
20
10
0
1999 2000 2001 2002 2003 2004 2005 2006
Fiscal Year

T. Revenue of NTC

60
 Above table shows that the total volume of revenue collection of NTC is
increasing trend. In FY 1999/2000, NTC revenue is increased by 30.46% but in
year 2000/01, 2001/02, 2002/03, 2003/04, 2004/05 and 2005/06 are 7.68%,
7.85%, 11.27%, 10.58%, 16.98% and 11.35% respectively.

4.4 Revenue Expenditure in Different Heading by NTC

Collected Revenue utilized by the Nepal Telecom on the following expenditure

headings: (i) Employees costs, (ii) operation and maintenance cost, (iii)
Administrative expenses, (iv) Interest on subscribers Deposits, (v) interest on
loan, (vi) Depreciation (vii) loss (Gain) on foreign exchange, (viii) Bonus, (ix)
Incentive package, (x) provision for Income Tax (xi) Income Tax Adjustments,
relating to earlier years (xii) adjustment relating to earlier year (net) divided of
Equity and (xiii) transfer to sinking fund.

Table 4.6
Revenue Utilization of NTC
Fiscal Year 1999 2000 2001 2002 2003 2004 2005 2006
Uses
Employees 260.467 326.049 567.51 527.763 773.630 664.193 717.408 607.873
costs
Operation 269.323 284.134 304.060 386.247 453.831 503.303 490.886 330.980
and main
Adm. Exp. 221.897 127.859 174.322 205.155 577.402 949.569 874.343 1068.212
Int. on sub. 25.833 35.694 43.604 57.069 67.396 38.35 82.249 64.385
Deposit
Int. on loan 303.793 345.731 290.714 269.908 143.654 38.407 15.955 3.234
Depreciation 588.706 667.087 769.026 786.986 799.491 863.863 931.685 755.578
Bonus 69.277 96.537 112.894 127.620 170.396 174.982 180.670 137.038
Incentive 62.740 83.893 88.382 93.071 107.825 131.231 120.939 90.045
package
P/L on - - - (72.033) (207.992) (157.992) 162.000 251.422
Foreign Ex.
Priors years (19.192) 21.527 (28.657) 121.731 43.598 (20.563) (55.999) (538.144)
Adj.
Income tax 552.269 638.352 726.374 702.081 761.081 852.933 100.337 848.547
pro.
Income tax - 32.816 46.374 - 44.182 161.964 6.556 256.108
Adj
Dividend to 66.597 66.597 123.231 164.309 143.771 348.979 554.002 217.957

61
Eq.
Transfer of 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000
Sinking
Fund
Total 2406.71 2731.296 3217.843 3374.907 3883.265 4583.442 5081.061 5174.52
Expenditure
Total 3576.789 4588.098 4940.364 5328.382 5928.648 6555.992 7669.284 6404.0
income
Net Profit 1110.079 1856.802 1722.541 1953.475 2045.383 1972.550 2588.233 1230.092
A. Divided
Add. 4050.642 5166.721 7017.521 8740.044 10693.519 12738.902 14711.472 17299.68
Opening
Bal.
Retained 5160.721 7017.523 8740.044 10693.519 12738.902 14711.452 17299.676 18529.77
earning
Source: Nepal Telecom, Annual Report 2006/07

Total Income, utilization and retained Earning can be shown on the following
table clearly.

Table 4.7
Total Income, Utilization and R/E of NTC
(NRs. In Millions)
Fiscal Year Total income Utilization Retained Earnings
1998/1999 7567.431 2406.71 5160.721
1999/2000 9748.819 2731.296 7017.523
2000/2001 11957.887 3217.843 8740.044
2001/2002 14068.426 3374.97 10693.519
2002/2003 16622.167 3883.265 12738.902
2003/2004 19294.894 4583.442 14711.452
2004/2005 23280.736 5001.061 17299.675
2005/2006 25839.162 6899.364 18939.798
Source: Nepal Telecom, Annual Report 2006/07

Above table shows clearly that the total income, utilization and retained
earning is in increasing trend year by year, so it is favorable condition for the
NTC and the retained earning money should be utilized in productive sector to
earn more benefit.

62
 Figure 4.3
Total Income, Utilization and R/E of NTC
20000

15000
NRs. in Million

10000

5000

0
1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006
Fiscal Year

Utilization Retained Earnings

4.5 Utilization of Revenue by Nepal Telecom

Table 4.8
Utilization of Revenue by NTC
(NRs. In Million)
Fiscal Year Nepal Telecom
Collection Utilization Profit (Loss)
1999 3616.789 3406.71 1110.079
2000 4588.098 2731.296 1856.802
2001 4940.364 3217.843 1722.521
2002 5328.382 3374.97 1953.457
2003 5928.648 3883.265 2045.383
2004 6555.992 4583.442 1972.55
2005 7669.284 5081.061 2588.223
2006 8539.487 6899.364 1640.123
Source: Nepal Telecom, Annual Report 2006/07

Above table shows that the revenue collection volume of NTC is increasing
trend through out the study period. NTC shows more profits up to 2006.

NTC from year 1999, it is going to increasing trend of profit up to 2006. From
year 2003, NTC shows the grater volume of profit to year by year to 2006. So
that NTC should not out its utilization (expenditure) to upward its profit
further.

63
4.6 Assets and Liabilities Management by NTC

4.6.1 Assets Management by NTC

Nepal Telecom includes the following items in Asset management

A. Fixed Assets

 Fixed Assets (Land, Building, Plant and Machinery)

 Capital work-in0 progress (EIP, capital stock)
 Investment (Govt. Securities, Pension, Fund, etc.)

B. Current Assets, Loans and Advances

 Stores & spares

 Sundry Debtors
 Interest Accrued on Investment
 Unexpired L/C & Advances
 Advance & Loans to Employees
 Inter-branch Balance
 Bank-Balance
 Cash Balance

C. Deferred Expenditure

Table 4.9
Assets Management
(Rs. In million)
Fiscal Year Fixed Assets Current Deferred Exp. Total Assets.
Assets
1998/1999 7113.40 5714.90 - 12828.3
1999/2000 7761.97 8285.90 - 16047.87
2000/2001 9098.65 9461.47 - 18560.12
2001/2002 8938.72 11153.68 - 20092.4
2002/2003 9263.79 12320.60 180.48 21764.87
2003/2004 10033.00 15403.34 166.16 25602.50
2004/2005 11300.49 18424.15 168.34 29892.98
2005/2006 11552.34 20925.639 144.808 32652.79
Source: NTC, Annual report 2000/01 to 2006/2007

64
4.6.1.1 Fixed Assets Ratio (FAR)

Fixed assets ratio can be calculated by the following formula

Fixed Assets
Fixed Assets Ratio (FAR) =  100%
Total Assets

4.6.1.2Current Assets Ratio (CAR)

It is calculated by dividing current assets by total assets.

Current Assets
Current Asset Ratio (CAR) =  100%
Total Assets

Table 4.10
Calculation of Fixed and Current Ratio
(NRs. In millions)
Fiscal Year Total Fixed Current FAR (%) CAR %
Assets Assets Assets
1998/1999 12828.30 7113.40 5714.90 55.45 44.55
1999/2000 16047.87 7761.97 8285.90 48.37 51.63
2000/2001 18560.12 9098.65 9461.47 49.02 50.98
2001/2002 20092.4 8938.72 11153.68 44.49 55.51
2002/2003 21764.87 9263.79 12320.60 42.56 56.61
2003/2004 25602.50 10033.00 15403.34 39.19 60.16
2004/2005 29892.98 11300.49 18424.15 37.80 61.63
2005/2006 32652.79 11552.34 20925.639 35.38 64.09
Source: Nepal Telecom, Annual Report 2006/07

Above table shows that the fixed assets ratio in the year 1998/1999 is 55.45%
and it is in decreasing trend up to the year 2005/2006 is 35.47, which is
favorable condition for the company current asset ratio is in increasing trend
from year 1998/1999 to 2005/2006 (44.55 to 64.09), so the working capital is
in an increasing trend, which is favorable condition for the company.

4.6.2 Liabilities Management by NTC

Nepal Telecom Ltd includes the following items in liabilities management

65
A. Equity Capital and Reserve:

 Equity Capital
o Government’s original contribution
o Contribution from Government of India
o Contribution from Government of Japan
o Contribution from Government of FRG
o Contribution from Government of Denmark.
o Contribution from Government of Finland.
o Contribution from UNDP.
 Reserve & Surplus
o Capital Reserve
o Sinking fund
o Retained Earning

B. Long term Debt:

 Loans from Government of Nepal Against

o IODA credit
o Belgium Grant
o French Grant/ Loan
o NDF credit
o Finland Government
o Danish Government

C. Current Liabilities and Provisions

 Current liabilities
o Sundry Creditors
o Interest of Accrue and Due
o Other Liabilities
o Deposit & Advances
 Provisions

66
 o Income tax
o Proposed dividends
o Pension and Gratuity
o Accumulated leave
o Bonus provisions
o Incentive Provisions

Table 4.11
Liabilities Management by NTC
(Rs. In Million)
Fiscal Year Equity and Long term CLC Total
Revenue Debt provision liabilities
1998/1999 6666.14 3435.24 2726.91 12828.30
1999/2000 8554.37 3702.39 3790.71 16047.47
2000/2001 10979.12 3050 4500.22 18530.12
2001/2002 12881.71 2218.11 4992.58 20092.94
2002/2003 14954.42 952.35 5858.10 21764.87
2003/2004 16927.41 299.99 8054.42 25281.82
2004/2005 19521.864 233.780 10137.347 29892.99
2005/2006 20757.10 - 11895.69 32652.787
Source: NTC, Annual Report, 2000/2001 to 2006/07

4.6.2.1 Equity and Reserve Ratio (ERR)

It is calculated by dividing Equity and Reserve Ratio y Total Liabilities.

Equity and Re serve

Equity and Reserve Ratio (ERR)   100%
Total Liabilities

4.6.2.2 Long Term Debt Ratio (LTDR)

Long Term Debt Ratio can be calculated by dividing long term Debt by total
liabilities.

Long Term Debt

Long term Debt Ratio (LTDR) =  100%
Total Liabilities

67
 4.6.2.3 Current Liabilities and Provision Ratio (CLPR)

It is calculated by the following formula

CL & Provisions
Current liabilities & Provision Ratio (CLPR) =  100%
Total Liabilities

Table 4.12
Calculation of Different Liabilities Ratios
(Rs. In million)
Fiscal Eq & LTD CL & Total ERR LTDR CL{PR
Year Reserve Provision Liab. (%) (%) (%)
1998/1999 6666.14 3435.24 2726.91 12828.30 51.96 26.78 21.26
1999/2000 8554.37 3702.39 3790.71 16047.47 53.31 23.07 23.62
2000/2001 10979.12 3050 4500.22 18530.12 59.25 16.46 24.29
2001/2002 12881.71 2218.11 4992.58 20092.94 64.11 11.04 24.85
2002/2003 14954.42 952.35 5858.10 21764.87 68.71 4.38 26.92
2003/2004 16927.41 299.99 8054.42 25281.82 66.95 1.19 31.86
2004/2005 19521.864 233.780 10137.347 29892.99 65.31 0.78 33.91
2005/2006 20757.10 - 11895.69 32652.787 63.57 0 36.43
Source: Nepal Telecom, Annual Report 2006/07

Above calculation shows that the equity and reserve ratio is in increasing trend
it means the company has sufficient equity capital and reserve volume.

Long term dent ratio in year 1998/1999 is 26.78% and its trend is decreasing
and up to year 2005/2006 is zero so that Ltd. Ratio is the company is favorable
and the company has no long term debt the company should not pay interest in
future.

Current liabilities and provision ratio is in increasing trend. In Fiscal year

1998/99 it shows that the company has more current payment and provision.

4.6.3 Assets Management Position of NTC

Assets position shows that fixed assets of NTC are increasing trend. Similarly
current assets of NTC are increasing trend, it means working capital capacity is
better and working capital is sufficient.

68
 Table 4.13
Assets Management (Position) of NTC
Fiscal Year Fixed Assets Current Assets Def. Exp. Total Assets
1999
NTC 7113.40 5714.90 - 12828.3
2000
NTC 7761.97 8285.90 - 16047.87
2001
NTC 9098.65 9461.47 - 18560.12
2002
NTC 8938.72 11153.68 - 20092.44
2003
NTC 9263.79 12320.60 180.48 21764.87
2004
NTC 10033.00 15403.34 166.16 25602.5
2005
NTC 11300.49 18424.15 168.34 29892.98
2006
NTC 11582.34 20925.639 144.808 32652.79
Source: Annual Report 2006/07

Among the assets of NTC there are fewer amounts of account receivable and
prepaid, advances loans and deposits. Instead of increasing this amount it is
being decreased year by year.

The NTC should decreased its fixed assets and increased its current assets to
achieve the better performance of working capital, which can be help for future
profit (benefit) and loan amount will be decreased.

4.6.4 Liability Management Position of NTC

The liability side of balance sheet of NTC from F/Y 1999 to 2006 shows that
capital reserve and retained earning with increasing trend of large volume ;
which are kept ideality, is not a good sign. This shows that NTC financial
structure is not well structured. The amount of retained earning should be used
in productive sector for more benefit and for society improvement

69
 Table 4.14
Liability Management of NTC
(Rs. In million)
Fiscal Year Equity and Current Deferred Total Liabilities
Reserve Liabilities Expenses
1999
NTC 6666.15 3435.24 2726.91 12828.3
2000
NTC 8554.37 23702.39 3790.71 16047.47
2001
NTC 10979.12 3050.78 4500.22 18530.12
2002
NTC 12881.71 2218.11 4992.28 20092.4
2003
NTC 14954.42 982.35 5858.10 21764.87
2004
NTC 16927.41 299.90 8054.42 25281.70
2005
NTC 19521.864 233.780 10137.347 29892.98
2006
NTC 20757.1 – 11895.69 32652.79
Source: Annual Reports, 2006/07

4.7 Analysis and Presentation of Financial Tools Financial Analysis

Ratio analysis is a widely used tool of financial analysis. The term ratio
represents the numerical or quantitative relationship between two variables.
Financial analysis is a tool used to know the performance of any enterprise. It
provides guidelines especially in spotting trend towards better or poor
performance. Since financial efficiency is vital element to achieve the goal the
management should be aware of the current financial position. If present
condition can be assessed than the management can predict the future position.
Corrective action can be taken to improve financial position. So, it is very
important for any enterprise to analyze its financial position with the help of
Ratio Analysis.

70
4.7.1 Current Ratio

Current Assets
Current Ratio 
Current Liabilities

This ratio helps to analyze the financial capacity to repay current debt.

Table 4.15
Current Ratio
[Rs. in Millions]
Fiscal Year NTC
Current Assets Current Current Ratio
Liabilities
1999 5714.90 2726.91 2.10
2000 8285.50 3790.71 2.19
2001 9461.47 4500.22 2.10
2002 11153.68 4992.58 2.23
2003 12320.60 5858.10 2.10
2004 15403.34 8054.42 1.91
2005 18424.15 10137.347 1.82
2006 20925.64 11895.69 1.76
Arithmetic Mean 1.76
Standard 0.16
Deviation
Co-efficient of 7.88
variation (C.V)
Source: Annual Report 2006/07

The current ratio of NTC is around standard (2:1). NTC is maintaining the
standard of current ration and capable in payment of current liabilities at the
time of requirement. Standard deviation and C.V. is also minimum. Among
many public utilities, NTC seems too efficient in maintaining the good liquidity
position.

4.7.2 Debt Equity Ratio (D/E Ratio)

Debt Equity Ratio is calculated as follows:

Total Debt
Debt Equity Ratio (D / E Ratio) 
Shareholder Equity

71
 Table 4.16
Debt Equity Ratio
[Rs is millions]
Fiscal Year NTC
Total Debt Shareholder Equity Ratio
1999 4981.81 6666.15 0.75
2000 5637.77 8554.37 0.66
2001 4980.64 10979.13 0.45
2002 4020.319 12881.72 0.31
2003 3292.82 14954.419 0.22
2004 3243.37 16927.41 0.19
2005 3909.192 19521.87 0.20
2006 4090.353 20757.1 0.20
Mean 0.37
S.D. 0.21
C.V. 56.76
Source: Annual Report 2006/07

Debt Equity Ratio standard is 1:1 Higher ratio shows the large amount of
external source i.e. debt and lower ratio shows the less utilization of debt.
NTC's mean ratio is 0.37 which is less than standard. NTC has emphasized
internal funding rather than external.

4.7.3 Debt to Total Capital Ratio (DTC Ratio)

To know the proportion of long term debt on total capital employed. It is

calculated as follows:

Long Term Debt

DTC Ratio 
Permanent Capital (Capital Employed)

72
 Table 4.17
Debt to Total Capital Ratio
[Rs in million]
Fiscal Year NTC
Long Term Debt Capital Employed Ratio
1999 3435.277 10101.384 0.34
2000 3702.391 12256.76 0.30
2001 3050.780 14029.90 0.22
2002 2218.105 15099.82 0.15
2003 952.357 15906.77 0.06
2004 299.99 17227.40 0.02
2005 233.780 19755.65 0.01
2006 0.000 20757.10 0
Mean 0.14
S.D. 0.13
C.V. 92.86
Source: Annual Report 2006/07
Mean of the ratio came to be 0.14 and C.V. is 92.86% of NTC. The ratio of
NTC is in decreasing trend. NTC with lower ratio is subjected to lower risk and
this will in turn decrease the chance of getting higher return.
4.7.4 Interest Coverage Ratio (IC Ratio)
It indicates the ability of a firm to pay interest charges on its borrowed capital.
It is also called time interest earned ratio.
( NPBIT) Net Pr oft Before Int. and Tax
Interest Coverage Ratio (ICR ) 
Interest
Table 4.18
Interest Coverage Ratio
[Rs. in million]
Fiscal Year NTC
Ratio NPBIT Interest Ratio
1999 1.71 2063.57 329.63 6.26
2000 1.15 2981.24 381.425 7.82
2001 1.15 2957.82 334.32 8.85
2002 1.61 3079.81 326.98 9.42
2003 1.00 3210.47 211.05 15.21
2004 0.49 3447.41 106.782 32.28
2005 0.85 4247.32 98.204 43.25
2006 0.50 3500.43 90.16 38.82
Mean 1.06 20.24
S.D. 0.42 14.32
C.V. 39.62% 40.75%
Source: Annual Report 2006/07

73
NTC's interest coverage ratio is in increasing year by year i.e. 6.26 to 38.82 and
Mean ratio is 20.24.

NTC has very sound interest payment capacity through its operating profit,
which guarantees the secured investment for creditors as well as high dividend
rate and high EPS to shareholder.

4.7.5 Inventory Turnover Ratio (IT Ratio)

This ratio measures how many times the overage stock is sold during the year.
It is calculated as follows:

Sales
Inventory Turnover Ratio 
Clo sin g Stock

Table 4.19
Inventory Turnover Ratio
[Rs. in million]
Fiscal Year NTC
Ratio Sales Closing Stock Ratio
1999 5.93 3320.43 388.036 0.56
2000 5.56 4321.053 397.38 10.87
2001 7.29 4629.89 458.43 10.10
2002 6.98 4956.38 474.80 10.44
2003 8.49 5487.18 507.91 10.80
2004 8.96 6159.52 483.23 12.75
2005 10.83 7208.087 400.78 17.99
2006 11.33 8093.90 401.75 20.15
Mean 8.17 12.71
S.D. 2.00 3.86
C.V. 24.48% 30.37%
Source: Annual Report 2006/07

A high inventory turnover is indicative of efficient inventory management.

The ratio of NTC is in increasing trend. The inventory turnover ratio's mean of
NTC is 12.17. NTC is very good satisfactory (high inventory turnover). The
ratio is going to in increasing trend; it indicates the positive relationship
between them.

74
4.7.6 Debtors Turnover Ratio (DT Ratio)

It is calculated as follows:

Sales
Debtors Turnover Ratio 
Clo sin g Debtors

This ratio indicates the velocity of debt collection of a firm.

Table 4.20
Debtors Turnover Ratio
[Rs in million]
Fiscal Year NTC
Sales Closing Stock Ratio
1999 3516.80 1612.64 2.18
2000 4588.10 2300.94 1.99
2001 4940.40 2771.43 1.78
2002 5328.4 3108.44 1.71
2003 5928.6 1760.77 3.37
2004 6556.0 2468.08 2.53
2005 7669.00 3030.28 2.53
2006 8539.5 3480.47 2.45
Mean 2.33
S.D. 0.5
C.V. 21.89%
Source: Annual Report 2006/07

The higher debtors’ turnover ratio indicates efficient collection of debtors. It

shows the short period collection of cash from debtor. DT ratio shows that
there is lesser in every year. Average DTR of NTC is 2.33.

75
Standard deviation shows that there is less deviated in NTC. There is only
21.89% of coefficient of variation. Therefore is homogeneous in debtor
turnover ratio in NTC.

4.7.7 Average collection Period (AC Period)

Average collection period is calculated by the following formula.

Table 4.21
Average Collection Period
[Rs. in million]
Fiscal Year NTC
Days in Year DTR ACP
1999 365 2.18 167.43
2000 365 2.00 182.5
2001 365 1.78 205.10
2002 365 1.71 213.45
2003 365 3.37 108.31
2004 365 2.66 137.22
2005 365 2.53 144.77
2006 365 2.45 148.98
Mean 162.91
S.D. 33.36
C.V. 20.48%
Source: Annual Report 2006/07

Average collection period of NTC in 1999, 2000. 20001, 2002, 2003, 2004,
2005 and 2006 are 167.43, 182.5, 205.10, 213.45, 108.31, 137.22, 144.27 and
148.98 respectively. The ACP of NTC is worst in year 2002. Average ACP of
8 years of NTC is 162.91.

4.7.8 Total Fixed Assets Turnover Ratio

It is calculated by dividing sales revenue by total fixed assets. This ratio helps
to analyze the efficiency with which the firm has been using its fixed assets to
generate sales.

Sales Re venue
Total Fixed Assets Turnover Ratio 
Total Fixed Assets

76
 Table 4.22
Total Fixed Assets Turnover Ratio
[Rs in millions]
Fiscal Year NTC
Sales Total Fixed Assets Total Fixed Assets Turnover
Revenue Ratio
1999 3320.429 7113.40 0.47
2000 4321.05 7761.98 0.56
2001 4629.89 9098.65 0.57
2002 4956.38 8938.72 0.55
2003 5487.18 9263.79 0.59
2004 6159.52 10033.00 0.61
2005 7208.087 11300.405 0.64
2006 8093.90 11582.34 0.70
Mean 0.58
S.D. 0.07
C.V. 12.07
Source: Annual Report 2006/07

From above table NTC Fixed Assets Turnover Ratios’ Mean, S.D and C.V.
seemed 0.58, 0.07 and 12.07% respectively. The ratio in NTC depicted
increasing trend year by year except 2001.

Increment in fixed asset turnover ratio indicates the improved work efficiency
and Fixed Assets has been effectively mobilized and good financial condition.
Average ratio of NTC is satisfactory. Higher mean ratio of NTC shows better
utilization of Fixed Asset. CV analysis showed moderate uniformity in asset
turnover ratio of NTC.

4.7.9 Total Assets Turnover Ratio (TATR)

Total Asset Turnover Ratio is calculated by following formula.

Sales
Total Asset Turnover Ratio 
Total Assets

This ratio reflects how well the companies assets are being used to gene rate its
sales.

77
 Table 4.23
Total Assets Turnover Ratio
[Rs in millions]
Fiscal Year NTC
Sales Total Assets TATR (%)
1999 3320.43 12828.30 25.88
2000 4321.05 16.47.48 26.93
2001 4626.89 18530.12 24.99
2002 4956.38 20092.41 24.67
2003 5487.18 21764.87 25.21
2004 6159.52 25602.50 24.04
2005 7208.087 29892.98 24.11
2006 8093.90 32652.79 24.79
Mean 25.08
S.D. 0.89
C.V. 3.55%
Source: Annual Report 2006/07

The above table shows that ratios in NTC are in fluctuating trend. Mean ratio
of NTC appeared considerably higher which signifies that NTC is more
successful in utilizing the resources in revenue generating sector.

Though sales revenue has increased each year, total assets has also increased
CV of the ratio depicted that the ratio remained more consistent in NTC.

4.7.10 Capital Employed Turnover Ratio

Sales
Capital Employed Turnover Ratio 
Capital Employed

Capital Employed = Equity Capital + Reserve and Surplus + Long Term Debt

78
 Table 4.24
Capital Employed Turnover Ratio
[Rs. in millions]
Fiscal Year NTC
Sales Capital Employed
Ratio
1999 3320.43 10101.38 32.87
2000 4321.05 12256.77 32.25
2001 4626.89 14029.90 33.00
2002 4956.38 15099.83 32.82
2003 5487.18 15906.77 34.50
2004 6159.52 17825.12 34.56
2005 7208.087 19755.65 36.49
2006 8093.90 20757.1 38.99
Mean 34.81
S.D. 2.00
C.V. 5.75%
Source: Annual Report 2006/07
Higher mean ratio 34.81 in NTC means that NTC has used capital more
efficiently for income generating purpose. The consistency in the ratio was
found higher in NTC from the less C.V. value.
4.7.11Net Profit Ratio
This ratio measures overall firm’s ability to turn each rupee sales into profit.
It is calculated by the following formula,
Net Pr ofit After Tax
Net Pr ofit Ratio 
Sales
Table 4.25
Net profit Ratio
[Rs in Millions]
Fiscal Year NTC
Net Profit Sales Ratio
1999 1110.08 3320.43 33.43
2000 1856.80 4321.05 42.97
2001 1722.52 4629.89 37.20
2002 1881.44 4956.38 37.96
2003 2045.44 5487.18 37.28
2004 1972.55 6159.52 32.02
2005 2588.223 7208.887 35.90
2006 1640.12 8093.39 20.26
Mean 34.63
S.D. 6.23
C.V. 17.99%
Source: Annual Report 2006/07

79
Mean ratio and C.V. of NTC appeared 34.63 and 17.99%. It means the
profitability position of the NTC in relation to this ratio is for better, which
indicates that variability of the ratio in NTC is less. There is moderately
informality in profitability position.

4.7.12 Operating Profit Ratio

Operating profit Ratio can be calculated by dividing operating profit by sales.

operating profit
Operating profit ratio =
sales

Table 4.26
Operating Profit Ratio
(Rs. in millions)
Fiscal year NTC
Operating profit Sales Ratio (%)
1999 1714.75 3320.429 51.64
2000 2621.09 4321.05 60.66
2001 2594.80 4629.89 56.04
2002 2874.56 4956.38 58.00
2003 3043.02 5487.18 55.46
2004 3320.63 6159.52 5.40
2005 4093.12 7208.09 56.79
2006 4127.80 8093.90 51.00
Mean 55.45
S.D 3
C.V 5.4%
Source: Annual Report 2006/07

From above table it shows that ratio is increasing trends. It means NTC used
better utilization of all resources. Mean ratio of NTC is 55.45, it shows the
efficient condition of the organization and its S.D and C.V are 3.0 and 5.4%
respectively. This shows that there is less variability in operating profit and
uniformity throughout the year.

80
4.7.13 Net Profit to Total Fixed Assets Ratio

Net Profit To Total Fixed Assets Ratio is calculated by dividing Net profit
before interest and tax by total fixed Assets.

NPBIT
Net Profit To Total Fixed Asset Ratio =
Total Fixed Assets

This ratio measures the efficiency of the performing fixed Assets.

Table 4.27
Net Profit to Total Fixed Assets Ratio
(Rs. in million)
Fiscal NTC
year NPBIT Total Fixed Asset Ratio (%)
1999 2063.57 7113.40 29.00
2000 2890.99 7761.97 38.41
2001 2957.81 9068.65 32.62
2002 3079.80 8938.72 34.45
2003 3210.46 9263.79 34.66
2004 3830.12 10023.00 38.18
2005 3241.99 11300.49 28.69
2006 2525.88 11582.34 21.81
Mean 32.23
S.D 5.12
C.V 15.89
Source: Annual Report 2006/07

The above table shows that mean and C.V. of NTC are 32.23 and 15.89%.
From the table trend moves towards satisfactory position of NTC and there is
proper utilization of fixed assets in generating profit.

4.7.14 Return on Capital Employed Ratio

It is calculated by dividing Net profit After Tax by Capital Employed.

Net Pr ofit After Tax

Return on Capital Employed Ratio =
Captial Employed

81
This ratio measures the overall effectiveness of management in producing
profit by using total capital.

Table: 4.28
Return on Capital Employed Ratio
(Rs. in million)
Fiscal NTC
year Net profit Capital Employed Ratio (%)
1999 1110.08 1010.38 10.99
2000 1856.80 12256.77 15.15
2001 1722.52 14029.90 12.28
2002 1881.44 15099.83 12.46
2003 2045.45 15906.77 12.86
2004 1972.55 17825.12 11.07
2005 2588.22 19755.65 13.10
2006 1640.12 20757.1 8.50
Mean 12
S.D 1.94
C.V 16.18 %
Source: Annual Report 2006/07

From above table NTC’s Mean Ratio and C.V. are 12 and 16.18%. It shows
that mean ratio of NTC appeared high. Less C.V. of the ratios of NTC signifies
that moderately uniformity in the ratio. Return on capital employed of NTC
appears satisfactory as per mean ratio.

4.7.15 Operating Expenses Ratio (OE Ratio)

Operating Expenses Ratio can be calculated by dividing operating Expenses by

sales

Operating Expenses
Operating Expenses Ratio (O/E Ratio) =
Sales

82
 Table 4.29
Operating Expenses Ratio
(Rs in millions)
Fiscal year NTC
Sales Operating Expenses Ratio
1999 3516.79 1802.04 0.512
2000 4588.10 1967.00 0.43
2001 4910.36 2345.52 0.47
2002 5328.38 2453.82 0.46
2003 5928.65 2885.63 0.49
2004 6555.99 3235.93 0.49
2005 7669.28 3576.17 0.47
2006 8539.49 4411.69 0.52
Mean 0.03
S.D 0.03
C.V 6.25%
Source: Annual Report 2006/07
Above table shows that the operating expenses ratio of NTC Mean is 0.48 and
C.V. is 6.25%. Less operating Expenses Ratio will be favorable. So NTC is
favourable because it’s mean and C.V. is less value.
4.7.16 Return on Asset (ROA)
Return on Assets Ratio can be calculated by the following formula.
NPAT  Interest
Return on Assts =
Total Assets
Table 4.30
Return on Assets
(NRs is millions)
Fiscal year NTC
NAPT + Int Total Assets ROA (%)
1999 1511.302 12828.294 12
2000 2309.823 16047.477 14
2001 2185.065 18530.124 12
2002 2377.724 20092.408 12
2003 2405.267 21764.877 11
2004 2433.311 25281.824 9
2005 3153.18 29892.993 11
2006 2027.56 32652.787 6
Mean 10.88
S.D 2.3
C.V 21.14%
Source: Annual Report 2006/07

83
Above calculated table shows the ROA of NTC. Mean ratio of NTC is 10.88. A
high of ROA shows the better profitability of the organization. It shows that
NTC is utilizing the asset in proper way. NTC utilize its assets satisfactory.

4.7.17 Return on Shareholders Equity (ROSE)

Return on shareholders equity can be calculated by dividing Net profit After

Tax by shareholders Equity (share capital).

Net Profit After Tax

Return on Shareholders Equity (ROSE) =
Shareholders Equity (Share Capital)

Table 4.31
Return on Share Holders Equity
(Rs in million)
Fiscal year NTC
NPAT Share capital ROSE (%)
1999 1181.68 1331.943 88.72
2000 1928.40 1331.943 144.78
2001 1850.75 2053.864 90.11
2002 2050.75 2053.864 100.00
2003 2194.22 2053.864 406.83
2004 2326.53 2053.864 113.28
2005 3137.23 2053.864 152.75
2006 1937.40 2053.864 94.33
Mean 111.35
S.D 23.01
C.V 20.66%
Source: Annual Report 2006/07

Return on shareholder Equity in NTC in above table reflects the good return to
shareholder and Mean Ratio is 111.35, which is very high. NTC has very
satisfactory return to shareholder.

84
4.7.18 Revenue Per Employee Ratio (RPER) of NTC

This ratio is an indicator of the earning capacity of per employee in the

organization. It can be calculated by the following formula.

Total Sales Revenue

Revenue per Employee Ratio =
Number of Employee

Table 4.32
Revenue Per Employee Ratio
(Rs in millions)
Fiscal Nepal Tel come Increased/
year Total sales Revenue No. of employee Ratio (decreased)%
1999 3516.79 4213 0.83 -
2000 4588.10 4382 1.05 26.51
2001 4940.36 4509 1.10 4.76
2002 5328.38 4674 1.14 3.64
2003 5928.65 46.32 1.28 12.28
2004 6555.99 4687 1.40 9.38
2005 7669.28 9779 1.23 7.89
2006 8539.49 5728 1.49
Source: Annual Report 2006/07

In the above table, it can be seen that the revenue per employee is increasing
trend over the study period. It increased Rs. 830000 to Rs. 1490000 from the
year 1999 to 2006. The revenue per employee is increasing throughout the
study period. The revenue per employee is increased by 26.51%, 4.76%,
3.64%, 12.28, 9.38 and 7.89%, from the F.Y. 2000 to 2006 respectively. At the
period of F.Y 2002 revenue is increased to 3.64% only.

4.8 Correlation Analysis

4.8.1 Correlation Analysis Between Sales Revenue and Net Profit After
Tax

85
 Table 4.33
Correlation Between Sales Revenue and NPAT
(NRs in Millions)
2
Fiscal Sales NPAT X -X Y- Y (X - X ) (Y- Y )2 (X - X )
year revenue (Y) (Y- Y )
(x)
1999 3320.4 1181.68 -2201.25 -894.19 4845501.563 799575.8 1968336
2000 4321.1 1928.4 -1200.63 -147.47 1441512.397 21747.4 177056.9
2001 4626.9 1850.75 -894.79 -225.12 800649.1441 50679.01 201435.1
2002 4956.4 2050.75 -565.3 -25.12 319564.09 631.0144 14200.34
2003 5487.2 2194.22 -34.5 118.35 1190.25 14006.72 -4083.08
2004 6159.5 2326.53 637.84 250.66 406839.8656 62830.44 159881
2005 7208.1 3137.23 1686.407 1061.36 2843968.57 1126485 1789885
2006 8093.9 1937.4 2572.22 -138.47 6616315.728 19173.94 -356175
Total 44173.44 16606.96 17275541.61 2095129 3950536

X 
 x  44173.44  5521.68
n 8

Y 
 y   16606.96   2075.87
n  8 

Correlation between X and Y

rxy 
 X  X Y  Y  
3950536
 0.65
 X  X   Y  Y  17275541.61  2095129
2 2

Calculation of Probable Error (P.E.)

1 r2 1  0.65
2
 PE  0.6745   0.6745 
n 8
 0.1360
 6  P.E.  6  1360  0.8161

 Correlation between Net profit After Tax and sales Revenue is 0.65, which
shows that the moderate positive correlation between the two variables i.e. Sale
Revenue and NPAT. It implies that the NPAT change in the same direction of
sales change.

86
Since 6*PE> r, i.e. 0.8161> 0.65, so the calculated value of r is not significant,
it means the sales revenue and NPAT has not significant relationship. Above
table shows that sales revenue is in highly increasing trend but NPAT is in
slightly increasing trend.

4.8.2 Correlation Between Current Assets and Current Liabilities

Table 4.34
Correlation Between Current Assets And Current Liabilities
(Rs. In millions)
Fiscal Current Current X -X Y- Y (X - X ) 2
(Y- Y )2 (X - X )
year Assets (x) Liability(Y)
(Y- Y )
1999 5714.9 2726.91 -
-6996.26 3767.58 48947653.99 14194659 26358969
2000 8285.5 3790.71 -
-4425.66 2703.78 19586466.44 7310426 11966011
2001 9461.5 4500.22 -
-3249.69 1994.27 10560485.1 3977113 6480759.3
2002 11154 4992.58 -
-1557.48 1501.91 2425743.95 2255734 2339194.8
2003 12321 5858.1 -390.56 -636.39 152537.1136 404992.2 248548.48
2004 15403 8054.42 2692.18 1559.93 7247833.152 2433382 4199612.3
2005 18424 10137.3 3642.85
5712.99 7 32638254.74 13270407 20811606
2006 20926 11895.7 8214.48 5401.2 67477681.67 29172961 44368049
Total 11677275
101689.3 51955.97 189036656.1 73019674 0

X 
 x  101689.3  12711.16
n 8

Y 
 y  51955.97  6494.49
n 8

Correlation between X and Y

rxy 
 X  X Y  Y  
116772750
 0.99
 X  X   Y  Y  189036656.1  73019674
2 2

Calculation of Probable Error (P.E.)

87
 1 r2 1  0.99 
2
 PE  0.6745   0.6745 
n 8
 0.0047
 6  P.E.  6  0.0047  0.0285

Correlation between Current Assets and Current Liabilities is 0.99; it shows

that there is high positive correlation between CA and CL.

Since r > 6*PE i.e. 0.99> 0.0285 the calculated value of r is significant. In other
words, current liabilities go in the same direction as the current Assets go.

4.8.3 Correlation Between NPAT And Capital Employed

Table 4.35
Correlation Between NPAT And Capital Employed
(Rs in Millions)
Fiscal Capital NPAT X -X Y- Y (X - X ) 2
(Y- Y )2 (X - X )
year Employed (Y)
(Y- Y )
(x)
1999 10101 1181.68
-5615.19 -894.19 31530358.74 799575.8 5021046.7
2000 12257 1928.4
-3459.8 -147.47 11970216.04 21747.4 510216.71
2001 14030 1850.75
-1686.67 -225.12 2844855.689 50679.01 379703.15
2002 15100 2050.75
-616.74 -25.12 380368.2276 631.0144 15492.509
2003 15907 2194.22
190.2 118.35 36176.04 14006.72 22510.17
2004 17825 2326.53
2108.55 250.66 4445983.103 62830.44 528529.14
2005 19756 3137.23
4039.08 1061.36 16314167.25 1126485 4286917.9
2006 20757 1937.4
5040.53 -138.47 25406942.68 19173.94 -697962.2
Total 125732.5 16606.96 92929067.76 2095129 10066454

X 
 x  125732.5  15716.57
n 8

Y 
 y  16606.96  2075.87
n 8

Correlation between X and Y

88
rxy 
X  X Y  Y  
10066454

X  X  Y  Y  92929067.76  2095129

2 2

 0.72

Calculation of Probable Error (P.E.)

1 r2 1  0.72 
2
 PE  0.6745   0.6745 
n 8
 0.1146
 6  P.E.  6  0.1146  0.6881

Correlation between NPAT and Capital Employed is 0.72. So it shows the

positive relationship between these two variables i.e. NPAT and CE. It implies
that NPAT change in the same direction as capital Employed.

Since 6PE < r i.e. 0.6881 < 0.72, So the calculated value of r is significant. It
means the NPAT and capital Employed has positive relationship. Above table
shows that the capital Employed is in increasing trend but NPAT is in
fluctuating trend.

4.8.4 Correlation Between NPBIT and TFA

Table: 4.36
Correlation Between NPBIT and Total Fixed Asset
(Rs in Hundred Millions)
Fiscal Total NPBIT X -X Y- Y (X - X )2 (Y- Y )2 (X - X )
year fixed (Y)
(Y- Y )
Assets (x)
1999 7113.4 2063.57 -2268.14 -911.5 5144459.06 830832.3 2067409.6
2000 7762 2890.99 -1619.57 -84.08 2623006.985 7069.446 136173.45
2001 9068.7 2957.81 -312.89 -17.26 97900.1521 297.9076 5400.4814
2002 8938.7 3079.8 -442.82 104.73 196089.5524 10968.37 -46376.54
2003 9263.8 3210.46 -117.75 235.39 13865.0625 55408.45 -27717.17
2004 10023 3830.12 641.46 855.05 411470.9316 731110.5 548480.37
2005 11300 3241.99 1918.95 266.92 3682369.103 71246.29 512206.13
2006 11582 2525.88 -
2200.8 449.19 4843520.64 201771.7 -988577.4
Total 75052.36 23800.62 17012681.49 1908705 2206999

89
 X 
 x  75052.36  9381.54
n 8

Y 
 y  23800.62  2975.07
n 8

Correlation between X and Y

rxy 
 X  X  Y  Y  
2206999

 X  X   Y  Y  17012681.49  1908705
2 2

 0.38

Calculation of Probable Error (P.E.)

1 r2 1  0.38
2
 PE  0.6745   0.6745 
n 8
 0.2033
 6  P.E.  6  0.2033  1.21

Correlation between Total Fixed Assets and NPBIT is 0.38. So it shows the
positive relationship between these two variables TFA and NPBIT. It implies
that NPBIT slightly change in the same direction of Total Fixed Assets.

Since 6PE > r, i.e. 1.21> 0.38, so the calculated value of r is not significant, it
means NPBIT and TFA has some extent of positive relationship. It means TFA
is in increasing trend but NPBIT is slightly increasing trend as whole.

4.9 Major Findings of the Study

Every research work is done to find something new, based on the objective of
the study. From analysis of various data collected by secondary sources, the
major findings of the study are as follows:

i) Actual operating income of the NTC is increasing in fluctuating

trend. Its forecasted sales are Rs. 9654 million for fiscal years

90
 2005/06. Sales plan of NTC is not systematic. So, it has not
achieved its target to increase operating income.
ii) From the study operation revenue ratio shows that the operating
revenue ratio (ORR) in 1998/1999 is 94.42% but it is in
decreasing trend up to 2002/2003. From 2002/2003 to
2004/2005 it is going in increasing trend but less than the FY
1998/1999.
iii) Similarly the non operating revenue ratio (NORR) in year
1998/1999 is 5.58% and it is in increasing trend up to F. year
2002/2003. But, from fiscal year 2003/2004 to 2004/2005 it is in
decreasing trend and decreased to 5.22%.
iv) Study shows that the total volume of revenue collection of NTC
is increasing trend. In FY 1999/2000, NTC revenue is increased
by 30.46% but in year 2000/01, 2001/02, 2002/03, 2003/04,
2004/05 and 2005/06 are 7.68%, 7.85%, 11.27%, 10.58%,
16.98% and 11.35% respectively.
v) Collected revenue utilized by the Nepal Telecom on the
following expenditure headings: (i) Employees costs, (ii)
operation and maintenance cost, (iii) Administrative expenses,
(iv) Interest on subscribers Deposits, (v) interest on loan, (vi)
Depreciation (vii) loss (Gain) on foreign exchange, (viii) Bonus,
(ix) Incentive package, (x) provision for Income Tax (xi)
Income Tax Adjustments, relating to earlier years (xii)
adjustment relating to earlier year (net) divided of Equity and
(xiii) transfer to sinking fund.
vi) Study shows clearly that the total income, utilization and
retained earning is in increasing trend year by year, so it is
favorable condition for the NTC and the retained earning money
should be utilized in productive sector to earn more benefit.
vii) Study shows that the fixed assets ratio in the year 1998/1999 is
55.45% and it is in decreasing trend up to the year 2005/2006 is

91
 35.47, which is favorable condition for the company current
asset ratio is in increasing trend from year 1998/1999 to
2005/2006 (44.55 to 64.09), so the working capital is in an
increasing trend, which is favorable condition for the company.
viii) Study shows that the equity and reserve ratio is in increasing
trend it means the company has sufficient equity capital and
reserve volume.
ix) Assets position shows that fixed assets of NTC are increasing
trend. Similarly current assets of NTC are increasing trend, it
means working capital capacity is better and working capital is
sufficient.
x) The NTC should decreased its fixed assets and increased its
current assets to achieve the better performance of working
capital, which can be help for future profit (benefit) and loan
amount will be decreased.
xi) The liability side of balance sheet of NTC from F/Y 1999 to
2006 shows that capital reserve and retained earning with
increasing trend of large volume ; which are kept ideality, is not
a good sign. This shows that NTC financial structure is not well
structured. The amount of retained earning should be used in
productive sector for more benefit and for society improvement
xii) The current ratio of NTC is around standard (2:1). NTC is
maintaining the standard of current ration and capable in
payment of current liabilities at the time of requirement.
Standard deviation and C.V. is also minimum. Among many
public utilities, NTC seems too efficient in maintaining the good
liquidity position.
xiii) Debt Equity Ratio standard is 1:1 Higher ratio shows the large
amount of external source i.e. debt and lower ratio shows the
less utilization of debt. NTC's mean ratio is 0.37 which is less

92
 than standard. NTC has emphasized internal funding rather than
external.
xiv) An inventory turnover ratio of NTC is in increasing trend. The
inventory turnover ratio's mean of NTC is 12.17. NTC is very
good satisfactory (high inventory turnover). The ratio is going to
in increasing trend; it indicates the positive relationship between
them.
xv) Fixed Assets Turnover Ratios’ Mean, S.D and C.V. seemed
0.58, 0.07 and 12.07% respectively. The ratio in NTC depicted
increasing trend year by year except 2001. Incerement in fixed
asset turnover ratio indicates the improved work efficiency and
Fixed Assets has been effectively mobilized and good financial
condition. Average ratio of NTC is satisfactory. Higher mean
ratio of NTC shows better utilization of Fixed Asset. CV
analysis showed moderate uniformity in asset turnover ratio of
NTC.
xvi) The total asset turnover ratios of NTC are in fluctuating trend.
Mean ratio of NTC appeared considerably higher which
signifies that NTC is more successful in utilizing the resources
in revenue generating sector.
xvii) Though sales revenue has increased each year, total assets has
also increased CV of the ratio depicted that the ratio remained
more consistent in NTC.
xviii) Mean ratio and C.V. of net profit of NTC appeared 34.63 and
17.99%. It means the profitability position of the NTC in
relation to this ratio is for better, which indicates that variability
of the ratio in NTC is less. There is moderately informality in
profitability position. The operating profit ratio of NTC shows
the increasing trends. It means NTC used better utilization of all
resources. Mean ratio of NTC is 55.45, it shows the efficient
condition of the organization and its S.D and C.V are 3.0 and

93
 5.4% respectively. This shows that there is less variability in
operating profit and uniformity throughout the year.
xix) Return on capital employed of NTC Mean Ratio and C.V. are 12
and 16.18%. It shows that mean ratio of NTC appeared high.
Less C.V. of the ratios of NTC signifies that moderately
uniformity in the ratio. Return on capital employed of NTC
appears satisfactory as per mean ratio.
xx) Return on Asset of NTC Mean ratio is 10.88. A high of ROA
shows the better profitability of the organization. It shows that
NTC is utilizing the asset in proper way. NTC utilize its assets
satisfactory. Return on shareholder Equity in NTC reflects the
good return to shareholder and Mean Ratio is 111.35, which is
very high. NTC has very satisfactory return to shareholder.
xxi) The revenue per employee is increasing trend over the study
period. It increased Rs. 830000 to Rs. 1490000 from the year
1999 to 2006. The revenue per employee is increasing
throughout the study period. The revenue per employee is
increased by 26.51%, 4.76%, 3.64%, 12.28, 9.38 and 7.89%,
from the F.Y. 2000 to 2006 respectively. At the period of F.Y
2002 revenue is increased to 3.64% only.
xxii) Correlation between Net profit After Tax and sales Revenue is
0.65, which shows that the moderate positive correlation
between the two variables i.e. Sale Revenue and NPAT. It
implies that the NPAT change in the same direction of sales
change. Since 6*PE> r, i.e. 0.8161> 0.65, so the calculated
value of r is not significant, it means the sales revenue and
NPAT has not significant relationship. Correlation between
Current Assets and Current Liabilities is 0.99; it shows that
there is high positive correlation between CA and CL. Since r >
6*PE i.e. 0.99> 0.0285 the calculated value of r is significant. In
other words, current liabilities go in the same direction as the

94
current Assets go. Correlation between NPAT and Capital
Employed is 0.72. So it shows the positive relationship between
these two variables i.e. NPAT and CE. It implies that NPAT
change in the same direction as capital Employed. Since 6PE < r
i.e. 0.6881 < 0.72, So the calculated value of r is significant. It
means the NPAT and capital Employed has positive
relationship. Correlation between Total Fixed Assets and NPBIT
is 0.38. So it shows the positive relationship between these two
variables TFA and NPBIT. It implies that NPBIT slightly
change in the same direction of Total Fixed Assets. Since 6PE >
r, i.e. 1.21> 0.38, so the calculated value of r is not significant, it
means NPBIT and TFA has some extent of positive relationship.

95
 CHAPTER V

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

Nepal is least developing country in the world. The main source of income is
agriculture. For the socio-economic development of the nation industrialization
is essential. Science and technological advancement plays vital role in
industrialization of the nation. But it is not enough only the advancement of
science and technology for development of the country. Management of all
these sectors is very essential. Without good management organization cannot
achieve its goal and objectives. Government of Nepal has established so many
public enterprises to facilitate the people. Most of public enterprises are
suffering loss, whether the government has invested huge amount of resources.
There is no any concept of effective and appropriate planning system and
procedure. Lack of expert, qualified and skilled manpower in the field of
management, available resources, capacity and efficiency are not utilized
properly. So many popular and systematic tools and technique of management
are ignored. These tools are not practicing in public enterprises for
measurement of financial statement.

The large public enterprise, Nepal Telecom has glorious history in the field of
communications services. Government of Nepal has invested huge amount in
this enterprise. NTC is running smoothly by earning profit. Profit shows the
good financial position of the company.

In the communication sector, the government has liberalized its policy and
authorized private sector to run communication service. Although up to now
profit trend of NTC is increasing trend but now on ward they have to compete
with private sector. So NTC should prepare it self to face many challenges
which may come for other private company. To meet this challenge NTC
should prepare it self and have to realize its management capacity.

96
NTC is the successful public enterprise of the Nepal, which are still running in
the public sector service business. Nepal Telecom is operating in profitable
from several years. Now-a-days private telecom companies are also opened in
our country i.e. UTL, Mobile to compete it. But NTC is not any effect because
public use its service too much than that of private only a few percent public
use private companies’ phone services. Recent entry of private operators in the
sector should, therefore, be considered as government’s initiative to make the
sector grow at faster pace both in term of quantity and quality. But the facts
remains that in spite of new liberal Telecom Act 2053, due to various reasons
the market share achieved by private sector is still less than 10 percent of the
total telecom business volume. Hence, the incumbent Nepal Telecom shall
have to take responsibility of expanding infrastructure at faster pace covering
nooks and corners of the country, not only as a competitive strategy but also to
cater-ever-increasing demand from general public for both voice as well as data
services.

NTC collects its own revenue from sales of telephone service on different
sources to the different types of customers, which are as: (1) local telephone,
(2) Domestic Trunk Telephone, (3) International telephone, (4) Domestic
telegraph, (5) International telegraph, (6) International telex (7) Leased circuits,
(8) Tele fax, (9) Mobile and Internet, (10) Interconnection (11) Others.

Study shows clearly that the total income, utilization and retained earning is in
increasing trend year by year, so it is favorable condition for the NTC and the
retained earning money should be utilized in productive sector to earn more
benefit.

Study shows that the fixed assets ratio in the year 1998/1999 is 55.45% and it is
in decreasing trend up to the year 2005/2006 is 35.47, which is favorable
condition for the company current asset ratio is in increasing trend from year
1998/1999 to 2005/2006 (44.55 to 64.09), so the working capital is in an
increasing trend, which is favorable condition for the company.

97
Study shows that the equity and reserve ratio is in increasing trend it means the
company has sufficient equity capital and reserve volume.

Long term debt ratio in year 1998/1999 is 26.78% and its trend is decreasing
and up to year 2005/2006 is zero so that Ltd. Ratio is the company is favorable
and the company has no long term debt the company should not pay interest in
future. Current liabilities and provision ratio is in increasing trend. In Fiscal
year 1998/99 it shows that the company has more current payment and
provision.

Assets position shows that fixed assets of NTC are increasing trend. Similarly
current assets of NTC are increasing trend, it means working capital capacity is
better and working capital is sufficient. Among the assets of NTC there are
fewer amounts of account receivable and prepaid, advances loans and deposits.
Instead of increasing this amount it is being decreased year by year.

The NTC should decreased its fixed assets and increased its current assets to
achieve the better performance of working capital, which can be help for future
profit (benefit) and loan amount will be decreased.

The liability side of balance sheet of NTC from F/Y 1999 to 2006 shows that
capital reserve and retained earning with increasing trend of large volume ;
which are kept ideality, is not a good sign. This shows that NTC financial
structure is not well structured. The amount of retained earning should be used
in productive sector for more benefit and for society improvement. The current
ratio of NTC is around standard (2:1). NTC is maintaining the standard of
current ration and capable in payment of current liabilities at the time of
requirement. Standard deviation and C.V. is also minimum. Among many
public utilities, NTC seems too efficient in maintaining the good liquidity
position.

Debt Equity Ratio standard is 1:1 Higher ratio shows the large amount of
external source i.e. debt and lower ratio shows the less utilization of debt.

98
NTC's mean ratio is 0.37 which is less than standard. NTC has emphasized
internal funding rather than external. Mean ratio of debt to total capital ratio
came to be 0.14 and C.V. is 92.86% of NTC. The ratio of NTC is in decreasing
trend. NTC with lower ratio is subjected to lower risk and this will in turn
decrease the chance of getting higher return.

A inventory turnover ratio of NTC is in increasing trend. The inventory

turnover ratio's mean of NTC is 12.17. NTC is very good satisfactory (high
inventory turnover). The ratio is going to in increasing trend; it indicates the
positive relationship between them. Average collection period of NTC in 1999,
2000. 20001, 2002, 2003, 2004, 2005 and 2006 are 167.43, 182.5, 205.10,
213.45, 108.31, 137.22, 144.27 and 148.98 respectively. The ACP of NTC is
worst in year 2002. Average ACP of 8 years of NTC is 162.91.

Fixed Assets Turnover Ratios’ Mean, S.D and C.V. seemed 0.58, 0.07 and
12.07% respectively. The ratio in NTC depicted increasing trend year by year
except 2001. Increment in fixed asset turnover ratio indicates the improved
work efficiency and Fixed Assets has been effectively mobilized and good
financial condition. Average ratio of NTC is satisfactory. Higher mean ratio of
NTC shows better utilization of Fixed Asset. CV analysis showed moderate
uniformity in asset turnover ratio of NTC. The total asset turnover ratios of
NTC are in fluctuating trend. Mean ratio of NTC appeared considerably higher
which signifies that NTC is more successful in utilizing the resources in
revenue generating sector.

Return on capital employed of NTC Mean Ratio and C.V. are 12 and 16.18%.
It shows that mean ratio of NTC appeared high. Less C.V. of the ratios of NTC
signifies that moderately uniformity in the ratio. Return on capital employed of
NTC appears satisfactory as per mean ratio. Return on Asset of NTC Mean
ratio is 10.88. A high of ROA shows the better profitability of the organization.
It shows that NTC is utilizing the asset in proper way. NTC utilize its assets
satisfactory.

99
Return on shareholder Equity in NTC reflects the good return to shareholder
and Mean Ratio is 111.35, which is very high. NTC has very satisfactory return
to shareholder.

The revenue per employee is increasing trend over the study period. It
increased Rs. 830000 to Rs. 1490000 from the year 1999 to 2006. The revenue
per employee is increasing throughout the study period. The revenue per
employee is increased by 26.51%, 4.76%, 3.64%, 12.28, 9.38 and 7.89%, from
the F.Y. 2000 to 2006 respectively. At the period of F.Y 2002 revenue is
increased to 3.64% only.

Correlation between Net profit After Tax and sales Revenue is 0.65, which
shows that the moderate positive correlation between the two variables i.e. Sale
Revenue and NPAT. It implies that the NPAT change in the same direction of
sales change. Since 6*PE> r, i.e. 0.8161> 0.65, so the calculated value of r is
not significant, it means the sales revenue and NPAT has not significant
relationship. Correlation between Current Assets and Current Liabilities is
0.99; it shows that there is high positive correlation between CA and CL. Since
r > 6*PE i.e. 0.99> 0.0285 the calculated value of r is significant. In other
words, current liabilities go in the same direction as the current Assets go.
Correlation between NPAT and Capital Employed is 0.72. So it shows the
positive relationship between these two variables i.e. NPAT and CE. It implies
that NPAT change in the same direction as capital Employed. Since 6PE < r i.e.
0.6881 < 0.72, So the calculated value of r is significant. It means the NPAT
and capital Employed has positive relationship. Correlation between Total
Fixed Assets and NPBIT is 0.38. So it shows the positive relationship between
these two variables TFA and NPBIT. It implies that NPBIT slightly change in
the same direction of Total Fixed Assets. Since 6PE > r, i.e. 1.21> 0.38, so the
calculated value of r is not significant, it means NPBIT and TFA has some
extent of positive relationship.

100
5.2 Conclusion

In Nepal, most of the theoretical knowledge is not applied in practical. There is

vast gap between theory and practice. There are so many tools and technique to
measure the financial performance of the company but in proactive very few
tools are used. Assets and liabilities management, its shows the relationship
among the variables related to assets, liabilities, sales , profit etc.

Actual operating income of the NTC is increasing in fluctuating trend. Its

forecasted sales are Rs. 9654 million for fiscal years 2005/06. Sales plan of
NTC is not systematic. So, it has not achieved its target to increase operating
income. From the study operation revenue ratio shows that the operating
revenue ratio (ORR) in 1998/1999 is 94.42% but it is in decreasing trend up to
2002/2003. From 2002/2003 to 2004/2005 it is going in increasing trend but
less than the FY 1998/1999. Similarly the non operating revenue ratio (NORR)
in year 1998/1999 is 5.58% and it is in increasing trend up to F. year
2002/2003. But, from fiscal year 2003/2004 to 2004/2005 it is in decreasing
trend and decreased to 5.22%. Study shows that the total volume of revenue
collection of NTC is increasing trend. In FY 1999/2000, NTC revenue is
increased by 30.46% but in year 2000/01, 2001/02, 2002/03, 2003/04, 2004/05
and 2005/06 are 7.68%, 7.85%, 11.27%, 10.58%, 16.98% and 11.35%
respectively.
Study shows clearly that the total income, utilization and retained earning is in
increasing trend year by year, so it is favorable condition for the NTC and the
retained earning money should be utilized in productive sector to earn more
benefit. Study shows that the fixed assets ratio in the year 1998/1999 is 55.45%
and it is in decreasing trend up to the year 2005/2006 is 35.47, which is
favorable condition for the company current asset ratio is in increasing trend
from year 1998/1999 to 2005/2006 (44.55 to 64.09), so the working capital is
in an increasing trend, which is favorable condition for the company. Study
shows that the equity and reserve ratio is in increasing trend it means the
company has sufficient equity capital and reserve volume. Assets position

101
shows that fixed assets of NTC are increasing trend. Similarly current assets of
NTC are increasing trend, it means working capital capacity is better and
working capital is sufficient.
The liability side of balance sheet of NTC from F/Y 1999 to 2006 shows that
capital reserve and retained earning with increasing trend of large volume ;
which are kept ideality, is not a good sign. This shows that NTC financial
structure is not well structured. The amount of retained earning should be used
in productive sector for more benefit and for society improvement. The current
ratio of NTC is around standard (2:1). NTC is maintaining the standard of
current ration and capable in payment of current liabilities at the time of
requirement. Standard deviation and C.V. is also minimum. Among many
public utilities, NTC seems too efficient in maintaining the good liquidity
position.
Return on Asset of NTC Mean ratio is 10.88. A high of ROA shows the better
profitability of the organization. It shows that NTC is utilizing the asset in
proper way. NTC utilize its assets satisfactory. Return on shareholder Equity in
NTC reflects the good return to shareholder and Mean Ratio is 111.35, which is
very high. NTC has very satisfactory return to shareholder.

5.3 Recommendations

Based on the above study the following suggestions are recommended to

improve the assets and liabilities management of public enterprises mainly in
NTC.

1. Most of public enterprises are being controlled by government through

political intervention. To run these enterprises smoothly there is need of
cooperation among the various factors; participative management
approach, expert, qualified manpower, out of from government
intervention and controlling usual cost is the essential remedy.

102
2. The NTC should decreased its fixed assets and increased its current
assets to achieve the better performance of working capital, which can
be help for future profit (benefit) and loan amount will be decreased.

3. Cost plan of Nepal Telecom is not systematically maintained. So, cost of

every sector should plan properly.

4. Sales revenue of Nepal Telecom is in increasing trend but it is not

sufficient to cover the cost and earn desired profit. Sales plan of these
enterprises should clearly maintain and improve.

5. NTC is running smoothly by earning profit. But, NTC's profit is not

sufficient it should control fixed cost.

6. Cost control program should establish it will maintain the discipline

about controlling cost.

7. Most of the Nepalese enterprises are facing the problem of government

interfere and their programs are not implemented properly. NTC is
facing these kinds of problem. So, it should control government interfere
in decision making and planning.

8. There are many new and popular management theory like, management
by objective, participative management etc. this principle can be more
effective to every organization. NTC should apply this theory for better
performance of the enterprises.

9. NTC is operating in monopoly situation to some extent, strength,

weakness, threats and opportunity should properly analyze.

10. Regular inspection, evaluation, monitoring activities should undertaken

by the central level to different department of Nepal Telecom.

103
11. Most of public enterprises like NTC is facing problem of poor
communication among various departments. So, the strong coordination
and communication is needed.

12. Service sector is main source of income for Nepal in present globalize
situation. So, NTC should adopt various high technological equipments
for servicing the people and complete with other country.

13. To satisfy the needs of customers and facilitating quality services in

reasonable price. NTC should control the costs and improve the quality
of services.

14. The costs are main factors to increase price of the products. So,
controllable costs should minimize if possible.

15. Nepal Telecom 's management performance do not show the satisfactory
results about profit, So, management of this enterprises should perform
their program and task in planning way.

104
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