A STUDY ON Cash Management in NTC

A STUDY ON
CASH MANAGEMENT IN NTC
A Master’s Degree Thesis

Submitted to:
Office of the Dean
Faculty of Management
Tribhuvan University
Submitted by:
Santosh kumar Neupane
Makwanpur Multiple Campus
Roll No. :- 920
Reg no. :- 7-2-479-96-2003
2010
1
RECOMMENDATION
This is to certify that the thesis submitted by
Santosh Kumar Neupane
Entitled
Cash Management in NTC
Has been prepared as approved by this Department in the prescribed format

of Faculty of Management and is forwarded for examination.
(Mr. Uddhav Sapkota) Campus Chief

Thesis Supervisor &
Head of Research Department
(Mr. Jayaram Devkota)

Thesis Supervisor
In partial fulfilment of the requirement of the degree of

Master of Business Studies (MBS)
2
DECLARATION
I hereby devlare that the work done on the thesis entitled " Cash
Management in NTC" has been subbmitted to makwanpur Multiple
Campus, Faculty of management, Tribhuwan University. It is my pure
own created work for the partial fulfillment of the requirement of
Master's Degree in Business study (MBS) course under the guidence
of respected teachers Mr. Bin Bahadur Raut,Jayaram Devkota and
uddhav sapkota of Makwanpur
Date: Santosh Kumar Neupane

Researcher
3
VIVA VOCE
We have conducted the viva-voce examination of the thesis presented by

Entitled:
Cash Management in NTC
And found the thesis to the original work of the student and written according to
the prescribed format. We recommend the thesis to be accepted as partial
fulfillment of the requirements for the degree of Master’s in Business Studies
(MBS).
Viva- Voce Committee:

Chairperson Research Committee:…………………………………….
Member (External Exp : ……………………………….
Member (Thesis Supervisor) : …………………………………….
Member(Thesis Supervisor) : …………………………………….
Date: ……………………..
4
Acknowledgements
This thesis report entitled “Cash Management In NTC” has been prepared
strictly for the partial fulfillment for a degree on Masters’ of Business Studies
(MBS).
Firstly I would like to acknowledge the deepest gratitude to my thesis supervisor
Mr. Jayaram Devkota without whose valuable guidance and cooperation the
thesis would not have come in this form.
I should be also grateful to the staff members of Nepal Telecom specially Mr.
Praneswar Parajuli (Assistant Accountant Officer) and Mr. Basu Prasad
Dhungel(Senior Assistant) for providing valuable co-operation and suggestions. I
am much thankful to all the staffs of Nepal Telecom, Hetauda Branch for their
sincere co-operation.
My heartily thanks goes to all the members of my family whose continuous
support and regular inspirations are the secret of my success.
I would like to thank my friends, classmates and colleagues for their valuable
support and co-operation in my research work.
Lastly, I don’t want to state that this thesis is complete and perfectly satisfactory.
There may be various limitations and shortcomings because of the constraint of
time and resources.
Hence, I state that I am alone responsible for any kind of contradiction raised
from this research report.
Thank you very much

Hetauda
5
Table of Contents
Chapter – I ................................................................................................................................................... 86
Introduction .................................................................................................................................................. 86
1.1 Background of the Study ................................................................................................................ 86
1.2.1 Introduction of Nepal Telecommunication Corporation ................................................................. 87
1.3 Statement of the Problem ................................................................................................................. 95
1.4 Objective of the Study........................................................................................................................ 96
1.5 Significance of the Study ................................................................................................................... 96
1.6 Limitations of the Study...................................................................................................................... 97
1.7 Organization of the Study .................................................................................................................. 97
CHAPTER II................................................................................................................................................. 98
REVIEW OF LITERETURE ......................................................................................................................... 98
2.1 Conceptual Framework...................................................................................................................... 98
2.1.1 Meaning of Cash Management....................................................................................................... 98
2.2 Review of Related Study.................................................................................................................. 112
2.3 Review of Previous Thesis............................................................................................................... 115
2.4 Research Gap .................................................................................................................................. 119
CHAPTER III.............................................................................................................................................. 120
RESEARCH METHODOLOGY ................................................................................................................. 120
3.1 Introduction ...................................................................................................................................... 120
3.2 Research Hypothesis....................................................................................................................... 120
3.3 Research Design ............................................................................................................................. 121
3.4 Nature and Sources of Data ............................................................................................................ 121
3.5 Method of Data Analysis .................................................................................................................. 122
CHAPTER IV ............................................................................................................................................. 128
ANALYSIS AND PRESENTATION OF DATA........................................................................................... 128
4.1 Analysis of data by Financial Tools ................................................................................................. 128
4.2 Analysis of data by Statistical tools.................................................................................................. 144
4.3 Analysis of Hypothesis..................................................................................................................... 152
4.3 Major Findings.................................................................................................................................. 153
CHAPTER V .............................................................................................................................................. 155
SUMMARY, CONCLUSION AND RECOMMENDATION ......................................................................... 155
5.1 Summary.......................................................................................................................................... 155
5.2 Conclusion ....................................................................................................................................... 155
5.3 Recommendation ............................................................................................................................. 156
Table of figure
Table 1 Director at present time 2067 ashad ............................................................................................. 93
Table 2 Analysis of Current Ratio.............................................................................................................. 129
Table 3 :Analysis of Quick Ratio................................................................................................................ 130
Table 5 : Cash to Current assets ratio...................................................................................................... 133
Table 6 :Cash Turnover Ratio ................................................................................................................... 134
Table 7 : Cash flow from operating activities............................................................................................. 135
Table 8 Cash from investing activities ....................................................................................................... 137
Table 9 : Cash from Financing activities ................................................................................................... 139
Table 10 : Actual cash Flow ...................................................................................................................... 140
Table 11 : Cash Budget and Actual cash .................................................................................................. 142
Table 12 : Revised Cash Budget and actual cash .................................................................................... 143
Table 13 : Trend analysis .......................................................................................................................... 144
Table 14 : Correlation Between Cash and Revenue ................................................................................. 146
Table 15 : Correlation Between cash balance and account receivable .................................................... 149
Table 16 : Table for hypothesis Test ......................................................................................................... 152
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Chapter – I
Introduction
1.1 Background of the Study
Cash is the oil that lubricates the wheels of business. Without adequate oil
machines grind to a halt and a business with inadequate cash will do likewise.
However carrying a cash is expensive because cash is non earning assets a firm
that hold a cash beyond its minimum requirements lower its earning potential.
Cash Management is a very professional, highly refined activity. We need
not to keep idle cash balances to guard against a failure to receive expected
payment or to be ready for unexpected outflows.
The primary goal of financial manager should be to maximize the value of
firm. The managing cash flow is an extremely important task for financial
manager. If firms hold more cash than it needs, the shareholders won't be
maximize. So the firms should invest all idle cash in productive assets that are
related to highly returnable.
The speed of technological development and convergence of information and
communications sector have led to a high investment requirement for the
infrastructure development. Infrastructure is a key for economic development and
improving quality of life. New types of telecommunications Services and network
are appearing and the sociological requirement relating to information flows have
assumed greater importance. This has led to a need for sector reform.
Convergence of technology, access to information and reliable infrastructure not
only improve the quality of life and economic activities of people but also
strengthens democracy. The information available in the network will fill the gap
between haves and haves not provided it could be used by common people at
affordable price. The policy of each government must be oriented towards this
end. Governments have taken steps in reforming published objectives, policies,
laws, creating independent regulatory body but lacking willingness and
commitments in implementation. It may widen the gap between poor and rich in
wealth and knowledge leading to a society which democratic country does not
wish to have.
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The history of telecommunication in Nepal is rather very young as compared
to the history and culture of Nepalese people. Telecommunication was introduced
with the installation of open wire trunk telephone line between Kathmandu and
Birgunj (a boarder town in southern Nepal) for the first time in Nepal around 1914
beginning of the First World War.
Telecommunication assumes great importance in Nepal where most of the
land is covered with high mountains and transport facilities are inadequate. But
due to some factors like financial constrains, total dependence on imports for
supply of equipment, lack of infrastructure and lack of good management of
available resource etc, telecommunication service is accessible only to a few
percentage of our entire population.
As said earlier, one of the main reasons for poor performance on

telecommunication sector is due to poor and inefficient management of available
resource. For the efficient and effective utilization of resources, there must be
proper plan, strategy and control system. Management is concerned with the
efficient use of important resources for the productive result. It is a process of
planning, controlling and giving feedback for proper implementation. Among
various types of management, cash management plays an important role in
efficient and effective utilization of recourses because "Cash is the important
current asset for the operations of the any business organisation. Holding cash
more than necessary for the intended purpose is as much expensive as running
business with inadequate cash. Too much cash balance will result in higher
opportunity cost, and too little will create crisis of cash shortage and force to
borrow at higher interest rate. Therefore, it is important that firm maintain cash
balance at optimal level in order to meet regular cash expenses and short term
financial obligations."
1.2.1 Introduction of Nepal Telecommunication Corporation

In Nepal, operating any form of telecommunication service dates back to 94
years in B.S. 1970. But formally telecom service was provided mainly after the
establishment of MOHAN AKASHWANI in B.S. 2005.Later as per the plan
formulated in First National Five year plan (2012-2017); Telecommunication
Department was established in B.S.2016. To modernize the telecommunications
8
services and to expand the services, during third five-year plan (2023-2028),
Telecommunication Department was converted into Telecommunications
Development Board in B.S.2026. After the enactment of Communications
Corporation Act 2028, it was formally established as fully owned Government
Corporation called Nepal Telecommunications Corporation in B.S. 2032 for the
purpose of providing telecommunications services to Nepalese People. After
serving the nation for 29 years with great pride and a sense of accomplishment,
Nepal Telecommunication Corporation was transformed into Nepal Doorsanchar
Company Limited from Baisakh 1, 2061. Nepal Doorsanchar company Limited is a
company registered under the companies Act 2053. However the company is
known to the general public by the brand name Nepal Telecom as registered
trademark.
Nepal Telecom has always put its endeavours in providing its valued customers a
quality service since its inception. To achieve this goal, technologies best meeting
the interest of its customers has always been selected. The nationwide reach of
the organization, from urban areas to the economically non- viable most remote
locations, is the result of all these efforts that makes this organization different
from others.
Definitely Nepal Telecom's widespread reach will assist in the socio-economic

development of the urban as well as rural areas, as telecommunications is one of
the most important infrastructures required for development. Accordingly in the
era of globalization, it is felt that milestones and achievements of the past are not
adequate enough to catch up with the global trend in the development of
telecommunication sector and the growth of telecommunication services in the
country will be guided by Technology, Declining equipment prices, market growth
due to increase in standard of life and finally by healthy competition. Converting
NT from government owned Monopoly Company to private owned, business
oriented, customer focused company in a competitive environment, Nepal
Telecom invites its all-probable shareholders in the sacred work of nation building.
Nepal Telecom Board established in October 1969 was converted to Nepal

Telecommunications Corporation (NTC), a fully government owned statutory
organisation in June 1975. It was established under communication corporation
act 2028 BS. The objective of corporation is to provide telecommunication
services according to national communication service plan, make service easily
accessible at simple and reasonable price, enhance the economic position and
living standard of the people and encourage public participation in the various
activities of NTC. That was the time when the first telecom project funded by
World Bank was nearing to completion and the second telecom project was in the
state of starting.
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After dissolving Nepal Telecommunications Corporation (NTC), Nepal
Doorsanchar Company limited (Nepal Telecom) was registered on 2060-10-11
under company act 2053 and the notice to this effect was published in Nepal
Gazette dated 26th Chaitra 2060. However, the company name was Officially
effective from 1st Baisakh 2061 (13th April 2004) and is also known to general
public by the name NEPAL TELECOM as registered trademark.
The Mission statement
''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.''
The vision
NEPAL TELECOM's vision is to remain as a dominant player in the
telecommunication sector of the country while extending reliable and affordable
telecommunications services to all regions including the remotest area of the
kingdom and at the same time retaining its present sound financial health event
in the coming competitive environment.
a) Role of Nepal Telecommunication Corporation

Telecommunication is one of the fastest growing industries in the
world. Presently, NTC is only telecom operator in Nepal holding total monopoly is
the telecom sector and is a fully government owned and controlled organization.
In Nepal, there are other means of communication also a number of means of
transportation, postal service etc. But there are slower expensive and less
convenient. Therefore, telecommunication is one of the quickest, cheapest and
scientific means of telecommunication. It brings coordination among different
government entities which ultimately promotes administrative efficiency. NTC has
played a crucial role for the increase in agricultural production, which is a main
source of national income. Telecoms have a major impact on agricultural
production by providing information and market condition.
In developing country like Nepal, the role of importance and
contribution of telecommunication in the development of country can not be
explained. The international telecommunication system contributors are to link
the overseas countries in the field of economy as well as politics. It also
contributes in the development of tourist industry. Thus the telecommunication
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system plays vital role to strengthen the national economy and bring national
unity among the national and international people creating a brother hood
relationship among the people.
Telecommunication has also contributed a lot for development of social
condition of which teaches about the accumulation, exchange and transmission
of knowledge between people. So, without communication human society would
remain static and not much different from the society of other animal. “The effect
of telecommunication on the rural areas and their contribution to rural
development are extremely important yet rather difficult to measure”.
b) Service Provided by NTC

NTC has been providing several services to the countries people and
facilities for transmission of written message, voice communication and variety or
other communication. It provides telecommunications services both within the
country and overseas. The services provided by NTC are as follows:
1. Basic Telephone Services
2. National Trunk Telephone Services
3. Rural Telecom Services
4. Bureau Fax Services
5. Pay Phone Services
6. Mobile Services
7. Packet Switching Services
8. International Sub-service Trunk Dialling Services
9. Internet Services
10. Inmarsat Mini-M Services
11. Home country Direct Dialling Services
12. Analogue Voice/Data and Telegraph Leased Circuit Services
13. International Telegraph Services
14. Telex Services
15. International Program T.V. Services
c) Milestones Data of NTC

1913 - Establishment of first telephone line in Kathmandu.
1914 - Establishment of open wire trunk line from Kathmandu to Raxaul
(India).
1935 - Installation of 25 lines automatic exchange in palace.
1936 - Installation of pen wire trunk line from Kathmandu to Dhankuta.
1950 - Establishment of telegraph service.
1950 - Introduction of High frequency ratio system (AM)
1950 - Establishment of CB telephone exchange (100 lines) in
Kathmandu.
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1951 - Installation of pen wire trunk line from Kathmandu to Palpa
1955 - Distribution of telephone line to general public.
1962 - First public telephone line to general public.
1964 - Beginning of international telecommunication services using HF
Ratio to India and Pakistan.
1965 - First automatic exchange in Nepal (1000 lines in Kathmandu).
1971 - Introduction of Telex Services.
1974 - Micro wave transmission links establishment for internal trunk.
1982 - Establishment of standard ‘B’ type earth station for international
circuits.
1982 - Establishment of SPC telex exchange.
1983 - Establishment of digital telephone exchange.
1984 - Commencement of STD service.
1987 - Commencement of ISD service.
1995 - Installation of optical fiber net work
1996 - Conversion of all transmission links to digital
transmission Link
1996 - Automation of the entire telephone net work.
1996 - Independent international Gateway Exchange established.
1996 - Introduction of VSAT Services.
1997 - Digital link with D.O.T. India through Optical Fiber in Birgunj-
Raxual.
1998 - Direct Link with Bangladesh.
1999 - Launching of GSM Mobile Service.
2000 - Launching of Internet Service.
2000 - Implementation of SDH Micro Wave Radio.
2001 - Launching of Payphone Service.
2002 - East West Highway optical fiber project.
2003 - GSM Prepaid Service.
2004 - Nepal Telecom (Transformation from corporation to Nepal
Doorsanchar Company)
d) Ownership of NTC
NTC is full government owned public utility sector enterprises. NTC is
administrated by a government appoint board of directors which includes the
chairman, who is the secretary of the ministry of information and communications
and four voting members.
e) Functions and Duties of Corporation (NTC)
According to communication corporation act and other related
documents, the functions and duties of the corporation shall be as follows :
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i) The basic function of NTC is to provide essential nation wide low
const reliable and really available telecommunication services to the
general public for the overall improvement of national integrity and
economic development.
ii) To promote the industry and commerce of the nation.
iii) To promote coordination and administrative efficiently.
iv) To promote the business activities of the corporation.
v) To endeavour to become a self relevant.
vi) Under the directory of HMG, to fix the policies of the corporation and
to take necessary action for its implementation.
vii) To improve the work implementation procedures for maintaining a high
grade of telecommunication services.
F) Rights of Corporation
The rights of the corporation are as follows:
i) To do all works which seem to be inevitable and necessary for the
fulfilment of the functions and duties of its own?
ii) To collect fees from the customers.
iii) To raise loans from national institutions, banks or individuals.
iv) To open any branch office.
v) To use special stamps for its own purpose.
g) Service Delivery Procedure of NTC
Consumer seeking services from telecommunication have to apply for
a new line connection specifying the kind of services required. The incoming
applications are checked for processing and the name list of consumers of finding
who have applied for new line connection is circulated and noticed out.
Consumers on finding their name in the list become subscribers and come to
contact to telecommunication offices for new line connection by filling the
application from referring their name, location, registered number of old
application and other required documents like citizenship, certificates including
other necessary documents. Then the service order is relayed to the engineer
who makes detail survey and feasibility studies live connection cost estimate
assessment of the available points at that locality and listing of the various
materials required for installation. There is a survey from which has not to be field
and the engineer has to make timely installation report after identifying the line
number, telephone number, coble number etc. Then the cost information is
passed on to the consumer who has to make the necessary deposits and pay
installation charge. Technician connects the telephone line after these pre-
requisites are fulfilled. The information about the connection of telephone lines
are disseminated to maintenance control centre for repairs and operations,
inquiry section and telephone directory section and account section for the
13
purpose of maintaining the customer ledger and so on. The information will then
flow to the billing section the verifies, prepares and identifies the customers.
Make necessary adjustments again dispatch this information to the account
section which gives the receipts prepared and telephone care number to
customers.1
h) Board of Directors
NTC has managing director under the supervision and control of board of director.
The composition of board of director is as follows.
Chairman
Secretary, Ministry of Information and Communication
Member
Director, General Ministry of Finance (Dep. of tax)
Member
General Manager of NTC
Member
Director, Katmandu Regional Directorate, NTC
Member
Manager, Cable Networking Planning, NTC
Secretary
Deputy General Manager (Intes Audit and Inspection) NTC.
This is the actual name of the of different director at present time 2067 ashad
Table 1 Director at present time 2067 ashad

NEPAL TELECOM
Board of Directors
MANAGING DIRECTOR
Mr. Amarnath Singh
CORPORATE OFFICE FIELD OFFICE REGIONAL DIRECTORATE
DMD - Finance Director Director - CRD, Birgunj

Mr. Rameshwar IT Directorate Mr. Dev Narayan Yadav
Karmacharya Mr. Lok Raj Sharma
Director - ERD, Biratnagar

DMD - Business Director Mr. Shyam Sunder Yadav
Mr. Vishwanath Goel Telecom Training Center
Mr. Nara Narayan
Manandhar Director - KRD, Sundhara
DMD - Development Mr. Madhusudan
Mr. Kanhaiya Lal Gupta Karmacharya
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Director
DMD - Change Mobile Service Director - WRD, Bhairahawa
Management Directorate Mr. Amrit Prasad Shrestha
Mr. Badri Prasad Bastola Mr. Jeevan Ratna
Shakya
Director - MWRD, Nepalgunj
DMD - Operation & Mr. Khadga Bahadur Basnet
Maint. Director
Mr. Hiranya Kumar Wireless Service
Bhattarai Directorate Director - FWRD, Dhangadi
Mr. Bhagat Man Singh Mr. Bishnu Dhak
Pradhan
DMD, Company
Secretariat
Mr. Buddhi Prasad Director
Acharya Satellite Service
Directorate
Mr. Shiv Bhushan Lal
DMD - Planning
Mr. Anoop Ranjan
Bhattarai Director
PSTN
Mr. Bishnu Prasad
DMD - Human Resource Kasaju
Mgmt.
Mr. Narayan Mahat
DMD, Internal Audit

Mr. Sudhir Prasad Aryal
Organization Chart
Deputy General Deputy General

Planning and Manager O & M
Development
Operation & Maintenance

Dept.
Transmission Switch & Maintenance
Switch planning Dept. Dept.
Cable Net worth planning Power Dept.
Dept Transmission Dept.
Computes Dept. Internal Service Dept.
Civil Dept. Material Management
Account section Dept.Quality Control Office
(development)
Development Section
Board of Director
Transmission P.I.D.
Director Rural Planning
Network P.I.T. Directorate
Switching P.T.DI
General Director
Manager News Service Directorate
Director
Deputy General Kathmandu Reg.
Manager,
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Directorate
Internal Audit &
Inspection
Director
Birgunj Reg. Directorate
1.3 Statement of the Problem
Nepal Telecom is most popular corporation in communication area. It is that organization which earns
profit and pays highest tax to the government. Its collection of cash is too high than. This study focuses to
know whether this kind of organization is managing cash properly or not? NTC is beating other
corporation due to cash management or not? This study focuses to know Is cash management is the key
factor for success or the corporation or not? For these Reasons this topic is chosen.

telecommunication sector is due to poor and inefficient management of available
resource. For the efficient and effective utilization of resources, there must be
proper plan, strategy and control system. Management is concerned with the
efficient use of important resources for the productive result. It is a process of
planning, controlling and giving feedback for proper implementation.
Among various types of management, cash management plays an
important role in efficient and effective utilization of recourses because "Cash is
the important current asset for the operations of the any business organisation.
Holding cash more than necessary for the intended purpose is as much
expensive as running business with inadequate cash. Too much cash balance
will result in higher opportunity cost, and too little will create crisis of cash
shortage and force to borrow at higher interest rate. Therefore, it is important that
firm maintain cash balance at optimal level in order to meet regular cash
expenses and short term financial obligations."
Cash management refers to the proper management of firm’s cash position. It
is concerned with all decisions and acts that influence the determination of the
appropriate level of cash and their efficient use. It also includes the choice of the
financing method, keeping in view of liquidity.
Cash management has been the most indicated and challenging area of
modern corporate finance. This study will try to answer following questions of
cash management.
a. What is the liquidity and cash position of NTC?
b. What is the position of cash inflow and outflow of NTC?
16
c. What is the relationship between liquidity and total revenue and
liquidity and profitability?
d. What is the relationship between budgeted cash & Actual Cash in
NTC ?
e. Which technique of cash collection is using by NTC ?
1.4 Objective of the Study

The major objective of this study is to examine the management of cash in
Nepal Telecom. The specific objectives are as follows.
a. To identify the liquidity position of NTC
b. To review cash flow from operating, financing and investing activities.
c. To study the relationship of approved cash budget & Actual cash
d. To study the cash collection techniques of NTC
e. To analyse the cash collection and disbursement of NTC
f. To study the relationship of cash with total revenue and account
receivable.
g. To provide NTC suggestions and recommendation in terms of cash
management
1.5 Significance of the Study

Resources are very scarce in every organization. Out of these available
resources, organisation has to accomplish its objective. The financial
performance of the organisation prominently depends upon the use of these
scarce resources. Therefore cash management is one of the important tool which
tells us how to optimally use these scarce resource i.e. cash.
The idea behind cash management is maintaining adequate liquid assets
whenever and wherever required by the firm. Maintaining the corporate liquidity
therefore consists of determining the volume and timing of cash required by the
firm.
The study of cash management of NTC provides crucial information about the
cash management system. Management of NTC can be benefited by this study
by determining the strength and the weakness of the particular part of the cash
management on which the objective of the study is based. This study not only
17
helps management of NTC Limited but also helps other managerial person to
have reference about the better cash management potential and practices.
1.6 Limitations of the Study

The study has very limited area of investigation. It is only partial analysis of
cash management of NTC. Comprehensive study of cash management is not
possible in this thesis duty to its deadline of completion and availability of data
and information.
The study is fully dependent on the information of available on the webpage of
NTC. Due to its internal rules it doesn't want to disclose its full information so that
they don't want to give more information from the office side. That's why it is very
much difficult to prepare the thesis. Another part is that they will disclose their
yearly data of five years. i.e. working period of one management committee
The data will be of five year period. So the limitations of the study are as follows:
a. The study is totally based on secondary data collected from NTC.
b. The study covers the analysis of five years(2060/61 to 2064/65) i.e.
one working period of management committee
c. The accuracy of this study is based on the data available from NTC
website i .e. www.ntc.net.np and various published document of the
organisation.
d. Only financial and statistical tools are used for analysis of data.
e. This study is focus only on NTC
1.7 Organization of the Study

This study has been organised in five chapters. The first chapter is the
introduction chapter which deals with the background of the study,
introduction of NTC, statement of the problem, objective of the study,
significance of the study and limitation of the study.
Review of literature is deals with the literature review relating to cash
management i.e. books, journal and thesis.
In third chapter, the research methodology employed for the study has been
described. It includes introduction, research design, data collection and sources,
data processing procedure and tabulation of financial tools and techniques.
18
Then the acquire data are presented and analyzed through the way given in
methodology in the fourth chapter.
At last, the summary, major findings, issue, constraints and some
recommendation have been presented in the fifth chapter. A bibliography and
appendix have also been included in the last part of the study.
19
CHAPTER II
REVIEW OF LITERETURE
2.1 Conceptual Framework
2.1.1 Meaning of Cash Management

‘’Cash is the most important form of current assets. It is the basic input and
ultimate output. The term ‘cash’ refers to all money items and sources that are
immediately available to help pay a firm’s bills.
Cash includes coins, currencies, cheques held by a firm and balances in its
bank accounts. This money is immediately usable to pay bills. Sometimes, near
cash items are also included in cash e. g. marketable securities. If the firm has
excess cash, it may decide to convert it to short-term investments.’’ (Pradhan,
2004: 365). So how a financial manager keeps track of all these money and how
these cash are invested to near cash item so that it can be converted back to
cash without delay. It is only the cash management with help the financial
manager to keep record of all the cash and near cash items.
The term ‘cash management’ is concerned with the management of current
assets and current liabilities of the business, which is necessary for day –to-day
operation. ‘’Cash management is concerned with the decision regarding the
short-term funds influencing overall profitability and risk involving in the firm. The
management of cash has been regarded as one of the conditioning factors in the
decision-making issues.’’ (Saksena, 1974: 6)
2.1.2 Principles of Cash Management

Selection of cash management strategies entirely depend upon the
individual firm. As each firm is unique in its nature, management should select
strategies depending upon its own financial strength and objective. "In the matter
of cash management, financial managers are mainly concerned with the (a)
management of cash receipts, (b) management of disbursement, (c) minimization
of cash balance, (d) use of most inexpensive sources of financing for cash
balance, and (d) investment of excess balance of cash. The standard principles
of cash management are as follows.
20
a. To collect accounts receivable as soon as possible without annoying
and losing potential customers by establishing a system of lock boxes,
electronic funds transfer, pre-authorized checks, and deposit
concentration.
b. To delay payments as long as permitted without damaging the firm's
credit rating by establishing controlled disbursement system.
c. To minimize cash balance without adversely affecting the business
operation by following the techniques of cash balance management
such as Baumol and Miller-Orr Models.
d. To manage most inexpensive sources of financing for meeting short
term cash deficiency by optimally balancing between cost and risk.
e. To invest short term excess cash in most efficient market portfolios of
securities such as in money market instruments." (Pradhan, 2000: 154)
2.1.3 Techniques/Processes of Cash Management

The efficiency of cash management of a firm can be appreciated by
understanding the firm's procedures for cash collection and cash disbursement.
Both the collection and disbursement management offer opportunities for profit
improvement; collection, however, offer more of them. ’’The general idea is that
the firm will benefit by ‘’speeding up’’ cash receipts and ‘’slowing down’’ cash
payouts. The firm wants to speed up the collection of accounts receivable so that
it can have the use of money sooner. Conversely, it wants to pay accounts
payable as late as is consistent with maintaining the firm’s credit standing with
suppliers so that it can make the most use of the money it already has.’’(James,
2003: 227) Following techniques are considered to be useful to accelerate the
collection and slow down disbursement.
a. Managing Collection
Cash collection systems aim to reduce the time it takes to collect the cash
that is owed to a firm. Some of the sources of time delays are mail float,
processing float, and bank float which are explained in detail below.
Obviously, an envelope mailed by a customer containing payment to a
supplier firm does not arrive at its destination instantly. Likewise, the
payment is not processed and deposited into a bank account the moment it
21
is received by the supplier firm. And finally, when the payment is deposited
in the bank account oftentimes the bank does not give immediate availability
to the funds. These three "floats" are time delays that add up quickly, and
they can force struggling or new firms to find other sources of cash to pay
their bills. Cash management attempts, among other things, to decrease the
length and impact of these "float" periods.
 Float
"The float , composed of several elements, is the time lost between two
actions, that is 1. the customer mails the payment and 2. the firm obtains
the use of funds. The acceleration of cash receipts or equivalently the
reduction of the float is an important cash management technique. The
float has typically four elements.
i. Mail float(Net)
ii. Processing float
iii. Transit float
iv. Disbursement float
 Concentration Banking
A concentration bank is one where a firm maintains a major
disbursement account. In order to accelerate cash collections, many
firms establish multiple lock-boxes or collection points. Even without lock
boxes, firms may have many regional sales offices where cash sales
and accounts receivable may be colleted. Instead of having moneys in
multiple bank accounts in different regions, most firms will regularly
transfer the surplus balances to one or more concentration banks, thus
centralizing the cash pool.
 Lock Box System

The lock box arrangement, available through commercial banks speeds
up the collection of funds by reducing both mail and processing floats.
Float reductions of two to four days are not unusual for firms receiving
cheques from all parts of the country.
In a typical lock-box arrangement, customers are instructed to
22
mail their remittances to a numbered post office box. The bank,
providing the lock-box system is authorized to operate the post office
box the banks opens the box, collects the mail, processes the cheques
and deposits the cheques directly into the firm's bank account. Typically,
a large bank will collect payments from the post office box at once-to
two-hour intervals, all business days of the year-all 365 days is also
possible. The day the deposits are made, the bank will inform the firm
through some type of telecommunication as to the amounts of the
deposits. At the end of the day, all cheques photocopies, invoices,
deposit slips and any other documents included with the remittances are
mailed to the firm. Note that firms receiving cheques from a large area
will use several lock boxes, located in different regions and services by
branches of the bank providing the lock-box arrangement, to the full
advantage of a reduction in the float.
b. Control of Disbursement
The effective control of disbursement can also help the firm in
conserving cash and reducing the financial requirements. Apart from
speedy collection of accounts receivable, the operating cash
requirement can be reduced by slow disbursement of accounts payable.
Disbursements arise due to trade credit, which is a source of funds.
The firm should make payments using credit terms to the fullest extent.
There is no advantage in paying sooner than agreed. By delaying
payment as much as possible, the firm makes maximum use of trade
credit as source of funds-a source which is interest free.
2.1.4 Factors Determining Cash Needs

The factors that determine cash needs are described below:
2.1.4.1 Synchronization of Cash Flows
The cash management problem originates from the lack of synchronization
between cash inflows and out flows which raises two interrelated issues: 1) How
to finance cash requirements when cash outflows exceed inflows, and 2) How to
invest a cash surplus when net cash flows are positive. The basic financing-
23
investment issue is indirectly affected by various factors which determine net
cash flows and is directly influenced by minimal cash requirements and other
financial policies of the corporation. The interrelated complex of these issues, to
the extent that they are controlled by a financial officer, creates the cash
management problem.
It is mentioned that business can control cash by synchronizing cash flows through the
use of a cash budget. It can use the time such as the time from the writing of the check
until it clears the bank, accelerate collections with low credit terms and high interest rates
on unpaid balances, and control disbursements by making use of discounts and good
purchasing practices.
2.1.4.2 Short Costs
Another general factor to be considered in determining cash need is the

cost associated with a short fall in the cash needs. The cash forecast presented
in the cash budget would revel period of cash shortages. In addition, there may
be some unexpected short fall. Every shortage of cash, whether expected or
unexpected involved a cost depending upon the severity, duration and frequency
of the shortfall and how the shortage is covered. Expenses incurred as a reset of
shortfall are called short costs. Included in the short cost are the following.
 Transaction cost associated with raising cash to tide over the shortage, this
is usually the brokerage incurred in relation to the sale of some short term
near cash assets such as marketable securities.
 Borrowing cost associated with borrowing to cover the shortage these
include items such as interest on loan, commitment charge and other
expenses relating to the loan.
 Loss of cash discount, that is, a substantial loss because of temporary
shortage of cash.
 Cost associated with deterioration of the credit rating which is reflected a
higher bank charges on loans, stoppages of supplies, demand for cash
payments, refusal to sale, loss of image and the attendant decline in sales
and profits.
 Penalty rates by bank to shortfall in compensating balances.(Khan and Jain,
2003: 668)
24
2.1.4.3 Excess Cash Balance Costs
Theoretically there should be optimum balance of cash in any firm’s accounts i.e.
there should not be excess/idle cash. But if firm holds excess cash then the cost which
firm has to bear in having excessively large cash balance is known as excess cash balance
cost. If large funds are idle, that implies, firm has missed opportunities to invest those
funds and has thereby lost interest which it would otherwise have earned. This loss of
interest is primarily the excess cost.
2.1.4.4 Procurement and Management
“These are the costs associated with establishing and operating cash management
staff and activities. They are generally fixed and are mainly accounted for by salary,
storage, handling of securities, etc.” (Khan and Jain, 2003: 669)
2.1.4.5 Uncertainty and Cash Management
Finally, the impact of uncertainty of cash management strategy is also

relevant as cash flows can not be predicted with complete accuracy. The first
requirement is a precautionary cushion to cope with irregularities in cash flows,
unexpected delays in collections and disbursements, defaults and unexpected
cash needs.
The impact of uncertainty on cash management can, however, be mitigate
through (1) improved forecasting of tax payments, capital expenditure dividend,
and do on: and (2) increased ability to borrow though over draft facility. (Khan and
Jain, 2003)
2.1.5 Motives of Holding Cash
2.1.5.1 Transactions Motive
Firms are in existence to create products or provide services. The

providing of services and creating of products results in the need for cash. Firms
hold cash in order to satisfy the cash inflow and cash outflow needs that they
have. In firm, there is regular inflow of cash in the form of sales, return from
25
investments etc. Similarly, there is regular outflow of cash like operating
expenses, taxes, interest and wages and so on. But this inflow and outflow do not
perfectly synchronize with each other. So ensure that there is always
synchronization of inflow and outflow of cash, firm needs to hold cash. So the
requirement of cash balances to meet routine cash needs is know as
transactional motive.
2.1.5.2 Precautionary Motive
Besides anticipated cash needs, sometimes firm gets unexpected cash

needs at short notice like strikes, failure of important customers, unexpected slow
down in collection of accounts receivable, sharp increase in cost of raw materials
and many more. So cash held to meet such unexpected obligations is known as
precautionary motive. Holding cash for precautionary motive large depends upon
ability to predict future. Also another factor that strongly influences the
precautionary motive is the ability to borrow additional cash on short notice.
2.1.5.3 Speculative Motive

“Economist Keynes described this reason for holding cash as creating the ability
for a firm to take advantage of special opportunities that if acted upon quickly will favour
the firm.” An example of this would be purchasing extra inventory at a discount that is
greater than the carrying costs of holding the inventory. Precautionary motive is defensive
in nature as firm makes provision to meet unexpected contingencies while speculative
motive represents a positive and aggressive approach. Firms aim to exploit profitable
opportunities and keep cash in reserve to do so.
2.1.5.4 Compensation Motive
Commercial banks perform many functions for business firms. In return it ask
business firm to maintain minimum level of balance at the bank which is known as
compensating balances. These balances are used by firms in the form of loan to other and
earn interest which is an indirect fee to bank.
Of the four primary motives of holding cash balances, the two most important are the
transactions motive and the compensation motive. Business firms normally do not
26
speculate and need not have speculative balances. The requirement of precautionary
balances can be met out of short-term borrowings.
2.1.6 Objectives of Cash Management
The main objectives of cash management are to determine the optimal

cash balance which is neither excessive nor inadequate and also to ensure that
the optimal cash balance is maintained all through. Cash should not remain idle
unnecessarily and simultaneously it should not fall short of the requirements also.
For this, the collections and the disbursements of cash are to be managed
properly. In case the flow of cash in not even, the cash is to be arranged by
raising short-term loans for meeting the payment bills or if cash collections have
been made but there is no immediate outlet for payment, the idle funds are
invested in temporary securities so as to yield some return. Thus, the problem is
to manage the cash affairs in such a manner that gives the least possible cost of
maintaining cash. The main objective of financial management-maximizing
profitability without sacrificing liquidity-should be borne in mind while attempting
to manage cash and bank balances. Optimal cash balance does not mean
minimum cash balance since minimum cash may lead to shortage of cash and
the day-to-day operations of the business may suffer. The level of cash which
meets the requirements appropriately and which gives the minimum cost is
known as the optimum level of cash.
Cash management covers the management of not only cash but near-cash
assets also, e.g., marketable securities and time deposits with banks, because
these are readily convertible into cash, As a matter of fact, 'near-cash assets' are
to be included under' cash' for the purpose of cash management since surplus
cash is required to be invested in near-cash assets for the time being.
The objectives of cash management are straightforward – maximise

liquidity and control cash flows and maximise the value of funds while minimising
the cost of funds. The strategies for meeting such objectives include varying
degrees of long-term planning requirements. Everywhere in the world, much
27
treasury activity is concentrated on cash management. This includes financing
the corporation, administration of debts (loans, bonds, commercial papers, etc.),
good relationships with the banks, payments to suppliers and collections from
customers, control of foreign currency and interest positions according to the
company’s needs for finance, and finally the reporting and technical support of all
these functions.”
2.1.4 Determining the Optimum Cash Balance

Financial manager responsibilities are to maintain a sound liquidity position of
the firm. There are a number of methods that try to determine the magical cash
balance, which should be targeted so that costs are minimized and yet adequate
liquidity exists to ensure bills are paid on time. One of the first steps in managing
the cash balance is measuring liquidity. There are numerous ways to measure
this, including: cash to total assets ratio, current ratio (current assets divided by
current liabilities), quick ratio (current assets less inventory, divided by current
liabilities), and the net liquid balance (cash plus marketable securities less short-
term notes payable, divided by total assets). The higher the number generated by
the liquidity measure, the greater the liquidity and vice versa. There is a trade off,
however, between liquidity and profitability that discourages firms from having
excessive liquidity.
The financial manager should determine the appropriate amounts of cash
balance. A trade off between risk and return influences such a decision. If the firm
maintains a small cash balance, its liquidity position become weak and suffers
from a capacity of cash to make payment. But investing released funds in high
level of cash balance it will have a sound liquidity position but forego the
opportunity to earn interests. Thus the firm should maintain an optimum cash
balance to find out the optimum cash balance the transaction costs and risk of
too small a balance should be matched with the opportunity costs of too large a
balance.
There are a number of methods that try to determine the magical cash
balance, which should be targeted so that costs are minimized and yet adequate
liquidity exists to ensure bills are paid on time (hopefully with something left over
28
for emergency purposes). One of the first steps in managing the cash balance is
measuring liquidity. There are numerous ways to measure this, including: cash to
total assets ratio, current ratio (current assets divided by current liabilities), quick
ratio (current assets less inventory, divided by current liabilities), and the net
liquid balance (cash plus marketable securities less short-term notes payable,
divided by total assets). The higher the number generated by the liquidity
measure, the greater the liquidity and vice versa. There is a trade off, however,
between liquidity and profitability that discourages firms from having excessive
liquidity.”
2.1.5 Cash Management Models

1. Baumol Model
In view of minimizing the opportunity cost of holding cash and maximizing the
return on the available funds, the cash balance should be maintained at a
minimum level, and the funds not required for immediate use be invested in the
marketable securities. What is the minimum size of cash to hold and how do we
determine it? The minimum size is the amount of cash that is enough to start
with at the beginning of a period to meet the cash need of that period's
transaction. In order to make sure that every period begins with the right amount
of cash, a method is needed that prescribes the optimal size of cash transfer
from the security account, or the optimal amount to be borrowed whenever the
balance reaches to zero level. Baumol model is one of the methods that can be
used for this purpose.
Baumol identifies the cash maintenance as analogous to inventory
maintenance, and demonstrates that the model of economic order quantity that
is applicable to inventory management is perfectly applicable in cash
management too. Baumol model is based on the assumption that (i) the cash is
used at a constant rate; (ii) the periodic cash requirement is more or less same;
and (iii) there are some costs such as the opportunity costs that increase and
other costs such as transaction costs that decrease as cash balance increase.
Because of the assumptions (i) and (ii), the graphical representation of cash
position looks like as follows:
29
Baumol’s Model of Cash Management
Figure 1 Baumol’s Model of Cash
Cash
Balance
Weeks
Management
Unlike the case of inventory purchases, the cash transfer does not take
time. Therefore, it is normally not required to maintain safety stock of cash.
Under the stated assumption, the model prescribes an optimal size of
cash balance and the optimal size of cash transfer from marketable
securities to cash account or borrowing. What matters for a firm is the total
of opportunity cost and the transaction cost. Therefore, the objective of
this model is to minimize the total cost. The figure below shows the
relationship between the average size of cash balance (the size of cash
transfer or borrowing) and various costs associated with the cash
maintenance.
Optimum Cash Balance
30
Figure 2 Optimum Cash
Total cost of holding cash
Balance
Mathematically, the optimal size of cash transfer from investment
accounts or line of credit (borrowing), c* is determined as follows:
C* = 2 FR
K
Where
F = Fixed transaction cost per transaction
R = Requirement of cash per period
K = Opportunity cost of holding cash or the interest rate on borrowing.
The Baumol model can be appropriately applied in case of predictable
uniform net cash flows, but not in the situations characterized by irregular
and uncertain cash flows.
The average cash balance (C) is calculated as follows:

C*
C= M
2
Where,
M = minimum balance of cash for precautionary purpose.
2. Miller-Orr Model
31
The size of cash requirement depends on the pattern and degree of
irregularity of inflows and outflows. The Baumol model does not consider
the possible irregularity and uncertainty of receipts and payments. Merton
Miller and Daniel Orr have developed a model, known as Miller- Orr model
that takes into account the realistic pattern of cash flows and prescribes
when and how much cash should be transferred from cash to investment
account and from investment account to cash.
The model is based on the assumption that the daily net cash flows
(receipts minus payments) are random in size as well as in the matter of
negative or positive flows, and are normally distributed in the long run. The
model sets a range of high and low limits within which the cash balance is
allowed to fluctuate and sets the target cash balance (Z) in between these
two limits. The model suggests bringing the cash balance to target
balance whenever it drifts away to the limits in either direction. The rule is
to transfer the amount of cash that is necessary to bring the cash position
to its target balance from the investment account whenever the balance
slides down to the lower limit (L); and to transfer the cash in excess of
target balance to the investment account whenever it reaches to the upper
limit (U). The lower limit in the model is set by either managerial decision
to meet emergency need or as required by bank to maintain compensating
balance in the account. The graphical representation of this model is as
follows.
Figure No. 2.3 Miller-Orr Model of Cash Management
32
Figure 3 Miller-Orr Model of Cash
Cash
Balance
(Target
balance)
(Days)
Management
Mathematically, the model is set as follows
1/ 3
 3Fs 2 
Z=   L
 4i 
The lower limit L is given; the model calculated the Z and U.
1/ 3
 3Fs 2 
U=  L
 4i 
The average cash balance (C) is obtained as follows:
4Z  L
C=
3
Where
Z = target cash balance
I = daily rate of opportunity cost or daily interest rate
S2 = variance of net daily cash flows
U = Upper limit
L = Lowe limit
3. Orgler's Model
According to this model, an optimal cash management strategy can be
determined through the use of multiple linear programming model. The
33
construction of the model comprises three sections: (1) selection of the
appropriate planning horizon (2) selection of the appropriate decision
variables and (3) formulation of the cash management strategy itself. The
advantage of linear programming model is that it enables coordination of
the optimal cash management strategy with the other operations of the
firm such as production and with less restriction on working capital
balances.
The model basically uses one year planning horizon with twelve
monthly periods because of its simplicity. It has four basic sets of
decisions variables with influence cash management of a firm and which
must be incorporated into the linear programming model of the firm. These
are: i) payment schedule, ii) short-term financing, iii) purchase and sale of
marketable securities and iv) cash balance itself.
The formulation of the model requires that the financial managers
first specify an objective function and then specify a set of constraints.
Orgler's objective function is to 'minimize the horizon value of the net
revenue from the cash budget over the entire planning period.' Using the
assumption that all revenues generated are immediately reinvested and
that any cost is immediately financed, the objective function represents the
value of the net income from the cash budget at the horizon 'by adding the
net returns over the planning period.' Thus, the objective function
recognises each operation of the firm that generates cash inflows or cash
outflows as adding or subtracting profit opportunities for the firm from its
cash management operations. In the objective function, decision variables
which cause inflows, such as payments on receivables, have positive co-
efficient, while the sale of those securities would incur conversion costs
and have a negative co-efficient.
The constraints of the model could be i) institutional or ii) policy-
constraints. The institutional constraints are those imposed by external
factors, that is, bank-required compensating balance. Policy constraints
are imposed on cash management by the firm itself. For instance, the
financial manager may be prohibited from selling securities before maturity.
34
Either constraint can occur in the model during one monthly period or over
several or all the months in the more year planning horizon.
An example of the linear programming model is as follows:
Maximise profit= a1s1 + a2x2
Subject to
b1x1 ≤ production
b2x2≤ constraints
C1x1+C2x2≤ Cash available constraint
81x1+82x2> Currents assets requirement constraint
Xi≥0i = 1, n non-negativity constraint
A very important feature of the model is that it allows the financial

managers to integrate cash management with production and other
aspects of the firm.
2.2 Review of Related Study

Cash management is regarded as an important part of working capital
management, the thrust for a separate theory in this area was attempted by many
economists, since 1950’s. Some of them enunciated cash management theories
whereas others extended the common run approaches with new techniques.
2.2.1 Review of Journals

Baumol (1952) introduced a deterministic approach to determine the level
of cash balances based on Economic Order Quantity of early inventory model.
He assumed that the firm faces fixed cash inflow and outflow patterns and sought
to minimize the cost of holding cash necessary for its transaction. Baumol
concluded that cash will be demanded by rational individuals in proportion to the
square root of the value of transactions, given the price level. Tobin (1956)
interposed interest elasticity of transaction demand for cash with a view to
maximizing individual’s interest earnings net of transaction cost. This is different
from Baumol’s propositions but the results are quite similar with Baumol’s
equations.
Friedman (1959) introduced the behaviour of aggregate cash balance and its
velocity. According to him, “business holds cash as a productive resource.”
35
Friedman explored the question of whether money is like an inventory holding, or
is comparable with fixed capital. He concluded with the finding that “cash
balances are analogous to fixed capital rather than to inventories and that some
other assets or liabilities serve as shock absorbers for business as for
consumers.” Seldon (1961) extended the study and determined the relationship
between velocity of money and its inverse relationship with the assets size of the
firm. According to Seldom, the velocity is defined as the ratio of total outlays
including tax, and dividend payments but excluded capital expenditures debt
retirement and securities purchases from year end cash holdings. According to
him, the cost of holding money is much less for large firms that for small firms.
The journal of finance, published bimonthly by American Finance

Association for many decades is taken into account. In its volume XV of
September 1960, Joseph C Schabacker, at his article, “A study of cash planning
in small manufacturing companies” is reviewed here, which is as follows
A Study of Cash Planning in small manufacturing companies by Josephc
Schabacker (1960) University of Wisconsin. Several significant investigations
have been conducted to explain the causes of failure among small businesses.
The most widely accepted theory forthcoming from such studies is that poor
internal management is the predominant factor in failure. Business does not fail
merely because they are small.
The purpose of this study is to explore one specific phase of the

managerial job in small companies, namely the forward planning of cash
requirement. Many small business owners allow themselves to be pressured into
ad hoc decisions as a result of no advance planning. The research was designed
to test the hypothesis that “the financial health of a small manufacturing firm is
directly related to the amount of formal cash planning which is done” (Schabacker,
1960)
According to Whalen (1965) “A cross section study of business demand for cash”
on Journal of finance, (September, 1965) has found the speculative demand for
money many be considered as a function of wealth. Assets and sales are the
36
explanatory variables to determine the cash balance of the firm. Since Whalen
attempted to incorporate assets as well as transactions into the demand function,
the analysis presented by him in order to determine the cash holding of the firm is
not only for transaction purpose but also an investment. Miller-Orr (1966)
assumed that firm’s cash flows could be analyzed by a stochastic process. He
followed Baumol’s model without question and deducted that the firm’s pattern of
payment and receipts is fixed and that the cost of non-payment is infinite. He
added that the firm or the individual is presumed to hold that amount of money
which minimise the interest cost. He further advised holding money rather that
bonds, since there is transaction cost associated with the conversion of bonds
into money. This reduces the cost of transaction and maximizes profits by an
equivalent amount.
“Cash management is a broad term that refers to the collection, concentration

and disbursement of cash. It encompasses a company's level of liquidity, its
management of cash balance, and its short-term investment strategies. In some
ways, managing cash flow is the most important job of business managers. If at
any time a company fails to pay an obligation when it is due because of the lack
of cash, the company is insolvent. Insolvency is the primary reason firms go
bankrupt. Obviously, the prospect of such a dire consequence should compel
companies to manage their cash with care. Moreover, efficient cash management
means more than just preventing bankruptcy. It improves the profitability and
reduces the risk to which the firm is exposed.
Cash management is particularly important for new and growing businesses.
Cash flow can be a problem even when a small business has numerous clients,
offers a superior product to its customers, and enjoys a sterling reputation in its
industry. Companies suffering from cash flow problems have no margin of safety
in case of unanticipated expenses. They also may experience trouble in finding
the funds for innovation or expansion. Finally, poor cash flow makes it difficult to
hire and retain good employees”.
“Cash flow management is the process of monitoring, analyzing, and adjusting

firms’ cash flows. For small businesses, the most important aspect of cash flow
37
management is avoiding extended cash shortages, caused by having too great a
gap between cash inflows and outflows. It won't be able to stay in business if it
can't pay its bills for any extended length of time. Therefore, firm need to perform
a cash flow analysis on a regular basis, and use cash flow forecasting so that it
can take the steps necessary to head off cash flow problems. Many software
accounting programs have built-in reporting features that make cash flow
analysis easy. This is the first step of cash flow management.”
“Cash management forecasts cash flows (inflows or outflows of cash) as part of

working capital cycle, prepares cash and financial budgets and fund-flow
statements, and manages the cash or funds flowing through the company. The
basic aim of cash management is to ensure that cash in exceeds cash out. In
other words, the purpose of cash or funds management is to ensure that the
company has the cash and working capital for its expanding or fluctuating needs
without either trying up funds which could be more profitably invested or used
elsewhere, or relying too heavily on bank overdrafts or other short-term loans.“
“Cash management is ultimately about cash flow and very few small businesses
are awash in cash. Even successful, growing companies are vulnerable to cash
flow problems because they tend to add employees and inventory rapidly. This
may quickly reduce the company funds and lead to cash shortages. Because
having cash at the right time is so important, entrepreneurs must pay close
attention to cash management.”
2.3 Review of Previous Thesis

Bajracharya (1990) has studies the cash management practices in
Nepalese Public Enterprises. The study has taken 18 enterprises as a sample
and used data from 1977 to 1987. The study concluded,
i. Cash management in the public enterprises of Nepal is primarily
based on the traditional practices, lacking in a scientific approach. A
more serious aspect of cash management has been the absence of any
formalised system of cash planning and cash budgeting in many of the
38
enterprises, although the executives of some enterprises do have the
practice of forecasting cash requirements on a formal basis.
ii. Modern practices with respect to debt collection monitoring the
payment behaviour of customers and relevant banking arrangements in
connection with collection of receivables have been virtually ignored in
many enterprises.
iii. Our survey revealed that majority of the enterprises didn't face any
serious liquidity problem. However, this was not because of the
effectiveness of cash planning and budgeting. The problem of liquidity
actually didn't arise due to the coincidence of delay in receivables
collection being matched by delayed payment to creditors.
iv. By and large most enterprises had periodic accumulation of surplus
cash and corresponding cash shortage from time to time. However,
none of the enterprises considered the implications of holding idle cash
balance and few took into account the potential benefit of investing
surplus in marketable securities. Those which did failed to consider the
cost of administering such investments.
v. There has been wide variations overtime in the state of financial
health of the enterprises in terms of the composition of current assets
and current liabilities as revealed by the relevant financial ratios.
vi. Regression analysis revealed that there was little effect of the
opportunity cost of holding cash on the cash balances held by the
enterprises. Neither interest rate nor the rate of inflation had any effect
on the cash balance. Further there was very little evidence of the effect
of economy of scale on cash balance holding in most cases.
Further he recommended for developing appropriate strategies for cash
management. He stressed on cash planning and budgeting to cash
project cash surplus and cash deficit. Firm can accelerate the inflows
as far as possible to decelerate outflow. He also stressed to maintain
optimum level of cash and at last, it can be better to invest idle fund in
marketable securities.
39
Chalise (2006) conducted the study on Cash management of NTC by using five
years of data from 2056/57 to 2060/61. The objective of his study was as follows:
“To observe devices of planning and control of cash in NTC, to examine the
existing internal control policy in NTC regarding cash control practices, to identify
the shortage or excess of cash in the company and the procedures of financing
for the shortage and investment of excess cash and to study the liquidity position
of the company.“
Major findings of Chalise’s study is as follows
i. Actual position of cash at the end of F/Y2056 / 2057 to F/Y 2059 / 2060
was higher than approved budget cash balance. The deviation was
insignificantly decreasing which shows favourable trend although it is not
satisfactory.
ii. The result of revision showed surplus position of cash. This shows that
company was not able to meet the target of budget. Moreover, when
comparison is made in between actual cash source and actual cash uses,
there was big deviation resulting ample surplus. So, it shows that budget
was not implemented properly and surplus was not used in productive
investment. It could have done even keeping required level of closing cash
balance in hand.
iii. When the closing balance cash is considered as source of budget, there
was huge amount of surplus in approved budget, revised budget and in
actual performance of budget. The degree of surplus was more in revised
budget and actual performance of budget than in approved budget. But the
management of those surpluses was lacking in the company.
iv. The analysis of variances in sources of cash depicts that the total actual
sources of cash in the years 2056/57 and 2058/59 was less than the
approved budget sources of cash.
v. There are strict provisions regarding cash handling in the company. The
decision making process will be lengthy due to compliance of time
consuming rules and procedure as prescribed. The Policy study shows that
the company is still suffering from centralization problem of management.
40
Similarly, Bhatta (2006) did another study on NTC where objectives were “to
analyze the gap between budgeted and actual revenue and its trend, to examine
cash collection and disbursement, to review cash flow from operating, financing
and investing activities and to have information, control and security over cash
balances and payment system.
Major findings of his study are ad follows:
i. The lack of accurate and proper sales forecast is one of the important
contains that affect the financial performance of the company.
ii. Sales budget shows ISD sector’s sales revenue is main revenue sources
of Nepal Telecom, which contributes more than 40% in average.
iii. Correlation and coefficient value shows that there are positive correlation
between budgeted and actual sales units and Rs. By the regression line, it
is clear that future revenue will increase with compare to budgeted if other
things remaining same.
iv. The collection of receivable from the customers in the company is very
small decreasing year by year. It denotes efficiency of Nepal Telecom to
collect its revenue in time. But A/R is low increasing in F/Y 2059/60. The
decreasing trend of average collection period has shown the improvement
of credit management and strict credit policy of the company.
Rayamajhi, (2006) did study of cash management of Nepalese Commercial

Banks. She has studies cash management of 5 commercial banks i.e. Nabil Bank,
Himalayan Bank Ltd, Standard Chartered Bank Nepal Limited, Everest Bank
Limited and Nepal SBI bank Ltd. Her study mainly focused on over all cash
management of selected bank with the examination of their demand for cash.
She also tried to focus and analyse the cash disbursement needs, minimize funs
committed to cash balance and access the credit policy adopted in Nepalese
commercial bank and their impact and relationship to each other.
Her finding mainly revealed following things:
 Banks under study have the practice of preparing cash budget
annually, monthly and weekly with the help of ratio analysis, cash budget
method, projected balance sheet method and adjusted net income method.
However, very few banks treated it as formal document.
41
 The study showed that there has been no uniformity among the
banks with regard to cash balance, cash turnover, current ratio, account
receivable, average collection period, A/R to cash/bank balance,
investment in cash/bank balance on current assets and total assets, c
cash/bank balance to current liabilities.
 Cash management in the banking sector of Nepal is primarily
based on the traditional practices, which lack in a scientific approach.
To the end, she had made some suggestion for the improvement of cash
management of selected commercial banks. She suggested to do cash
planning and cash budgeting in a formal basis so as to project cash surplus or
cash deficit for a period not exceeding one year and broken up into shorter
intervals. Also she has suggested appointing cash planning manager or
experts to upgrade the current financial management skills. She has also
emphasised on paying much attention towards collection of account
receivable and decrease average collection period for effective cash
management
Chataut (2008) has recently done research on NTC’s cash management. He has
mainly done research on shortage or excess of cash in the NTC. Also he tried to
analyze the gap between budgeted and actual sources of cash.
His major findings are as follows:
 The actual cash balances were higher than approved budgeted amounts. It
shows that there was no effective implication of budgeted amount.
 Nepal Telecom prepared and approved deficit budget each year from
2056/2057 to 2061/2062. When opening balance was not included in
source side of budget total budgeted cash uses was always higher.
2.4 Research Gap

Most of the dissertation related to cash management has been reviewed.
The previous researchers had conducted their research on NTC only using
financial tools. But I have tried to analyse the effectiveness of Cash management
of NTC using both financial as well as statistical tools.
So, this study will be fruitful to those people who have invested in NTC or
who are interested to invest in NTC in future to know about cash position and
cash management of it.
42
Previous researchers focus only on the following points
 The study have the practice of preparing cash budget annually,
monthly and weekly with the help of ratio analysis, cash budget method,
projected balance sheet method and adjusted net income method.
However, very few banks treated it as formal document.
 It is showed that there has been no uniformity among the banks
with regard to cash balance, cash turnover, current ratio, account
 The practice of preparing cash budget annually, monthly and
weekly with the help of ratio analysis, cash budget method, projected
balance sheet method and adjusted net income method. However, very
few banks treated it as formal document.
 The study showed that there has been no uniformity among the
banks with regard to cash balance, cash turnover, current ratio, account
 Cash management in the banking sector of Nepal is primarily
based on the traditional practices, which lack in a scientific approach
CHAPTER III
RESEARCH METHODOLOGY
3.1 Introduction
Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying how research is done
scientifically. It is necessary for the researcher to know not only the research
methods but also consider the logic behind the methods we used in the contest of
your research study and explain why we are using a particular method or
technique and why we are not using others so that research results are capable
43
of being evaluated either by the researcher himself or by others. The study of
research methodology gives the student the necessary training in gathering
materials and arranging them, participating in the field work which required, and
also training in techniques for collection of data appropriate to particular problems,
in the use of statistics, questionnaires and controlled experimentation and in
recording evidence, sorting it out and interpreting it.
This chapter tries to focus on different research methods, frameworks,
tools and conditions that will be used while conducting the study. Following are
the major content of research methodology in course of this dissertation.
3.2 Research Hypothesis

Quantities statement about population parameter is called a hypothesis. It
is an assumption that is made about population parameter and finally its validity
is tested. The act of verification involves testing the validity of such assumption
which whom undertaken on the basis of sample evidence is called statistical
hypothesis. The hypothesis formulation for this study is as follows:
1) Is there any significance correlation coefficient between cash balance and

revenue ?
Null Hypothesis;
H0: p = 0, i.e. population correlation coefficient is zero. In other word cash balance
and revenue of NTC are uncorrelated.
Alternative Hypothesis;
H1:p ≠ 0, The variables in population (cash balance & revenue) are correlated.
2) Is there any significance correlation coefficient between cash balance and

Account Receivable ?
Null Hypothesis;
H0: p = 0, i.e. population correlation coefficient is zero which means that the
variables in population i.e. cash balance and Account Receivable of NTC are not
correlated.
44
H1:p ≠ 0, The cash balance & Account Receivable are correlated.
3.3 Research Design

Research design is a broad plan for collecting and analysing data. It
includes methods that are used while collecting data, instruments that are used
for doing research and the sampling plan that are used for follow up.
A well settled research design is necessary to fulfil the objective of this
study. It means definite procedures and techniques are required that guide to
study and advocate for research viability. This study aims to evaluate managerial
efficiency and performance regarding cash management of NTC. Hence,
descriptive as well as analytical research designs have been used.
Descriptive research is essentially a fact finding approach relative largely to
present and abstracting generalization by the cross section study of the current
situation.
Analytical approach is followed to parametric and non parametric test of
data. It is process of micro-analysis and appraisal to the data.
3.4 Nature and Sources of Data

For any research work, information and data plays vital role. Thus it is one of
the major tasks of research work. This study is based upon the secondary data.
Data have been mainly collected from following sources.
a. Published and unpublished document and annual reports of the company.
b. Journals, Government and non government publication
c. Supportive books of related topic.
d. Websites of related topic.
3.5 Method of Data Analysis

To find out the true picture of cash management of NTC, different financial
and statistical tools are used. Some generalisation and assumption might also be
made in the course of preparation of report as demanded by the situation. The
procedures of analyzing data are described as follows.
45
3.5.1 Financial Tools and Techniques
Financial analysis is the process of identifying the financial strength and
weaknesses of the firm by properly establishing the relationship between the
financial figures. A widely used tool in financial analysis is ratio analysis however
there are other tools also.
3.5.1.1 Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of
information in a company’s financial statements. Ratios are calculated from
current year numbers and are then compared to previous years, other companies,
the industry, or even the economy to judge the performance of the company.
Ratio analysis is predominately used to proponents of fundamental analysis.
a. Liquidity Ratio
Liquidity ratio is used to find out firm’s ability to meet short term obligation. In
other words it helps to measure short term or current solvency of the firm.
Under this, there are two types of ratio.
i. Current ratio may be defined as the ratio of current assets to
current liabilities. It is also known as working capital ratio or 2:1 ratio.
It shows the relationship between the total current assets and total
current liabilities, expressed as formula given below.
CurrentAss ets
Current ratio = CurrentLia bilities
Current assets mean cash or those assets convertible or expected to

be converted into cash within the accounting year and current
liabilities are those liabilities to be paid within the same time. Current
assets normally include items like cash in hand and at bank,
marketable securities or readily realizable investments, Bills
receivable, book debts (excluding bad debts and provision),
inventories and prepaid expenses. Current liabilities include items
such as Outstanding or Accrued Expenses, Sundry Creditors, Bills
Payable, Bank Overdraft, Provision for taxation, etc.
46
Liquid Ratio may be defined as the ratio of liquid assets to liquid
liabilities or current liabilities. It is concerned with the relationship

between liquid assets and liquid or current liabilities. The other terms
used for liquid ratio are ‘Quick ratio’ and ‘Acid test ratio’. For the
purpose of computation, the current assets and current liabilities
could be classified as follows:
Current assets: (a) Liquid Assets and (b) Deferred Assets

Current Liabilities (a) Liquid Liabilities and (b) Deferred
Liabilities
Establishing a simple rule that all assets and liabilities are liquid if
they are expected to be realized or paid within a month could make
this classification, otherwise they belong to ‘Deferred’ category.
However, the criterion for such classification depends upon the
purpose for which the liquid ratio is used.
Liquid assets normally include cash, bank, sundry debtors, bills
receivable and short-term investments or marketable securities. In
other words, they are current assets minus inventories and prepaid
expenses. In the same manner, liquid liabilities are current liabilities
minus bank overdraft and income received in advance.
LiquidAssets
Liquid ratio =
LiquidLiabiliites
b. Cash Position Analysis

Business needs cash for meeting its daily operating expenses and other cash
obligations. Therefore cash position should be looked into separately to
highlight this crucial business aspect. Cash means actual cash and bank
balance extracted from balance sheet of annual report.
Current liabilities consist of account payable, current portion of long term loan,
other provision, pension fund and other short term liabilities. Total assets
47
include net fixed assets, investments and current assets except deferred
charges.
 Absolute Cash Ratio is represented by cash and near cash

items. Hence, in the computation of this ratio, only absolute liquid assets
are compared with liquid liabilities. These assets normally include cash,
bank and marketable securities. It is to be observed that receivables are
excluded from the list of liquid assets.
Cash  Bank  Marketable sec urities

Absolute Liquidity Ratio =
CurrentLiabiliites
The Cash Ratio should be at least 1.0 for any company, showing they can
at least pay their liabilities if they had to. An increasing Cash Ratio is a
positive sign, showing that the company is better able to cover its
obligations to creditors.
 Cash to Current Assets Ratio measures the portion of a

company's assets held in cash or marketable securities. Although a high
ratio may indicate some degree of safety from a creditor's viewpoint,
excess amounts of cash may be viewed as inefficient.
Cash  Marketable sec urities

Cash to current assets ratio =
Currentassets
High or increasing Cash to Current Assets ratio is generally a positive sign,

showing the company's liquid assets represent a larger portion of its Total
Current Assets. It also indicates the company may be better able to
convert its non-liquid assets, such as inventory, into cash.
c. Cash Turnover Ratio

The ratio of cash in hand and at the bank to net sales is termed as cash
turnover ratio or cash velocity. The ratio indicates the efficient use of cash to
48
generate sales. Cash balance should be kept within reasonable limits just as
debtor and stock. In theory, the ideal ratio is said to be around 20.
Sales
Cash turnover ratio =
Cash  BankBalances
A high ratio means relatively small amount of cash which is good because
cash involves holding cost. But if overdraft is there, it may not be advisable
since interest burden may wipe off the resources in due course of time. A
lower ratio indicates greater availability of cash which may remain idle in the
business. However, too high ratio is also dangerous, as it may be an index of
overtrading i.e. doing business with too little cash.
In the case of NTC, sales indicate total revenue of the year which is
categorized as total revenue from local telephone, domestic trunk telephone,
international telephone, domestic telegraph, international telegraph,
international telex, leased circuits, telefax, mobile & internet, interconnection,
PCC card and others.
3.5.1.2 Actual Cash Flow Analysis

‘’Cash flow statement provides relevant information about the cash receipts
and cash payments of an enterprise during a period. Information about
enterprise’s cash flows is useful in assessing its liquidity, financial flexibility,
profitability and risk.’’ (Fago, Subedi, Gyawali, 2003:11.1)
In simplified term, cash flow statement shows the movement of cash in and
out of business. It also finds the reason for changes in balances of cash in hand
and at bank as on date to a next date, usually the accounting period. The main
source of cash receipts and channels of payment are found out and recorded in
the cash flow statement.
3.5.2 Statistical Tools
Statistics starts with a problem, continues with the collection of data, proceeds
with the data analysis and finishes with conclusion. For data analysis and to get
49
that analysis in conclusion, here in this topic, five different statistical tools are
used which are mentioned below:
a. Trend Analysis
Trend analysis is useful in predicting the future events on the basis
of past tendencies. Trend analysis is based on assumption that the past
tendency continues in future. The future trend of any variable is forecasted
by using following equation.
Yc = a + bx
Where,
Yc = the dependent variable
a. = Y intercept
b = slope of the tendencies
x = year (with regard to data used in the study)
b. Correlation (r)
Correlation is a statistical technique which can show whether and how
strongly pairs of variables are related e.g. height and weight. ‘’In other words
correlation may be defined as degree of linear relationship existing between
two or more variables. ‘’ (Sthapit, Gautam, Joshi, Dongol, 2003: 362)
It does not tell us anything about cause and effect relationship but it only
helps in determining the degree of relationship between two or more variables.
‘’In business, correlation analysis enables the executive to estimate costs,
sales price and other variables. On the basis of some other series with which
their costs, sales or prices may be functionally related. Some of the guess
work can be removed from decisions when the relationship, between
variables to be estimated and the one or more other variable on which it
depends are closed and reasonably in variant.’’(Gupta, 1983:103) For the
purpose of analysis of cash management of NTC, the correlation analysis is
used. In this topics it can be seen the correlation between dependent variable
and independent variable of cash management. The formula applied on the
correlation is as follows.
50

uv Where

r. =
√u2 x √v2 u=X– x
v=Y- y
c. Standard Deviation
It is a measure of the mean distance of the data values from their mean. If
the data points are all close to the mean, then the standard deviation is low
(closer to zero). If many data points are very different from the mean, then
the standard deviation is high (further from zero). If all the data values are
equal, then the standard deviation will be zero. The standard deviation has
no maximum value although it is limited for most data sets.
SD =
u2 SD =
 v2
N N
The standard deviation is also defined as the square root of the variance.
This means it is the root mean square (RMS) deviation from the arithmetic
mean. The standard deviation is always a positive number (or zero) and is
always measured in the same units as the original data. For example, if the
data are distance measurements in meters, the standard deviation will also
be measured in meters.'
2
Where
0.6745(1-r ) r = the value of correlation coefficient
d. P.E.r. = n = number of pairs of observations
n
If 'r' is less than its PE, it is not all significant which means that there is no
evidence of correlation
If 'r' is more than its PE, it is significant which means that there is
correlation.
If PE<r<6PE then nothing can be concluded.
e. Regression Analysis
’Regression analysis is used for explaining or modelling the relationship
between a single variable Y, called the response, output or dependent
variable, and one or more predictor, input, independent or explanatory
51
variable i.e. X. In simple regression, there will be only two variables. The
main objective of regression analysis is to predict or estimate the value of
dependent variable corresponding to a given value of independent
variables.
For the analysis of cash management of NTC, simple regression
analysis is used to locate the relationship between total revenue on cash
balance and net profit on cash balance.
CHAPTER IV
ANALYSIS AND PRESENTATION OF DATA
The basis objective of this study as stated in chapter one is to have true insight
into cash management of NTC. For this purpose, most recent published financial
statements and annual budget reports has been used. The data that are collected
are tabulated and then analyzed using different accounting and financial tools.
4.1 Analysis of data by Financial Tools

4.1.1 Liquidity Analysis
Liquidity ratios attempt to measure a firm’s ability to pay off its short-term debt
obligations. This is done by comparing a company’s most liquid assets (or, those
that can be easily converted to cash), its short-term liabilities.
In general, the greater the coverage of liquid assets to short-term liabilities
the better as it is a clear signal that company can pay its debts that are coming
due in the near future and still fund its ongoing operations. On the other hand, a
firm with a low coverage rate should raise a red flag for investors as it may be a
sign that the company will have difficulty meeting running its operations, as well
as meeting its obligations.
The ratios that we’ll look at here are the current, quick and cash ratios.
A. Current Ratio
52
The current ratio is a popular financial ratio used to test a firm’s liquidity by
deriving the proportion of current assets available to cover current liabilities.
The concept behind this ratio is to ascertain whether a firm’s short term
assets are readily available to pay off its short-term liabilities. In theory, the
higher the current ratio, the better.
Stores & spare, sundry debtors, interest accrued, prepaid Exp/ Loans/ Adv.
LC, Advances/ Loans to Employees, Inter-branch Balance, Bank Balance &
Cash is included in current assets
Sundry creditors, interest accrued & due, others liabilities, deposit &
advances and provisions is included in current liability.
Formula:
CurrentAssets
Current Ratio =
CurrentLiabilities
Analysis of Current Ratio of NTC
Table 2 Analysis of Current Ratio

Total Current Assets Total Current
Fiscal Year Rs. (‘000’) Liabilities Rs. (‘000’) Ratio CA/CL
2002/03 18424147 10137347 1.82
2003/04 20213763 12640965 1.60
2004/05 20598353 14722678 1.40
2005/06 22526522 15665379 1.44
2006/07 28648636 22199654 1.29
Average 1.51
53
Figure 4 Current Ratio
Figure No. 4.1: Figure showing Current Ratio
2.00
1.50
Ratio
1.00
0.50
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio CA/CL
The rule of thumb says that the current ratio should be at least 2, that is the
current assets should meet current liabilities at least twice.
Let’s see what does the calculated ratio in table 1 tells us. In 2002/03, the
NTC had 1.82 rupees worth of current assets for every rupee of liabilities.
Similarly in the year 2004/05, this ratio was decreased and available current
asset was 1.40 rupee for ever rupee of liability. Decreasing trend was shown
on liquidity in this study period with slight increment in ratio in the year
2005/06, which is 1.44. The ratio further decreased and became 1.29 in the
year 2006/07.
Looking after theoretical aspect, NTC could not fully support its short-term
debt from its currents assets as rule says that the current ratio should be at
least 2. But whether or not, a specific ratio is satisfactory depends on the
nature of the business and the characteristics of its current assets and
liabilities. The minimum acceptable current ratio is obviously 1:1, but that
relationship is usually playing it too close for comfort.
B. Quick Ratio
The quick ratio or the acid-test ratio is a liquidity indicator that further refines
the current ratio by measuring the amount of the most liquid assets there are
to cover current liabilities. The quick ratio is more conservative that the
current ratio because it excludes inventory and other current assets, which
54
are more difficult to turn into cash. Therefore, a higher ratio means a more
liquid current position.
Stores & Spares and prepaid Exp. Loans/Adv/LC are deducted from current
assets that is written in table No. 1
CurrentAssets  Inventories
Quick Ratio=
CurrentLiabilities
Analysis of Quick Ratio of NTC
Table 3 :Analysis of Quick Ratio

Total Quick Assets Rs. Total Current
Fiscal Year (‘000’) Liabilities Rs. (‘000’) Ratio CA/CL
2002/03 13571008 10137347 1.34

2003/04 13946011 12640965 1.10
2004/05 12958166 14722678 0.88
2005/06 15768952 15665379 1.01
2006/07 21176085 22199654 0.95
Average 1.06
Figure 5 : Quick Ratio
Figure No.4.2: Figure Showing Quick Ratio
1.60
1.40
1.20
1.00
Ratio
0.80
0.60
0.40
0.20
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio CA/CL
55
The table 4.2 shows the position of highly liquid assets to meet the current
liabilities of the NTC. This ratio will be lower than the current ratio, but the
difference between the two will indicate the extent to which current assets
consist of stock. In the year 2002/03, current ratio was 1.34 which slowly
decreased to 1.10 in the year 2003/04. Decrease in trend still continued and
in the year 2004/05 quick ratio become 0.88. Although ratio was in
decreasing trend but quick assets were enough to meet its current liabilities
until 2003/04. Till this period NTC was maintaining minimum generally
acceptable ratio i.e. 1:1. But in the year 2004/05, ratio drastically decreased
to 0.88 meaning that NTC got weaker liquidity position than it had before.
But the year 2005/06 showed good performance in liquidity maintenance,
increasing current ratio to 1.01
4.1.2 Cash Position Analysis
a) Absolute Cash Ratio
Cash & equivalent  MarketableSecutities

Absolute cash ratio =
CurrentLia biliites
Table No: 4.3: Analysis of Absolute Cash Ratio of NTC

Rs. (‘000’)
Table 4 : Analysis of Absolute Cash Ratio
Cash + Bank Balances +

Fiscal Year Treasury Bill Current Liabilities Ratio
2002/03 11008439 10137347 1.09
2003/04 11755643 12640965 0.93
2004/05 9574501 14722678 0.65
2005/06 12021625 15665379 0.77
2006/07 16165920 22199654 0.73
Average 0.83
56
Figure 6 : Absolute cash ratio
Figure No. 4.3: Figure Showing Absolute Cash

Ratio
1.20
1.00
0.80
Ratio
0.60
0.40
0.20
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio
Table No 4.3 shows the absolute cash ratio of NTC over the study
period. In the year 2002/03 absolute cash ratio of NTC was 1.09 which
shows that company was better able to cover its obligation to creditors.
This ratio has decreased in the year 2003/04 by 16%. There is to be
noted that in the study period NTC did not held any marketable securities.
In the year after 2003/04, absolute cash ratio started to decrease and
became 0.65 in the year 2004/05. After 2004/05 ratio slightly increase and
became 0.77 and 0.73 in the year 2005/06 and 2006/07 respectively. We
can not say the ratio which NTC maintained in the study period was good
or bad or enough as there is no industry standard and no rule of thumb.
b) Cash to Current Assets Ratio
Analysis of Cash to Current Assets Ratio of NTC
Table 5 : Cash to Current assets ratio
Fiscal Year (Cash + Bank) Balance Rs. Current Assets Ratio

(‘000’) Rs. (‘000’)
2002/03 10097738 18424147 0.55

2003/04 10780669 20213763 0.53
2004/05 9574501 20598353 0.46
2005/06 12021625 22526522 0.53
57
2006/07 16165920 28648636 0.56
Average 0.53
Figure 7: Cash to Current asset ratio
Figure No.4.4: Cash to Current Assets Ratio
0.60
0.50
0.40
Ratio
0.30
0.20
0.10
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio
During 1st year of study period cash portion of current assets was more than
50% i.e. cash to current assets ratio was 0.54. The ratio decreased in the
year 2003/04 and became 0.53. It further decreased in the year 2004/05 and
cash portion of current assets became less than 50% i.e. ratio became 0.46
in the year 2004/05. After this year, this ratio gradually increased and
became 0.53 in the year 2005/06 and 0.56 in the year 2006/07. In this type
of company, there is continues cash inflow and out flow because of which
cash to current assets ratio keeps on fluctuating. But it makes no difference
to company.
4.1.3 Cash Turnover Ratio

Cash turnover ratio indicates a firm's efficiency in its use of cash . Optimum
balance should maintain by the company to meet its current obligation in
course of daily business transaction. The cash turnover ratio explains how
quickly cash is received from the sales. A high cash turnover ratio
58
represents sound liquidity and vice-versa. However, too high ratio indicates
excess cash balance being held idle.
Statement showing Cash Turnover Ratio
Table 6 :Cash Turnover Ratio

Fiscal Year Total Revenue Rs. Cash + Bank Balances Cash Turnover
(‘000’) Rs. (‘000’)
2002/03 7208087 10097738 0.71

2003/04 8312244 10780669 0.77
2004/05 8584144 9574501 0.90
2005/06 10413655 12021625 0.87
2006/07 14787475 16165920 0.91
Average 0.83
Figure 8: Cash Turnover Ratio
Figure No.4.5: Figure showing Cash Turnover

Ratio
1
0.9
0.8
0.7
0.6
Ratio
0.5
0.4
0.3
0.2
0.1
0
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Cash Turnover Ratio
Table No 4.5 shows cash turnover ratio of NTC for the period between
2002/03 to 2006/07. It is found that cash turn over ratio was in increasing
trend starting from 0.71 in year 2002/03, 0.87 and 0.91 in the year 2005/06
59
and 2006/07 respectively. In the study period NTC was able to utilize its cash
in generating sales.
4.1.4 Actual Cash flow Analysis

“Cash flow statement provides information about the cash receipts and payments
of a firm for a given period. It provides important information that compliments the
profit and loss account and balance sheet. The information about the cash-flows
of a firm is useful in providing users or financial statements with a basis to assess
the ability of the enterprise to generate cash and cash equivalents and the needs
of the enterprise to utilise these cash flows. The economic decisions that are
taken by users require an evaluation of the ability of an enterprise to generate
cash and cash equivalents and the timing and certainty of their generation. The
statement deals with the provision of information about the historical changes in
cash equivalents of an enterprise by means of a cash flow statement which
classifies cash flows during the period from operating, investing and financing
activities.’’ (Kishore, 2003)
Table No. 4.6: Calculation of Cash Flow from Operating Activities for the
Year Ended 2002/03 to 2006/07
Source: Annual Report of NTC (2002-2008)
Table 7 : Cash flow from operating activities

2002/03 2003/04 2004/05 2005/06 2006/07
Particulars Amt. in Rs. Amt. in Rs. Amt. in Rs. Amt. in Rs. Amt. in Rs.
Cash Flow from Operating
Activities
Net Operating profit before
tax 4093118353 4550667734 4921528988 6843726817 11298722582
Adjustment:
Depreciation 940224526 1027922573 1050485813 1196136319 1498861408
Deffered Expenses 34435417 32770817 40817764 40029002 71161566
Foreign Exchange Gain/loss 162000231 28442774 251124356 -280005092 -86939175
Provision for staff bonus and
incentive 301638899 309211605 281711261 322040673 620118387
Provision for Pension 62526226 234993917 312606943 241389693 331238763
Interest on loan 3291470 696200 1107992 10303949
Bad debts 662011
Provision for Bad debts 21072345 225979927
Fixed asset written off 2972544 33932265 1224800
Income from investment &
bank deposit -419546350 -490270207 -463827650 -596837682 -822066146
Special charge 124371534 7004544
60
Expenses on loss of goods 42084932 163489179 8530000
Royalty 405266600 126574376 491301830 591807155 1007248557
Provision for earned leave 37602296 24236908 65980439 87041391
Operating profit before
working capital change 5770827268 6291613270 6911907213 8433905316 14015691282
Adjustment for working
capital change
Increase in account
receivable -562197346 135354808 -157001491 -273552303 -176215868
Increase in stock 82447002 50620115 -54606668 -34258671 -39187088
Increase/ Decrease in
interest accrued -7126509 -18066728 5457834 2463849 -36247684
Increase in Advance -732608582 -247063386 221484011 382510564 -222017727
Increase in Advance-Tax -1315698127 -1602051292 -1684603393 -3171335436
Branch Account (Ad) -12437486 12182199 -4041036 2798001 -400228
Increase in payables 684847704 332544285 226452780 618496246 1225052666
Increase in Provision 219326976
Payment of
interest/Adjustment -2335181 -10303949
Payment of Royalty -370641219 -1003349005
Payment of Earned leave -22011777 -28156853
Payment of Pension -30048819 -47309251
Gratuity Received 8251 351
Pymt of last year divident,
bonus, incentive tax etc -1372145408 -418560065 -878193785 -301638899 -281711261
Last year adjustment -48339283 158089940 1268656 -102479633
Working Capital Changes -1699893649 -1517026182 -2084409707 -1711544695 -3893660966
(1+2)Net cash flow from
Operating Activities (a) 4070933619 4774587088 4,827,497,506 6722360621 10122030316
Figure 9 : Cash from operating activities
Figure No:4.6 Actual Cash From Operating

Activities
12000000000
10000000000
8000000000
6000000000
4000000000 Cash
2000000000
0
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Table No 4.6 represents the trend of net cash flow from operating major items.
Operating cash flow, often referred to as working capital, is the cash flow
61
generated from internal operations. In Nepal Telecom, cash from operating
activities are generated from sales of the product services. Operating profit
before working capital includes adjustment, depreciation, foreign exchange gain
or loss provision for staff bonus, incentive, gratuity and pension, provision for
income tax, fixed assets written off, income from investment and bank deposit
and expenses on loss of goods. Net operating profit before tax is in increasing
trend i.e. Rs. 4093118358, 4550667734, 4921528988, 6843726817 and
11298722582 for F/Y 2002/03 to 2006/07 respectively.
From above analysis, it can be said that amount of operating profit before change
in working capital is in increasing trend for the study period. It is Rs. 5770827268
1 in F/Y 2002/03 and reached to Rs. 14015691282 in F/Y 2006/07.
Adjustment of working capital includes increase in A/R, increase in stock,

increase / decrease in interest accrued, increase in advance, branch account
(adj), increase in payables & payment of last year dividend, bonus, incentive,
royalty, pension and working capital changes.
By adjusting net operating profit before tax, operating profit before working capital
changes and working capital changes, we can get net cash flow from operating
activities. After the analysis, we can conclude that the operating cash flow is in
increasing trend, which is good sign for Nepal Telecom. It increases from Rs.
4070933619 to Rs. 10122030316. It is the real lifeblood of Nepal Telecom
because it is generated internally and it is under control of management.
Furthermore, Nepal Telecom should monitor, analyze and adjust its cash flow.
Similarly, the results of cash flow from investing activities are presented in given
below on table.
Calculation of cash flow from investing activities for the Year ended
2002/06 to 2006/07

Table 8 Cash from investing activities
2002/03 2003/04 2004/05 2005/06 2006/07
62
Cash Flow from Investing
Activities
Purchase of Fixed Assets -1768641894 -1549122679 -1997745812 -2243645653 -3048075299
Purchase of Investment
(Decrease in CWIP) -976527465 -41500006 -1075339893 15787272 -382629316
Increase in deffered
expenses -5320767 -42097104 -34287106 -3242822
Increase in Investment -383816890 55824025 -818214722 -3486326383
Sale of Investment 282500000
bank deposit 419546350 490270207 463827650 596837682 822066146
Net cash flow from
Investing Activities (b) -2043123009 -1489490135 -2595531134 -2483522527 -6098207674
Figure No. 4.7: Actual Cash Flow from Investing Activities
-1000000000
-2000000000
Cash-3000000000
-4000000000
-5000000000
-6000000000
-7000000000
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Investing cash flow is generated internally from non – operating activities. This
component includes investments in plant and equipment or other fixed assets,
non recurring gains or losses, or other sources and used outside of normal
operations.
Cash flow from financing activities was also in increasing trend except for the
year 2003/04 which was very low than other study period. CFIA(cash from
investing activities) was negative through out the study period which shows that
company has purchased more assets and invested in fixed assets. CFIA has
become fluctuating in the study period but it has drastically increased in the year
2006/07. This was because NTC has spent huge money in its new investment
like installation of towers.
63
Table No. 4.8: Calculation of cash flow from Financing Activities
for the Year ended 2002/03 to 2006/07
Table 9 : Cash from Financing activities

2002/03 2003/04 2004/05 2005/06 2006/07
Cash Flow from
Financing Activities
Increase in Equity Share
Capital
Long term Borrowing 233906064
Repayment of long term
loan -300116190
Receipt in long term debt 11249585 24238654
Pymt of long term debt -233780333 -11249585 -24238654 -1191680000
Pymt of divident -496814035 -300000000 -433510216 -1499500000
Pymt of last year divident -92395927
Repayment of retained
earning to Nepal Govt -1000000000 - 2,900,000,000 -1611651503
Receipt of Share Capital 5000000
Capital Reserve Adjusted
to retained earnings -2318742
Net cash flow from
Financing Activities © ( 66,210,126) ( 1,109,541,895 ) (3,187,010,931) (2,071,719,115) (2,691,180,000)
Figure 10 Cash flow from financing activities
Figure No: 4.8 Actual Cash Flow from Financing Activities
-500000000
-1000000000
Cash
-1500000000
-2000000000
-2500000000
-3000000000
-3500000000
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Cash Flow from Financing Activities
64
Table no 4.8 shows cash flow from financing activities. Like NTC CFIA, its CFFA
also had negative cash flow. This means that company was paying its long term
liabilities. There was drastic increment in CFFA in the year 2003/04. It was
because payment of long term debt, payment of investment and repayment of
retained earning to Nepal Govt was 0 in the year 2002/03 which increased to 2
million, 4million and 1 billion respectively in the year 2003/04. During the study
period, CFFA was highest in the year 2004/05 which was because of repayment
of retained earning to Nepal Govt which was 2 billion.
Company was paying back its loan and investing its fund simultaneously which
become possible because of retained earning.
Table No. 4.9: Calculation of actual cash flow for the Year ended
2002/03 to 2006/07
S
Table 10 : Actual cash Flow
Particulars 2002/03 2003/04 2004/05 2005/06 2006/07

CFOA 4070933619 4774587088 4827497506 6722360621 10122030316
- - - -
CFIA 2,043,123,009 1,489,490,135 2,595,531,134 2,483,522,527 - 6,098,207,674
-
CFFA -66210126 1,109,541,895 -3187010931 -2071719115 -2691180000
Net increment in cash
(a) + (b) + © 2017599085 9578049 -955044559 2167118979 1332642642
Cash at the beginning
of the year 8242138736 10548112205 10780669711 9574500796 14746337952
Foreign Exchange
Adjustment
Gain/(Loss) -162000231 222979457 -251124356 280005092 86939175
Cash at the end of the
year (I + ii + iii) 10,097,737,590 10,780,669,711 9,574,500,796 12,021,624,867 16,165,919,769
65
Figure 11 : Actual cash flow
Figure No. 4.9 Trend showing Cash Flow position from

Various Activites
12000000000
10000000000
8000000000
Amount in Rs.
6000000000
4000000000
2000000000
0
2002/03 2003/04 2004/05 2005/06 2006/07
-2000000000
Fiscal Year
CFOA CFIA CFFA
The table 4.9 indicates that net cash flow from operating activities is in
increasing trend. Similarly cash flow from financing activities is also in increasing
trend. This however is not in the case of cash flow from investment activities.
There is erratic fluctuation in the CFIA. By adding operating, investing and
financing cash we can get net increment in cash. After adjustment of beginning
cash and foreign exchange gain or loss with net increment in cash, we can reach
on the closing cash balance, which is the cash position of Nepal Telecom. Cash
at the end of each study year is fluctuating. The closing cash balance indicates
whether Nepal Telecom has sufficient cash or not. The analysis shows that Nepal
Telecom has sufficient cash for its operation but it did not perfectly followed cash
flow management of avoiding extended cash shortage.
4.1.5 Cash Budget

Cash Budget is a detailed budget of cash inflows and outflows
incorporating both revenue and capital items.
A cash budget is thus a statement in which estimated future cash receipts
and payments are tabulated in such a way as to show the forecasted cash
balance of a business at defined intervals.
66
The cash budget is one of the most important planning tools that an organization
can use. It shows the cash effect of all plans made within the budgetary process
and hence its preparation can lead to a modification of budgets if it shows that
there are insufficient cash resources to finance the planned operations.
It can also give management an indication of the potential problems that could
arise and allows them the opportunity to take action to avoid such problems. The
cash budget typically consists of four major sections: (1) receipts section, which
is the beginning cash balance, cash collections from customers, and other
receipts; (2) disbursement section comprised of all cash payments made by
purpose; (3) cash surplus or deficit section showing the difference between cash
receipts and cash payments; and (4) financing section providing a detailed
account of the borrowings and repayments expected during the period.
4.1.5.1 Approved Cash Budget and Actual Cash
Table No. 4.10: Statement Showing Approved Cash Budget and Actual
Cash
Rs. (‘000’)
Table 11 : Cash Budget and Actual cash

Approved cash %
Fiscal Year Actual cash Deviation
Budget Change
2002/03 5176317 10097737 4921420 48.74
2003/04 7375201 12417486 5042285 40.61
2004/05 5936374 9574500 3638126 38.00
2005/06 3399304 12021625 8622321 71.72
2006/07 6590307 14746338 8156031 55.31
67
Figure 12 : actual cash budget
Figure No: 4.10 Trend Line showing percentage

change in Approved and Actual Cash Budget
Deviation in % 80.00
60.00
40.00
20.00
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
% Change
Table 4.10 shows the approved cash budget and actual cash of NTC over the
study period. Analysis showed that actual cash balance is higher than approved
budget which means that budget has not been properly implemented. Highest
deviation is found in the year 2005/06 which was due to improper planning.
Overall cash balance of NTC fluctuated a lot during study period.
4.1.5.2 Revised Cash Budget and Actual Cash
Table No. 4.11: Statement Showing Revised Cash Budget and Actual Cash
Rs. (‘000’)
Table 12 : Revised Cash Budget and actual cash

%
Fiscal Year Revised Budget Actual Deviation
Change
2002/03 9392113 10097737 705624 6.99
2003/04 10829362 12417486 1588124 12.79
2004/05 10655130 9574500 -1080630 -11.29
2005/06 8195242 12021625 3826383 31.83
2006/07 11030579 14746338 3715759 25.20
68
Figure 13 : Revised Cash budget and actual cash
Figure No: 4.11 Trend Line showing percentage change

in Revised Cash Budget and Actual Cash
40.00
30.00
Deviation in %
20.00
10.00
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
-10.00
-20.00
Fiscal Year
% Change
Table 4.11 shows revised and actual cash budget of NTC for the period 2002-
2008. Like approved budget, this budget also has deviation but deviation is
smaller. NTC revise its budget in its last quarter. In the study period actual cash
balance is higher than revised budget except for the year 2004/05.
4.2 Analysis of data by Statistical tools
4.2.1 Trend Analysis

Trend Analysis is a study of a company's financial performance over an extended
period of time. It helps to understand overall financial performance over a period
of time. The analysis involves searching for a right trend equation that will
suitably describe trend of the data series. The trend may be linear, or it may not.
A linear trend can be obtained by using a least-squares method .
Table No. 4.12: Trend Analysis of Cash Balance of NTC by

Least Square Method
Rs. (‘000000’)
Source: Audited Balance Sheet of NTC (2002-2008)
Table 13 : Trend analysis

2
Fiscal Year (x) Cash/Balance Balance x x xy
(y)
69
2002/03 10097 -2 4 -16484
2003/04 10780 -1 1 -10087
2004/05 9574 0 0 0
2005/06 12021 1 1 9574
2006/07 16165 2 4 24042
 y  58637  xy  13377
2
0  x =10
Figure No: 4.12 Trend Line showing Cash Balance
12000
Cash Balanc
10000
8000
6000
4000
2000
0
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Cash + Bank Balances

e
X= Time
Y= Cash Balance
N= Number of observation
Straight Line trend (Yc) = a + bx
a= y =
58637
= 11727.4
N 5
70
b=
 xy =
13377
= 2675.4
N 10
(Yc)= 11727.4 + 2675.4x
This tend line shows the positive figure of cash balance for future. The annual
rate of increment of cash balance is seemed to be 2675.4 x 100000= 267540000.
4.2.2 Correlation Coefficient & Regression Analysis
A correlation coefficient is a numerical, descriptive measure of the strength of the linear relationship
between two variables. Values for the correlation coefficient range between -1 and +1, with a correlation
coefficient of +1 indicating that the two variables have a perfect, upward-sloping (+) linear relationship and
a correlation coefficient of -1 showing that the two variables are perfectly related in a downward-sloping, (-)
linear sense. A correlation coefficient of 0 demonstrates that the variables have no relationship, and are
independent. A correlation coefficient is determined through statistical analysis of sample data as it is
fitted to a modelled linear equation.
Regression Analysis is a statistical technique used to find relationships between variables for the
purpose of predicting future values. In other words regression analysis is a collective name for techniques
for the modeling and analysis of numerical data consisting of values of a dependent variable and of one or
more.
4.2.2.1 Between Cash and Revenue of Nepal Telecomm
Correlation (r) Between Cash Balance and Revenue

Rs.(‘000000)
Table 14 : Correlation Between Cash and Revenue
2 2
Year Cash Revenue u=x- v=y- U V uv
Balance 11727.4 10261
(y)
(x)
2002/03 10097 7209 -1630.4 -3052 2658204.16 9314704 4975980.8
2003/04 10780 8312 -947.4 -1949 897566.76 3798601 1846482.6
2004/05 9574 8584 2153.4 -1677 4637131.56 2812329 36112513.8
2005/06 12021 10413 293.6 152 86200.96 23104 44627.2
2006/07 16165 16787 -4437.6 6526 19692293.76 42588676 28959777.6
Total
 x  58637  y  51305 0 0 27971397.2 58537414 39438120
71
Source: Audited balance sheet of NTC 2002-2008
x=
 x = 58637 =11727.4
N 5
y =
y= 51305
=10261
N 5
u=x - x v=y - y
x = u 2
=
27971397.2
= 2365.2
N 5
y = v 2
=
58537414
= 3421.6
N 5
Since,
x y
Mean 11727.4 10261
SD 2365.2 3421.6
To find out the correlation between revenue and cash balance Karl Pearson’s
Coefficient of Correlation (r) is determined. By calculating ‘r’ we can examine,
whether or not cash balance will be changed in the same direction of the
change in revenue. For this purpose revenue (y) are assumed to be
independent variables and cash balance (x) are assumed to be dependent
variables. It is assumed that revenue will increases as cash increases or vice-
versa. It means there should be positive correlation between cash balance and
actual sales.
rxy =
 uv =
39438120
= 0.97
u v 2 2
27971397.2 x58537414
Correlation coefficient between cash balance and revenue (rxy) = 0.974

72
The value of ‘r’ shows that there are highly positive correlation between cash and
revenue. It means the test of significance of the value of r shows that there is
highly significant relationship between cash and revenue. The significance of r
can be tested by the probable error of r.
0.6745(1  r 2 ) 0.6745(1  0.97 * 0.97)

P.E (r) = = = 0.017
N 5
From we have probable error of ‘r’ = 0.017. Since r>6P.E. (r) the value of r is
significant i.e. there is evidence of correlation between sales and revenue.
A regression line can also be fitted to show the degree of relationship between
the cash balance and revenue. Cash balance can be forecasted by the value of
sales revenue. For this purpose cash and bank balance and revenue has been
assumed interrelated economic variables. So, the regression line of revenue (x)
on cash balance (y) is
X
x -x = r y- y
Y
Since, x y
Mean 11727.4 10261
SD 2365.2 3421.6
rxy = 0.97
2365.2
X – 11727.4 =0.97 (Y-10261)
3421.6
X – 11724.4 = 0.674y -6874.87
X = 4849.53 + 0.674y
73
This equation shows that revenue will be increased by 0.67 per unit.
4.2.2.1 Cash and Account Receivable of Nepal Telecomm
Correlation (r) between Cash balance and Account Receivable of NTC for
the study period
Rs. (‘000000’)
Table 15 : Correlation Between cash balance and account receivable
Year Account Cash

Receivabl Balance y=y-
e (x) (y) u=x-3572.8 11727.4 u2 v2 uv
2002/03 3030 10097 -542.8 -1630.4 294631.84 2658204.16 884981.12
2003/04 5279 10780 5279 -947.4 27867841 897566.76 -5001324.6
2004/05 2825 9574 2825 -2153.4 7980625 4637131.56 -6083355
2005/06 3099 12021 3099 293.6 9603801 86200.96 909866.4
2006/07 3631 16165 3631 4437.6 13184161 19692293.76 16112925.6
Total 17864 58637 0 0 58931060 27971397.2 6823093.52
x =
 x = 17864 =3572.80
N 5
y=
 y = 58637 =11727.4
N 5
u=x - x v=y - y
x =
u 2
=
58931060
= 3433.1
N 5
y =
v 2
=
27971397.2
= 2365.22
N 5
Since,
74
x y
Mean 10142.8 11727.4
SD 3433.1 2365.22
Again, Karl Pearson’s Coefficient of Correlation (r) is used to determined value

of r. By calculating ‘r’ we can examine, whether or not cash balance will be
changed in the same direction of the change in account receivable. For this
purpose A/R (y) are assumed to be dependent variables and cash balance (x)
are assumed to be independent variables. It is assumed that A/R will increases
as cash increases or vice-versa. It means there should be positive correlation
between cash balance and account receivable.
rxy =
 uv =
6823093.52
=
6823093.52
=0.16
v u
2 2
27971397.2 x58931060 40600296.49
The value of r shows that there is low degree of positive correlation between the
cash and account receivable. We may therefore, conclude that the actual cash
will change in the same direction as account receivable changes. The
significance of r can be tested by the probable error of r.
0.6745(1  r 2 ) 0.6745(1  0.16)

P.E (r) = = = 0.29
N 5
We have probable error of ‘r’ = 0.16. Since r<6 P.E. (r), the value of r is not
significant.
A regression line can also be fitted to show the degree of relationship between
the cash balance and A/R. Cash balance can be forecasted by the value of A/R.
For this purpose cash and bank balance and A/R has been assumed interrelated
economic variables. So, the regression line of A/R (x) on cash balance (y) is
X
x -x = r y- y
Y
75
Since,
x y
Mean 10142.8 11727.4
SD 3433.1 2365.22
rxy = 0.16
3433.1
X – 10142.8 = 0.16 (Y-11727.4)
2365.22
X – 10142.8 = 0.11(Y-11727.4)
X = 0.11y +10142.8-11727.4
X =- 1574.6+0.11y
Thus, for unit increase in cash, A/R increases by 0.11 per unit.
4.2.2.1 Cash Collection Technique of NTC
Nepal Telecom is using following technique for cash collection:–
A) Direct Cash Collection:– This is the system which is providing services, direct
sales through office that is direct cash collection. Registation fee, SMS charge,
Service fee & salling of recharge card fee are collected in center, regional offices
of NTC. Collected cash is deposited day by day in Bank account.
B) Cash Collection through Bank
Nepal Telecom has been started online Bill payment through Bank. PSTN
Telephone Bill can payment by online through NMB Bank, Machhapuchchre
Bank, Laxmi Bank, Bank of Kathmandu, Nepal Investment Bank Ltd. & Bank of
Asia Nepal Ltd.
76
4.3 Analysis of Hypothesis
We know that hypothesis is quantities statement about population
parameter. It is an assumption that is made about population parameter and
finally its validity is tested. The act of verification involves testing the validity of
such assumption which whom undertaken on the basis of sample evidence is
called statistical hypothesis.
Correlation (r) between Cash balance and Account Receivable of NTC for
the study period
Rs. (‘000000’)
Table 16 : Table for hypothesis Test
Year Account Cash

Receivabl Balance y=y-
e (x) (y) u=x-3572.8 11727.4 u2 v2 uv
2002/03 3030 10097 -542.8 -1630.4 294631.84 2658204.16 884981.12
2003/04 5279 10780 5279 -947.4 27867841 897566.76 -5001324.6
2004/05 2825 9574 2825 -2153.4 7980625 4637131.56 -6083355
2005/06 3099 12021 3099 293.6 9603801 86200.96 909866.4
2006/07 3631 16165 19692293.7

3631 4437.6 13184161 6 16112925.6
Total 17864 58637 0 0 58931060 27971397.2 6823093.52
x =
 x = 17864 =3572.80 y=
 y = 58637 =11727.4 u=x - x v=y - y
N 5 N 5
x =
u 2
=
58931060
= 3433.1 y =
v 2
=
27971397.2
= 2365.22
N 5 N 5
Since, x y
Mean 10142.8 11727.4
SD 3433.1 2365.22
Again, Karl Pearson’s Coefficient of Correlation (r) is used to determined value

of r. By calculating ‘r’ we can examine, whether or not cash balance will be
77
changed in the same direction of the change in account receivable. For this
purpose A/R (y) are assumed to be dependent variables and cash balance (x)
are assumed to be independent variables. It is assumed that A/R will increases
as cash increases or vice-versa. It means there should be positive correlation
between cash balance and account receivable.
rxy =
 uv =
6823093.52
=
6823093.52
=0.16
v u
2 2
27971397.2 x58931060 40600296.49
let focus on Alternative Hypothesis once again

Here correlation coefficient between cash balance and revenue (rxy) = 0.16
As mentioned above the hypothesis is done on the base of coefficient correlation

between cash and revenue. Correlation coefficient between cash balance and
revenue(account receivable) is 0.16 so alternate hypothesis is accepted that
means correlation between cash and revenue (account receivable) is correlated .
4.3 Major Findings

 Current Ratio of NTC through out the study period was in decreasing
trend with the average ratio of 1.65. In the 1st three year of study period,
current ratio was above average ratio and the last two year of study
period, it was below the average ratio. The data reveal that NTC have
current ratio less that two in the study period indicating that there is
cash shortage and poor management of cash. This was especially
critical in the 5th year of the study.
 Quick ratio of NTC was 1.06 on an average for the study period. The
ratio was in decreasing trend. Although ratio was in decreasing trend
but was not below 1 except for 4th and 5th year
It is not uncommon for a quick ratio to be under 1, with number between
0.8 and 1.0 most common. Ratio lower than 0.8 might indicate that
78
company is running short on its available cash, which could create
problem soon after the purchase.
 The Absolute cash ratio for the five years was 0.83 on an average. The
ratio was in decreasing trend. It was found that cash position of
company was bit weak over the study period but was worst in the year
2004/05. In the 1st two year of study, cash was almost sufficient to pay
its current liabilities but in later years it was not. So it shows that cash
was not managed properly.
 Average cash to current assets ratio is 0.53. This indicated that 53% of
current assets comprises of cash which shows good liquidity position of
NTC.
 The above analysis of cash turnover of NTC revealed that there is no
any fixed trend of cash turnover over the study period. Cash turn over
ratio was 0.83 on an average. This indicates that NTC is unable to
utilize its idle cash in generating revenue. The company’s position of
liquid cash that remained idle was too high. So there was lack of proper
management of idle cash in the company towards profitable sector
which could have yield more revenue.
 Table 10 has shown the summary of cash flow from operating, financing
and investment activities. Cash at the end of each year of study period
is in increasing trend which shows good position of cash in NTC.
 Cash budget of the study period showed that there is high deviation in
budgeted and actual cash budget. It shows that there was no effective
implication of budgeted amount and also shows improper planning of
cash. Had there been a proper planning of cash, deviation would have
been minimum and cash available would have been utilised in effective
and productive way. NTC always revise its budget in last quarter of its
fiscal year. There is still deviation in revised and actual cash balance
which is shown by table no 4.12. Actual cash balances were higher than
revised budgeted cash however deviation of revised and cash budget
was insignificant.
 Correlation coefficient between cash balance and revenue of NTC
found to be highly positive. Cash balance & revenue of NTC are
79
correlated. This means when revenue increases cash balance will
increase or vice versa.
 There is low degree of correlation between cash and A/R receivable.
Cash balance & Account receivable of NTC are correlated. The actual
cash will change in the same direction as account receivable changes.
 NTC is using direct cash collection & cash collection through Bank
technique.
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CHAPTER V
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
Since the establishment of Nepal Telecommunication Corporation, it is
providing reliable and affordable telecommunication services to the Nation. Nepal
Telecommunication Corporation was dissolves and converted to Nepal Telecom
from 1st Baisakh 2061. It was registered under company act 2053; the
privatization of Nepal Telecom should be beneficial to company. Nepal Telecom’s
vast telecommunications networks play a key role in supporting the growth of
business in the information technology field. It has been enjoying monopoly in
telecommunication sector since last three decades but this monopoly has broken
down with the establishment of UTL and Spice Nepal(N Cell) now a days.
Now to compete with market, NTC has to do best in every aspect of its
transaction. One of its aspects of NTC’s transaction is cash management. The
study focuses on the specific aspects of the cash management practices of Nepal
Telecom Company. Cash management involves planning to controlling activities
of the cash and near cash items. As stated in the introduction chapter, the
objective of the study are to observe the liquidity position of NTC, review cash
flow from operating, financing and investing activities and to analyse the cash
collection and disbursement of NTC.
Review to related literature and previous studies have been done in the
second chapter. Tools and techniques, which was implemented in fourth chapter
has been described in chapter three. Fourth chapter includes presentation and
analysis of data. Hence an effort has been made in this chapter to present major
finding on specific aspect of cash management practices of Nepal Telecom.
5.2 Conclusion
Analysis of current ratio showed that average ratio of NTC is 1.51 which is
below traditional current ratio i.e. 2. This means that company will not be fully
meet it short term obligation. However being service industry it is not necessary
for NTC to have current ratio equals to 2.
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Analysis of quick ratio showed that NTC is able to maintain minimum
acceptable liquidity ratio i.e. 1:1. This means that NTC has enough cash to pay
current obligation of the firm.
Cash and bank balance with respect to current assets has been in
fluctuating trend. On an average, 50% of current assets consist of cash which
shows the greater safety of funds of short-term creditors.
Cash flow statement of NTC showed that company was able to collect
more cash from different sources. It shows good position of actual cash collection
of the company. On the other hand, company did not spend cash as it targeted.
Due to these facts, there was enough surplus cash in hand every year. If
company could have managed these surpluses in the productive sector then it
could have yield more returns to company.
Cash Budget of NTC showed that there is high deviation in Budgeted and
actual cash balance. This shows the improper planning of Budget. Also it showed
that only total internal sources are not enough for NTC to meet it operating and
non operating expenditure. So NTC took loan from external sources. But this
however was not required as there is always surplus cash held by NTC.
5.3 Recommendation
Cash management is one the important elements of overall management
area which is interrelated and integrated with economic planning and controlling
of management. Financial efficiency is important for achieving the goal of any
business enterprises.
On the basis of the study considering target objective, following
recommendations are given for healthy financial performance and better cash
management of the company.
 Company’s liquidity is satisfactory. However, it is important for the
company to estimate how much fund is necessary to maintain liquidity
position and to invest the surplus cash funds in marketable securities or
profitable opportunities to generate some income. Its seems the quick ratio
is in smooth and good. so the the company should focus to maintain
current assets to get the ratio at least 2 .
 Appropriate investment policy for surplus cash: On the basis of study, there
seems enough cash surplus than it was required. So there must be
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appropriate policy and strategies to use or to invest that surplus cash in
profitable sector. Like, it could use in marketable securities or bonds or
hydropower sectors.
 NTC should have proper cash planning to estimate the cash receipts and
payments which helps to control the efficient management of cash.
Similarly, Nepal Telecom should analyze various cash management
techniques and models so that it can predict the optimal cash balance. For
example direct cash collection & cash collection through bank techniques
and Baumol’s model or Miller –orr model of cash management. Baumol
approach to determine the level of cash balances based on Economic
Order Quantity of early inventory model. it assumes that the firm faces
fixed cash inflow and outflow patterns and sought to minimize the cost of
holding cash necessary for its transaction. The ratio of total outlays
including tax, and dividend payments but excluded capital expenditures
debt retirement and securities purchases from year end cash holdings.
According to it, the cost of holding money is much less for large firms that
for small firms. So this kind of technique should be followed.
 Preparation of realistic budget: while preparing budget company should

analyze the actual past data and present needs of the programs applying
systematic and scientific method of data analysis. Actual total uses of
budget amount were not matching with budgeted target for expenses
purpose.
 Use internal source in full capacity: Internal source is sufficient to finance

whole budgeted expenses of the company. It should not borrow loan from
foreign institution because it involves cost. Because there is enough
internal source. and internal fund is possible to invest for internal
improvement.
83
 NTC have good liquidity position in study period so it should also maintain
in coming year. But it must try to maintain the current ratio to 2 and should
keep up the quick ratio.
 NTC should require giving quality services to customers by effective

managing cash. Quick and effective methods should follow where there
shouldn't be any chance to wait customer to in queue to pay the bill.
 NTC should need to analyze the mail float, processing float, transit float &
disbursement float in money collection & disbursement.
 NTC should minimize the deviation of revised budget & actual cash
balance for earning more profit.
 NTC should require making reduced cash balance plan amount for each
next yearly increment revenue and account receivable because Cash
balance & revenue & Account receivable of NTC are correlated
 NTC should provide facility to deduct the cash directly from the account of
customer account directly. they can keep the relation with different local
banks and give the facility to customer
 NTC has to adapt a new technology for the cash management which is
suitable for the Neplese perspective. All the part of Nepal are not fully
developed . Nepal is landlocked country with agro-based economy. The
country is divided into three parts (i.e. Mountains, Hills, Terai region) with
its geographical nature. Nepal is one of the least developed and very poor
country in the world. More than 90 % of the people are still in rural areas
and most of them are deprived minimum physical facilities, which is
necessary for human being. Agriculture is still the backbone of Nepalese
economy. Economy development is not possible with out agriculture
development. National planning commission has given more emphasis to
this sector. But the real picture of this sector is very poor. This is because
Nepal has not been able to provide basic facilities to the farmers like
irrigation, electricity and transportation. So this company should focus on
this should get credit through social services also.
84
Table of Contents
Chapter – I ................................................................................................................................................... 86
Introduction .................................................................................................................................................. 86
1.1 Background of the Study ................................................................................................................ 86
1.2.1 Introduction of Nepal Telecommunication Corporation ................................................................. 87
1.3 Statement of the Problem ................................................................................................................. 95
1.4 Objective of the Study........................................................................................................................ 96
1.5 Significance of the Study ................................................................................................................... 96
1.6 Limitations of the Study...................................................................................................................... 97
1.7 Organization of the Study .................................................................................................................. 97
CHAPTER II................................................................................................................................................. 98
REVIEW OF LITERETURE ......................................................................................................................... 98
2.1 Conceptual Framework...................................................................................................................... 98
2.1.1 Meaning of Cash Management....................................................................................................... 98
2.2 Review of Related Study.................................................................................................................. 112
2.3 Review of Previous Thesis............................................................................................................... 115
2.4 Research Gap .................................................................................................................................. 119
CHAPTER III.............................................................................................................................................. 120
RESEARCH METHODOLOGY ................................................................................................................. 120
3.1 Introduction ...................................................................................................................................... 120
3.2 Research Hypothesis....................................................................................................................... 120
3.3 Research Design ............................................................................................................................. 121
3.4 Nature and Sources of Data ............................................................................................................ 121
3.5 Method of Data Analysis .................................................................................................................. 122
CHAPTER IV ............................................................................................................................................. 128
ANALYSIS AND PRESENTATION OF DATA........................................................................................... 128
4.1 Analysis of data by Financial Tools ................................................................................................. 128
4.2 Analysis of data by Statistical tools.................................................................................................. 144
4.3 Analysis of Hypothesis..................................................................................................................... 152
4.3 Major Findings.................................................................................................................................. 153
CHAPTER V .............................................................................................................................................. 155
SUMMARY, CONCLUSION AND RECOMMENDATION ......................................................................... 155
5.1 Summary.......................................................................................................................................... 155
5.2 Conclusion ....................................................................................................................................... 155
5.3 Recommendation ............................................................................................................................. 156
Table of figure
Table 1 Director at present time 2067 ashad ............................................................................................. 93
Table 2 Analysis of Current Ratio.............................................................................................................. 129
Table 3 :Analysis of Quick Ratio................................................................................................................ 130
Table 5 : Cash to Current assets ratio...................................................................................................... 133
Table 6 :Cash Turnover Ratio ................................................................................................................... 134
Table 7 : Cash flow from operating activities............................................................................................. 135
Table 8 Cash from investing activities ....................................................................................................... 137
Table 9 : Cash from Financing activities ................................................................................................... 139
Table 10 : Actual cash Flow ...................................................................................................................... 140
Table 11 : Cash Budget and Actual cash .................................................................................................. 142
Table 12 : Revised Cash Budget and actual cash .................................................................................... 143
Table 13 : Trend analysis .......................................................................................................................... 144
Table 14 : Correlation Between Cash and Revenue ................................................................................. 146
Table 15 : Correlation Between cash balance and account receivable .................................................... 149
Table 16 : Table for hypothesis Test ......................................................................................................... 152
85
Chapter – I
Introduction
1.1 Background of the Study
Cash is the oil that lubricates the wheels of business. Without adequate oil
machines grind to a halt and a business with inadequate cash will do likewise. However
carrying a cash is expensive because cash is non earning assets a firm that hold a cash
beyond its minimum requirements lower its earning potential.
Cash Management is a very professional, highly refined activity. We need not to
keep idle cash balances to guard against a failure to receive expected payment or to be
ready for unexpected outflows.
The primary goal of financial manager should be to maximize the value of firm.
The managing cash flow is an extremely important task for financial manager. If firms
hold more cash than it needs, the shareholders won't be maximize. So the firms should
invest all idle cash in productive assets that are related to highly returnable.
The speed of technological development and convergence of information and
communications sector have led to a high investment requirement for the infrastructure
development. Infrastructure is a key for economic development and improving quality of
life. New types of telecommunications Services and network are appearing and the
sociological requirement relating to information flows have assumed greater importance.
This has led to a need for sector reform. Convergence of technology, access to
information and reliable infrastructure not only improve the quality of life and economic
activities of people but also strengthens democracy. The information available in the
network will fill the gap between haves and haves not provided it could be used by
common people at affordable price. The policy of each government must be oriented
towards this end. Governments have taken steps in reforming published objectives,
policies, laws, creating independent regulatory body but lacking willingness and
commitments in implementation. It may widen the gap between poor and rich in wealth
and knowledge leading to a society which democratic country does not wish to have.
The history of telecommunication in Nepal is rather very young as compared to the
history and culture of Nepalese people. Telecommunication was introduced with the
86
installation of open wire trunk telephone line between Kathmandu and Birgunj (a boarder
town in southern Nepal) for the first time in Nepal around 1914 beginning of the First
World War.
Telecommunication assumes great importance in Nepal where most of the land is
covered with high mountains and transport facilities are inadequate. But due to some
factors like financial constrains, total dependence on imports for supply of equipment,
lack of infrastructure and lack of good management of available resource etc,
telecommunication service is accessible only to a few percentage of our entire population.

telecommunication sector is due to poor and inefficient management of available resource.
For the efficient and effective utilization of resources, there must be proper plan, strategy
and control system. Management is concerned with the efficient use of important
resources for the productive result. It is a process of planning, controlling and giving
feedback for proper implementation. Among various types of management, cash
management plays an important role in efficient and effective utilization of recourses
because "Cash is the important current asset for the operations of the any business
organisation. Holding cash more than necessary for the intended purpose is as much
expensive as running business with inadequate cash. Too much cash balance will result in
higher opportunity cost, and too little will create crisis of cash shortage and force to
borrow at higher interest rate. Therefore, it is important that firm maintain cash balance at
optimal level in order to meet regular cash expenses and short term financial obligations."
1.2.1 Introduction of Nepal Telecommunication Corporation

In Nepal, operating any form of telecommunication service dates back to 94 years in
B.S. 1970. But formally telecom service was provided mainly after the establishment of
MOHAN AKASHWANI in B.S. 2005.Later as per the plan formulated in First National
Five year plan (2012-2017); Telecommunication Department was established in B.S.2016.
To modernize the telecommunications services and to expand the services, during third
five-year plan (2023-2028), Telecommunication Department was converted into
Telecommunications Development Board in B.S.2026. After the enactment of
Communications Corporation Act 2028, it was formally established as fully owned
Government Corporation called Nepal Telecommunications Corporation in B.S. 2032 for
the purpose of providing telecommunications services to Nepalese People. After serving
the nation for 29 years with great pride and a sense of accomplishment, Nepal
Telecommunication Corporation was transformed into Nepal Doorsanchar Company
Limited from Baisakh 1, 2061. Nepal Doorsanchar company Limited is a company
87
registered under the companies Act 2053. However the company is known to the general
public by the brand name Nepal Telecom as registered trademark.
Nepal Telecom has always put its endeavours in providing its valued customers a quality
service since its inception. To achieve this goal, technologies best meeting the interest of
its customers has always been selected. The nationwide reach of the organization, from
urban areas to the economically non- viable most remote locations, is the result of all these
efforts that makes this organization different from others.
Definitely Nepal Telecom's widespread reach will assist in the socio-economic

development of the urban as well as rural areas, as telecommunications is one of the most
important infrastructures required for development. Accordingly in the era of globalization,
it is felt that milestones and achievements of the past are not adequate enough to catch up
with the global trend in the development of telecommunication sector and the growth of
telecommunication services in the country will be guided by Technology, Declining
equipment prices, market growth due to increase in standard of life and finally by healthy
competition. Converting NT from government owned Monopoly Company to private
owned, business oriented, customer focused company in a competitive environment, Nepal
Telecom invites its all-probable shareholders in the sacred work of nation building.
Nepal Telecom Board established in October 1969 was converted to Nepal

Telecommunications Corporation (NTC), a fully government owned statutory
organisation in June 1975. It was established under communication corporation act 2028
BS. The objective of corporation is to provide telecommunication services according to
national communication service plan, make service easily accessible at simple and
reasonable price, enhance the economic position and living standard of the people and
encourage public participation in the various activities of NTC. That was the time when
the first telecom project funded by World Bank was nearing to completion and the second
telecom project was in the state of starting.
After dissolving Nepal Telecommunications Corporation (NTC), Nepal Doorsanchar
Company limited (Nepal Telecom) was registered on 2060-10-11 under company act
2053 and the notice to this effect was published in Nepal Gazette dated 26th Chaitra 2060.
However, the company name was Officially effective from 1st Baisakh 2061 (13th April
2004) and is also known to general public by the name NEPAL TELECOM as registered
trademark.
The Mission statement
''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.''
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The vision
NEPAL TELECOM's vision is to remain as a dominant player in the
telecommunication sector of the country while extending reliable and affordable
telecommunications services to all regions including the remotest area of the kingdom
and at the same time retaining its present sound financial health event in the coming
competitive environment.
a) Role of Nepal Telecommunication Corporation

Telecommunication is one of the fastest growing industries in the world.
Presently, NTC is only telecom operator in Nepal holding total monopoly is the telecom
sector and is a fully government owned and controlled organization. In Nepal, there are
other means of communication also a number of means of transportation, postal service
etc. But there are slower expensive and less convenient. Therefore, telecommunication is
one of the quickest, cheapest and scientific means of telecommunication. It brings
coordination among different government entities which ultimately promotes
administrative efficiency. NTC has played a crucial role for the increase in agricultural
production, which is a main source of national income. Telecoms have a major impact on
agricultural production by providing information and market condition.
In developing country like Nepal, the role of importance and contribution of
telecommunication in the development of country can not be explained. The international
telecommunication system contributors are to link the overseas countries in the field of
economy as well as politics. It also contributes in the development of tourist industry.
Thus the telecommunication system plays vital role to strengthen the national economy
and bring national unity among the national and international people creating a brother
hood relationship among the people.
Telecommunication has also contributed a lot for development of social condition of
which teaches about the accumulation, exchange and transmission of knowledge between
people. So, without communication human society would remain static and not much
different from the society of other animal. “The effect of telecommunication on the rural
areas and their contribution to rural development are extremely important yet rather
difficult to measure”.
c) Service Provided by NTC

NTC has been providing several services to the countries people and facilities
for transmission of written message, voice communication and variety or other
communication. It provides telecommunications services both within the country and
overseas. The services provided by NTC are as follows:
16. Basic Telephone Services
89
17. National Trunk Telephone Services
18. Rural Telecom Services
19. Bureau Fax Services
20. Pay Phone Services
21. Mobile Services
22. Packet Switching Services
23. International Sub-service Trunk Dialling Services
24. Internet Services
25. Inmarsat Mini-M Services
26. Home country Direct Dialling Services
27. Analogue Voice/Data and Telegraph Leased Circuit Services
28. International Telegraph Services
29. Telex Services
30. International Program T.V. Services
c) Milestones Data of NTC

1913 - Establishment of first telephone line in Kathmandu.
1914 - Establishment of open wire trunk line from Kathmandu to Raxaul
(India).
1935 - Installation of 25 lines automatic exchange in palace.
1936 - Installation of pen wire trunk line from Kathmandu to Dhankuta.
1950 - Establishment of telegraph service.
1950 - Introduction of High frequency ratio system (AM)
1950 - Establishment of CB telephone exchange (100 lines) in Kathmandu.
1951 - Installation of pen wire trunk line from Kathmandu to Palpa
1955 - Distribution of telephone line to general public.
1962 - First public telephone line to general public.
1964 - Beginning of international telecommunication services using HF Ratio
to India and Pakistan.
1965 - First automatic exchange in Nepal (1000 lines in Kathmandu).
1971 - Introduction of Telex Services.
1974 - Micro wave transmission links establishment for internal trunk.
1982 - Establishment of standard ‘B’ type earth station for international circuits.
1982 - Establishment of SPC telex exchange.
1983 - Establishment of digital telephone exchange.
1984 - Commencement of STD service.
1987 - Commencement of ISD service.
1995 - Installation of optical fiber net work
1996 - Conversion of all transmission links to digital
transmission Link
1996 - Automation of the entire telephone net work.
90
1996 - Independent international Gateway Exchange established.
1996 - Introduction of VSAT Services.
1997 - Digital link with D.O.T. India through Optical Fiber in Birgunj-Raxual.
1998 - Direct Link with Bangladesh.
1999 - Launching of GSM Mobile Service.
2000 - Launching of Internet Service.
2000 - Implementation of SDH Micro Wave Radio.
2001 - Launching of Payphone Service.
2002 - East West Highway optical fiber project.
2003 - GSM Prepaid Service.
2004 - Nepal Telecom (Transformation from corporation to Nepal Doorsanchar
Company)
d) Ownership of NTC
NTC is full government owned public utility sector enterprises. NTC is
administrated by a government appoint board of directors which includes the chairman,
who is the secretary of the ministry of information and communications and four voting
members.
e) Functions and Duties of Corporation (NTC)
According to communication corporation act and other related documents,
the functions and duties of the corporation shall be as follows :
viii) The basic function of NTC is to provide essential nation wide low const
reliable and really available telecommunication services to the general public
for the overall improvement of national integrity and economic development.
ix) To promote the industry and commerce of the nation.
x) To promote coordination and administrative efficiently.
xi) To promote the business activities of the corporation.
xii) To endeavour to become a self relevant.
xiii) Under the directory of HMG, to fix the policies of the corporation and to take
necessary action for its implementation.
xiv) To improve the work implementation procedures for maintaining a high
grade of telecommunication services.
F) Rights of Corporation
The rights of the corporation are as follows:
vi) To do all works which seem to be inevitable and necessary for the fulfilment of
the functions and duties of its own?
vii) To collect fees from the customers.
viii) To raise loans from national institutions, banks or individuals.
ix) To open any branch office.
x) To use special stamps for its own purpose.
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g) Service Delivery Procedure of NTC
Consumer seeking services from telecommunication have to apply for a new
line connection specifying the kind of services required. The incoming applications are
checked for processing and the name list of consumers of finding who have applied for
new line connection is circulated and noticed out. Consumers on finding their name in the
list become subscribers and come to contact to telecommunication offices for new line
connection by filling the application from referring their name, location, registered
number of old application and other required documents like citizenship, certificates
including other necessary documents. Then the service order is relayed to the engineer
who makes detail survey and feasibility studies live connection cost estimate assessment
of the available points at that locality and listing of the various materials required for
installation. There is a survey from which has not to be field and the engineer has to make
timely installation report after identifying the line number, telephone number, coble
number etc. Then the cost information is passed on to the consumer who has to make the
necessary deposits and pay installation charge. Technician connects the telephone line
after these pre- requisites are fulfilled. The information about the connection of telephone
lines are disseminated to maintenance control centre for repairs and operations, inquiry
section and telephone directory section and account section for the purpose of
maintaining the customer ledger and so on. The information will then flow to the billing
section the verifies, prepares and identifies the customers. Make necessary adjustments
again dispatch this information to the account section which gives the receipts prepared
and telephone care number to customers.2
h) Board of Directors
NTC has managing director under the supervision and control of board of director. The
composition of board of director is as follows.
Chairman
Secretary, Ministry of Information and Communication
Member
Director, General Ministry of Finance (Dep. of tax)
Member
General Manager of NTC
Member
Director, Katmandu Regional Directorate, NTC
Member
Manager, Cable Networking Planning, NTC
Secretary
Deputy General Manager (Intes Audit and Inspection) NTC.
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This is the actual name of the of different director at present time 2067 ashad
Table 17 Director at present time 2067 ashad

NEPAL TELECOM
Board of Directors
MANAGING
DIRECTOR
Mr. Amarnath Singh
REGIONAL
CORPORATE OFFICE FIELD OFFICE
DIRECTORATE
DMD - Finance Director Director - CRD, Birgunj
Mr. Rameshwar IT Directorate Mr. Dev Narayan Yadav
Karmacharya Mr. Lok Raj Sharma
Director - ERD,
DMD - Business Director Biratnagar
Mr. Vishwanath Goel Telecom Training Mr. Shyam Sunder Yadav
Center
Mr. Nara Narayan
DMD - Development Manandhar Director - KRD,
Mr. Kanhaiya Lal Gupta Sundhara
Mr. Madhusudan
Director Karmacharya
DMD - Change Mobile Service
Management Directorate
Mr. Badri Prasad Mr. Jeevan Ratna Director - WRD,
Bastola Shakya Bhairahawa
Mr. Amrit Prasad Shrestha
DMD - Operation & Director
Maint. Wireless Service Director - MWRD,
Mr. Hiranya Kumar Directorate Nepalgunj
Bhattarai Mr. Bhagat Man Mr. Khadga Bahadur
Singh Pradhan Basnet
DMD, Company
Secretariat Director Director - FWRD,
Mr. Buddhi Prasad Satellite Service Dhangadi
Acharya Directorate Mr. Bishnu Dhak
Mr. Shiv Bhushan Lal
DMD - Planning
Mr. Anoop Ranjan Director
Bhattarai PSTN
Mr. Bishnu Prasad
DMD - Human Kasaju
Resource Mgmt.
Mr. Narayan Mahat
DMD, Internal Audit

Mr. Sudhir Prasad Aryal
93
Organization Chart
Deputy General Deputy General

Planning and Manager O & M
Development
Operation & Maintenance

Dept.
Transmission Switch & Maintenance
Switch planning Dept. Dept.
Cable Net worth planning Power Dept.
Dept Transmission Dept.
Computes Dept. Internal Service Dept.
Civil Dept. Material Management
Account section Dept.Quality Control Office
(development)
Development Section
Board of Director
Transmission P.I.D.
Director Rural Planning
Network P.I.T. Directorate
Switching P.T.DI
General Director
Manager News Service Directorate
Director
Deputy General Kathmandu Reg.
Manager, Directorate
Internal Audit &
Inspection
Director
Birgunj Reg. Directorate
Legal Advisor
Deputy Director
General Eastern Reg. Directorate
Consultant Manager
Service Unit Finance
Financial Dept.
Director
Financial Mgmt & Plan Western Reg. Directorate
Sr.
Management Dept.
Committee Revenue Dept. Director
Bill Dept. Mid-Western Reg.
Directorate
Fixed Asset/Assessment
Dept. Director
Far-Western Reg.
Deputy General
Directorate
Manager Business
& Administration
Director
Business Mgmt. Dept. Telecom Training Center
HRD Dept.
Sectaries of post
fulfillment 94
1.3 Statement of the Problem
Nepal Telecom is most popular corporation in communication area. It is that organization

which earns profit and pays highest tax to the government. Its collection of cash is too high than.
This study focuses to know whether this kind of organization is managing cash properly or not?
NTC is beating other corporation due to cash management or not? This study focuses to know Is
cash management is the key factor for success or the corporation or not? For these Reasons this
topic is chosen.
As said earlier, one of the main reasons for poor performance on telecommunication
sector is due to poor and inefficient management of available resource. For the efficient
and effective utilization of resources, there must be proper plan, strategy and control
system. Management is concerned with the efficient use of important resources for the
productive result. It is a process of planning, controlling and giving feedback for proper
implementation.
Among various types of management, cash management plays an important role
in efficient and effective utilization of recourses because "Cash is the important current
asset for the operations of the any business organisation. Holding cash more than
necessary for the intended purpose is as much expensive as running business with
inadequate cash. Too much cash balance will result in higher opportunity cost, and too
little will create crisis of cash shortage and force to borrow at higher interest rate.
Therefore, it is important that firm maintain cash balance at optimal level in order to meet
regular cash expenses and short term financial obligations."
Cash management refers to the proper management of firm’s cash position. It is
concerned with all decisions and acts that influence the determination of the appropriate
level of cash and their efficient use. It also includes the choice of the financing method,
keeping in view of liquidity.
Cash management has been the most indicated and challenging area of modern
corporate finance. This study will try to answer following questions of cash management.
f. What is the liquidity and cash position of NTC?
g. What is the position of cash inflow and outflow of NTC?
h. What is the relationship between liquidity and total revenue and liquidity
and profitability?
95
i. What is the relationship between budgeted cash & Actual Cash in NTC ?
j. Which technique of cash collection is using by NTC ?
1.4 Objective of the Study

The major objective of this study is to examine the management of cash in Nepal
Telecom. The specific objectives are as follows.
h. To identify the liquidity position of NTC
i. To review cash flow from operating, financing and investing activities.
j. To study the relationship of approved cash budget & Actual cash
k. To study the cash collection techniques of NTC
l. To analyse the cash collection and disbursement of NTC
m. To study the relationship of cash with total revenue and account receivable.
n. To provide NTC suggestions and recommendation in terms of cash
management
1.5 Significance of the Study

Resources are very scarce in every organization. Out of these available resources,
organisation has to accomplish its objective. The financial performance of the
organisation prominently depends upon the use of these scarce resources. Therefore cash
management is one of the important tool which tells us how to optimally use these scarce
resource i.e. cash.
The idea behind cash management is maintaining adequate liquid assets whenever and
wherever required by the firm. Maintaining the corporate liquidity therefore consists of
determining the volume and timing of cash required by the firm.
The study of cash management of NTC provides crucial information about the cash
management system. Management of NTC can be benefited by this study by determining
the strength and the weakness of the particular part of the cash management on which the
objective of the study is based. This study not only helps management of NTC Limited
but also helps other managerial person to have reference about the better cash
management potential and practices.
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1.6 Limitations of the Study
The study has very limited area of investigation. It is only partial analysis of cash
management of NTC. Comprehensive study of cash management is not possible in this
thesis duty to its deadline of completion and availability of data and information.
The study is fully dependent on the information of available on the webpage of NTC.
Due to its internal rules it doesn't want to disclose its full information so that they don't
want to give more information from the office side. That's why it is very much difficult to
prepare the thesis. Another part is that they will disclose their yearly data of five years.
i.e. working period of one management committee The data will be of five year period.
So the limitations of the study are as follows:
f. The study is totally based on secondary data collected from NTC.
g. The study covers the analysis of five years(2060/61 to 2064/65) i.e. one
working period of management committee
h. The accuracy of this study is based on the data available from NTC website i .e.
www.ntc.net.np and various published document of the organisation.
i. Only financial and statistical tools are used for analysis of data.
j. This study is focus only on NTC
1.7 Organization of the Study

This study has been organised in five chapters. The first chapter is the introduction
chapter which deals with the background of the study, introduction of NTC,
statement of the problem, objective of the study, significance of the study and
limitation of the study.
Review of literature is deals with the literature review relating to cash management
i.e. books, journal and thesis.
In third chapter, the research methodology employed for the study has been described.
It includes introduction, research design, data collection and sources, data processing
procedure and tabulation of financial tools and techniques.
Then the acquire data are presented and analyzed through the way given in
methodology in the fourth chapter.
At last, the summary, major findings, issue, constraints and some recommendation
have been presented in the fifth chapter. A bibliography and appendix have also been
included in the last part of the study.
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CHAPTER II
REVIEW OF LITERETURE
2.1 Conceptual Framework
2.1.1 Meaning of Cash Management

‘’Cash is the most important form of current assets. It is the basic input and
ultimate output. The term ‘cash’ refers to all money items and sources that are
immediately available to help pay a firm’s bills.
Cash includes coins, currencies, cheques held by a firm and balances in its bank
accounts. This money is immediately usable to pay bills. Sometimes, near cash items are
also included in cash e. g. marketable securities. If the firm has excess cash, it may decide
to convert it to short-term investments.’’ (Pradhan, 2004: 365). So how a financial
manager keeps track of all these money and how these cash are invested to near cash item
so that it can be converted back to cash without delay. It is only the cash management
with help the financial manager to keep record of all the cash and near cash items.
The term ‘cash management’ is concerned with the management of current assets and
current liabilities of the business, which is necessary for day –to-day operation. ‘’Cash
management is concerned with the decision regarding the short-term funds influencing
overall profitability and risk involving in the firm. The management of cash has been
regarded as one of the conditioning factors in the decision-making issues.’’ (Saksena,
1974: 6)
2.1.2 Principles of Cash Management

Selection of cash management strategies entirely depend upon the individual firm.
As each firm is unique in its nature, management should select strategies depending upon
its own financial strength and objective. "In the matter of cash management, financial
managers are mainly concerned with the (a) management of cash receipts, (b)
management of disbursement, (c) minimization of cash balance, (d) use of most
inexpensive sources of financing for cash balance, and (d) investment of excess balance
of cash. The standard principles of cash management are as follows.
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f. To collect accounts receivable as soon as possible without annoying and
losing potential customers by establishing a system of lock boxes, electronic
funds transfer, pre-authorized checks, and deposit concentration.
g. To delay payments as long as permitted without damaging the firm's credit
rating by establishing controlled disbursement system.
h. To minimize cash balance without adversely affecting the business operation
by following the techniques of cash balance management such as Baumol and
Miller-Orr Models.
i. To manage most inexpensive sources of financing for meeting short term cash
deficiency by optimally balancing between cost and risk.
j. To invest short term excess cash in most efficient market portfolios of
securities such as in money market instruments." (Pradhan, 2000: 154)
2.1.3 Techniques/Processes of Cash Management

The efficiency of cash management of a firm can be appreciated by understanding
the firm's procedures for cash collection and cash disbursement. Both the collection and
disbursement management offer opportunities for profit improvement; collection,
however, offer more of them. ’’The general idea is that the firm will benefit by ‘’speeding
up’’ cash receipts and ‘’slowing down’’ cash payouts. The firm wants to speed up the
collection of accounts receivable so that it can have the use of money sooner. Conversely,
it wants to pay accounts payable as late as is consistent with maintaining the firm’s credit
standing with suppliers so that it can make the most use of the money it already
has.’’(James, 2003: 227) Following techniques are considered to be useful to accelerate
the collection and slow down disbursement.
c. Managing Collection
Cash collection systems aim to reduce the time it takes to collect the cash that is
owed to a firm. Some of the sources of time delays are mail float, processing float,
and bank float which are explained in detail below. Obviously, an envelope mailed
by a customer containing payment to a supplier firm does not arrive at its
destination instantly. Likewise, the payment is not processed and deposited into a
bank account the moment it is received by the supplier firm. And finally, when the
payment is deposited in the bank account oftentimes the bank does not give
immediate availability to the funds. These three "floats" are time delays that add up
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quickly, and they can force struggling or new firms to find other sources of cash to
pay their bills. Cash management attempts, among other things, to decrease the
length and impact of these "float" periods.
 Float
"The float , composed of several elements, is the time lost between two actions,
that is 1. the customer mails the payment and 2. the firm obtains the use of funds.
The acceleration of cash receipts or equivalently the reduction of the float is an
important cash management technique. The float has typically four elements.
v. Mail float(Net)
vi. Processing float
vii. Transit float
viii. Disbursement float
 Concentration Banking
A concentration bank is one where a firm maintains a major disbursement
account. In order to accelerate cash collections, many firms establish multiple
lock-boxes or collection points. Even without lock boxes, firms may have many
regional sales offices where cash sales and accounts receivable may be colleted.
Instead of having moneys in multiple bank accounts in different regions, most
firms will regularly transfer the surplus balances to one or more concentration
banks, thus centralizing the cash pool.
 Lock Box System

The lock box arrangement, available through commercial banks speeds up the
collection of funds by reducing both mail and processing floats. Float reductions
of two to four days are not unusual for firms receiving cheques from all parts of
the country.
In a typical lock-box arrangement, customers are instructed to mail their
remittances to a numbered post office box. The bank, providing the lock-box
system is authorized to operate the post office box the banks opens the box,
collects the mail, processes the cheques and deposits the cheques directly into
the firm's bank account. Typically, a large bank will collect payments from the
post office box at once-to two-hour intervals, all business days of the year-all
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365 days is also possible. The day the deposits are made, the bank will inform
the firm through some type of telecommunication as to the amounts of the
deposits. At the end of the day, all cheques photocopies, invoices, deposit slips
and any other documents included with the remittances are mailed to the firm.
Note that firms receiving cheques from a large area will use several lock boxes,
located in different regions and services by branches of the bank providing the
lock-box arrangement, to the full advantage of a reduction in the float.
d. Control of Disbursement
The effective control of disbursement can also help the firm in conserving
cash and reducing the financial requirements. Apart from speedy collection of
accounts receivable, the operating cash requirement can be reduced by slow
disbursement of accounts payable. Disbursements arise due to trade credit,
which is a source of funds. The firm should make payments using credit terms
to the fullest extent. There is no advantage in paying sooner than agreed. By
delaying payment as much as possible, the firm makes maximum use of trade
credit as source of funds-a source which is interest free.
2.1.4 Factors Determining Cash Needs

The factors that determine cash needs are described below:
2.1.4.1 Synchronization of Cash Flows
The cash management problem originates from the lack of synchronization
between cash inflows and out flows which raises two interrelated issues: 1) How to
finance cash requirements when cash outflows exceed inflows, and 2) How to invest a
cash surplus when net cash flows are positive. The basic financing-investment issue is
indirectly affected by various factors which determine net cash flows and is directly
influenced by minimal cash requirements and other financial policies of the corporation.
The interrelated complex of these issues, to the extent that they are controlled by a
financial officer, creates the cash management problem.
It is mentioned that business can control cash by synchronizing cash flows through the
use of a cash budget. It can use the time such as the time from the writing of the check
until it clears the bank, accelerate collections with low credit terms and high interest rates
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on unpaid balances, and control disbursements by making use of discounts and good
purchasing practices.
2.1.4.2 Short Costs

Another general factor to be considered in determining cash need is the cost
associated with a short fall in the cash needs. The cash forecast presented in the cash
budget would revel period of cash shortages. In addition, there may be some unexpected
short fall. Every shortage of cash, whether expected or unexpected involved a cost
depending upon the severity, duration and frequency of the shortfall and how the shortage
is covered. Expenses incurred as a reset of shortfall are called short costs. Included in the
short cost are the following.
 Transaction cost associated with raising cash to tide over the shortage, this is
usually the brokerage incurred in relation to the sale of some short term near cash
assets such as marketable securities.
 Borrowing cost associated with borrowing to cover the shortage these include
items such as interest on loan, commitment charge and other expenses relating to
the loan.
 Loss of cash discount, that is, a substantial loss because of temporary shortage of
cash.
 Cost associated with deterioration of the credit rating which is reflected a higher
bank charges on loans, stoppages of supplies, demand for cash payments, refusal
to sale, loss of image and the attendant decline in sales and profits.
 Penalty rates by bank to shortfall in compensating balances.(Khan and Jain, 2003:
668)
2.1.4.3 Excess Cash Balance Costs

Theoretically there should be optimum balance of cash in any firm’s accounts i.e.
there should not be excess/idle cash. But if firm holds excess cash then the cost which
firm has to bear in having excessively large cash balance is known as excess cash balance
cost. If large funds are idle, that implies, firm has missed opportunities to invest those
funds and has thereby lost interest which it would otherwise have earned. This loss of
interest is primarily the excess cost.
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2.1.4.4 Procurement and Management
“These are the costs associated with establishing and operating cash management
staff and activities. They are generally fixed and are mainly accounted for by salary,
storage, handling of securities, etc.” (Khan and Jain, 2003: 669)
2.1.4.5 Uncertainty and Cash Management
Finally, the impact of uncertainty of cash management strategy is also relevant as

cash flows can not be predicted with complete accuracy. The first requirement is a
precautionary cushion to cope with irregularities in cash flows, unexpected delays in
collections and disbursements, defaults and unexpected cash needs.
The impact of uncertainty on cash management can, however, be mitigate through (1)
improved forecasting of tax payments, capital expenditure dividend, and do on: and (2)
increased ability to borrow though over draft facility. (Khan and Jain, 2003)
2.1.5 Motives of Holding Cash
2.1.5.1 Transactions Motive

Firms are in existence to create products or provide services. The providing of
services and creating of products results in the need for cash. Firms hold cash in order to
satisfy the cash inflow and cash outflow needs that they have. In firm, there is regular
inflow of cash in the form of sales, return from investments etc. Similarly, there is regular
outflow of cash like operating expenses, taxes, interest and wages and so on. But this
inflow and outflow do not perfectly synchronize with each other. So ensure that there is
always synchronization of inflow and outflow of cash, firm needs to hold cash. So the
requirement of cash balances to meet routine cash needs is know as transactional motive.
2.1.5.2 Precautionary Motive

Besides anticipated cash needs, sometimes firm gets unexpected cash needs at
short notice like strikes, failure of important customers, unexpected slow down in
collection of accounts receivable, sharp increase in cost of raw materials and many more.
So cash held to meet such unexpected obligations is known as precautionary motive.
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Holding cash for precautionary motive large depends upon ability to predict future. Also
another factor that strongly influences the precautionary motive is the ability to borrow
additional cash on short notice.
2.1.5.3 Speculative Motive
“Economist Keynes described this reason for holding cash as creating the ability
for a firm to take advantage of special opportunities that if acted upon quickly will favour
the firm.” An example of this would be purchasing extra inventory at a discount that is
greater than the carrying costs of holding the inventory. Precautionary motive is defensive
in nature as firm makes provision to meet unexpected contingencies while speculative
motive represents a positive and aggressive approach. Firms aim to exploit profitable
opportunities and keep cash in reserve to do so.
2.1.5.4 Compensation Motive
Commercial banks perform many functions for business firms. In return it ask
business firm to maintain minimum level of balance at the bank which is known as
compensating balances. These balances are used by firms in the form of loan to other and
earn interest which is an indirect fee to bank.
Of the four primary motives of holding cash balances, the two most important are the
transactions motive and the compensation motive. Business firms normally do not
speculate and need not have speculative balances. The requirement of precautionary
balances can be met out of short-term borrowings.
2.1.6 Objectives of Cash Management
The main objectives of cash management are to determine the optimal cash
balance which is neither excessive nor inadequate and also to ensure that the optimal cash
balance is maintained all through. Cash should not remain idle unnecessarily and
simultaneously it should not fall short of the requirements also. For this, the collections
and the disbursements of cash are to be managed properly. In case the flow of cash in not
even, the cash is to be arranged by raising short-term loans for meeting the payment bills
or if cash collections have been made but there is no immediate outlet for payment, the
idle funds are invested in temporary securities so as to yield some return. Thus, the
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problem is to manage the cash affairs in such a manner that gives the least possible cost
of maintaining cash. The main objective of financial management-maximizing
profitability without sacrificing liquidity-should be borne in mind while attempting to
manage cash and bank balances. Optimal cash balance does not mean minimum cash
balance since minimum cash may lead to shortage of cash and the day-to-day operations
of the business may suffer. The level of cash which meets the requirements appropriately
and which gives the minimum cost is known as the optimum level of cash.
Cash management covers the management of not only cash but near-cash assets
also, e.g., marketable securities and time deposits with banks, because these are readily
convertible into cash, As a matter of fact, 'near-cash assets' are to be included under' cash'
for the purpose of cash management since surplus cash is required to be invested in near-
cash assets for the time being.
The objectives of cash management are straightforward – maximise liquidity and

control cash flows and maximise the value of funds while minimising the cost of funds.
The strategies for meeting such objectives include varying degrees of long-term planning
requirements. Everywhere in the world, much treasury activity is concentrated on cash
management. This includes financing the corporation, administration of debts (loans,
bonds, commercial papers, etc.), good relationships with the banks, payments to suppliers
and collections from customers, control of foreign currency and interest positions
according to the company’s needs for finance, and finally the reporting and technical
support of all these functions.”
2.1.4 Determining the Optimum Cash Balance

Financial manager responsibilities are to maintain a sound liquidity position of the
firm. There are a number of methods that try to determine the magical cash balance,
which should be targeted so that costs are minimized and yet adequate liquidity exists to
ensure bills are paid on time. One of the first steps in managing the cash balance is
measuring liquidity. There are numerous ways to measure this, including: cash to total
assets ratio, current ratio (current assets divided by current liabilities), quick ratio (current
assets less inventory, divided by current liabilities), and the net liquid balance (cash plus
marketable securities less short-term notes payable, divided by total assets). The higher
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the number generated by the liquidity measure, the greater the liquidity and vice versa.
There is a trade off, however, between liquidity and profitability that discourages firms
from having excessive liquidity.
The financial manager should determine the appropriate amounts of cash balance.
A trade off between risk and return influences such a decision. If the firm maintains a
small cash balance, its liquidity position become weak and suffers from a capacity of cash
to make payment. But investing released funds in high level of cash balance it will have a
sound liquidity position but forego the opportunity to earn interests. Thus the firm should
maintain an optimum cash balance to find out the optimum cash balance the transaction
costs and risk of too small a balance should be matched with the opportunity costs of too
large a balance.
There are a number of methods that try to determine the magical cash balance,
which should be targeted so that costs are minimized and yet adequate liquidity exists to
ensure bills are paid on time (hopefully with something left over for emergency purposes).
One of the first steps in managing the cash balance is measuring liquidity. There are
numerous ways to measure this, including: cash to total assets ratio, current ratio (current
assets divided by current liabilities), quick ratio (current assets less inventory, divided by
current liabilities), and the net liquid balance (cash plus marketable securities less short-
term notes payable, divided by total assets). The higher the number generated by the
liquidity measure, the greater the liquidity and vice versa. There is a trade off, however,
between liquidity and profitability that discourages firms from having excessive
liquidity.”
2.1.5 Cash Management Models

1. Baumol Model
In view of minimizing the opportunity cost of holding cash and maximizing the
return on the available funds, the cash balance should be maintained at a minimum level,
and the funds not required for immediate use be invested in the marketable securities.
What is the minimum size of cash to hold and how do we determine it? The minimum
size is the amount of cash that is enough to start with at the beginning of a period to meet
the cash need of that period's transaction. In order to make sure that every period begins
with the right amount of cash, a method is needed that prescribes the optimal size of cash
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transfer from the security account, or the optimal amount to be borrowed whenever the
balance reaches to zero level. Baumol model is one of the methods that can be used for
this purpose.
Baumol identifies the cash maintenance as analogous to inventory maintenance,
and demonstrates that the model of economic order quantity that is applicable to
inventory management is perfectly applicable in cash management too. Baumol model is
based on the assumption that (i) the cash is used at a constant rate; (ii) the periodic cash
requirement is more or less same; and (iii) there are some costs such as the opportunity
costs that increase and other costs such as transaction costs that decrease as cash balance
increase. Because of the assumptions (i) and (ii), the graphical representation of cash
position looks like as follows:
Baumol’s Model of Cash Management
Figure 14 Baumol’s Model of Cash
Cash
Balance
Weeks
Management
Unlike the case of inventory purchases, the cash transfer does not take time.
Therefore, it is normally not required to maintain safety stock of cash.
Under the stated assumption, the model prescribes an optimal size of cash
balance and the optimal size of cash transfer from marketable securities to cash
account or borrowing. What matters for a firm is the total of opportunity cost and
the transaction cost. Therefore, the objective of this model is to minimize the total
cost. The figure below shows the relationship between the average size of cash
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balance (the size of cash transfer or borrowing) and various costs associated with
the cash maintenance.
Optimum Cash Balance
Figure 15 Optimum Cash
Total cost of holding cash
Balance
Mathematically, the optimal size of cash transfer from investment accounts or
line of credit (borrowing), c* is determined as follows:
C* = 2 FR
K
Where
R = Requirement of cash per period
K = Opportunity cost of holding cash or the interest rate on borrowing.
The Baumol model can be appropriately applied in case of predictable uniform
net cash flows, but not in the situations characterized by irregular and uncertain
cash flows.
The average cash balance (C) is calculated as follows:
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C*
C= M
2
Where,
M = minimum balance of cash for precautionary purpose.
2. Miller-Orr Model
The size of cash requirement depends on the pattern and degree of irregularity
of inflows and outflows. The Baumol model does not consider the possible
irregularity and uncertainty of receipts and payments. Merton Miller and Daniel
Orr have developed a model, known as Miller- Orr model that takes into account
the realistic pattern of cash flows and prescribes when and how much cash should
be transferred from cash to investment account and from investment account to
cash.
The model is based on the assumption that the daily net cash flows (receipts
minus payments) are random in size as well as in the matter of negative or
positive flows, and are normally distributed in the long run. The model sets a
range of high and low limits within which the cash balance is allowed to fluctuate
and sets the target cash balance (Z) in between these two limits. The model
suggests bringing the cash balance to target balance whenever it drifts away to the
limits in either direction. The rule is to transfer the amount of cash that is
necessary to bring the cash position to its target balance from the investment
account whenever the balance slides down to the lower limit (L); and to transfer
the cash in excess of target balance to the investment account whenever it reaches
to the upper limit (U). The lower limit in the model is set by either managerial
decision to meet emergency need or as required by bank to maintain
compensating balance in the account. The graphical representation of this model
is as follows.
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Figure No. 2.3 Miller-Orr Model of Cash Management
Figure 16 Miller-Orr Model of Cash
Cash
Balance
(Target
balance)
(Days)
Management
Mathematically, the model is set as follows
1/ 3
 3Fs 2 
Z=   L
 4i 
The lower limit L is given; the model calculated the Z and U.
1/ 3
 3Fs 2 
U=   L
 4i 
The average cash balance (C) is obtained as follows:
4Z  L
C=
3
Where
Z = target cash balance
I = daily rate of opportunity cost or daily interest rate
S2 = variance of net daily cash flows
U = Upper limit
L = Lowe limit
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3. Orgler's Model
According to this model, an optimal cash management strategy can be
determined through the use of multiple linear programming model. The
construction of the model comprises three sections: (1) selection of the
appropriate planning horizon (2) selection of the appropriate decision variables
and (3) formulation of the cash management strategy itself. The advantage of
linear programming model is that it enables coordination of the optimal cash
management strategy with the other operations of the firm such as production and
with less restriction on working capital balances.
The model basically uses one year planning horizon with twelve monthly
periods because of its simplicity. It has four basic sets of decisions variables with
influence cash management of a firm and which must be incorporated into the
linear programming model of the firm. These are: i) payment schedule, ii) short-
term financing, iii) purchase and sale of marketable securities and iv) cash
balance itself.
The formulation of the model requires that the financial managers first
specify an objective function and then specify a set of constraints.
Orgler's objective function is to 'minimize the horizon value of the net revenue
from the cash budget over the entire planning period.' Using the assumption that
all revenues generated are immediately reinvested and that any cost is
immediately financed, the objective function represents the value of the net
income from the cash budget at the horizon 'by adding the net returns over the
planning period.' Thus, the objective function recognises each operation of the
firm that generates cash inflows or cash outflows as adding or subtracting profit
opportunities for the firm from its cash management operations. In the objective
function, decision variables which cause inflows, such as payments on receivables,
have positive co-efficient, while the sale of those securities would incur
conversion costs and have a negative co-efficient.
The constraints of the model could be i) institutional or ii) policy-
constraints. The institutional constraints are those imposed by external factors,
that is, bank-required compensating balance. Policy constraints are imposed on
cash management by the firm itself. For instance, the financial manager may be
prohibited from selling securities before maturity. Either constraint can occur in
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the model during one monthly period or over several or all the months in the more
year planning horizon.
An example of the linear programming model is as follows:
Maximise profit= a1s1 + a2x2
Subject to
b1x1 ≤ production
b2x2≤ constraints
C1x1+C2x2≤ Cash available constraint
81x1+82x2> Currents assets requirement constraint
Xi≥0i = 1, n non-negativity constraint
A very important feature of the model is that it allows the financial managers
to integrate cash management with production and other aspects of the firm.
2.2 Review of Related Study

Cash management is regarded as an important part of working capital management,
the thrust for a separate theory in this area was attempted by many economists, since
1950’s. Some of them enunciated cash management theories whereas others extended the
common run approaches with new techniques.
2.2.1 Review of Journals

Baumol (1952) introduced a deterministic approach to determine the level of cash
balances based on Economic Order Quantity of early inventory model. He assumed that
the firm faces fixed cash inflow and outflow patterns and sought to minimize the cost of
holding cash necessary for its transaction. Baumol concluded that cash will be demanded
by rational individuals in proportion to the square root of the value of transactions, given
the price level. Tobin (1956) interposed interest elasticity of transaction demand for cash
with a view to maximizing individual’s interest earnings net of transaction cost. This is
different from Baumol’s propositions but the results are quite similar with Baumol’s
equations.
Friedman (1959) introduced the behaviour of aggregate cash balance and its velocity.
According to him, “business holds cash as a productive resource.” Friedman explored the
question of whether money is like an inventory holding, or is comparable with fixed
capital. He concluded with the finding that “cash balances are analogous to fixed capital
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rather than to inventories and that some other assets or liabilities serve as shock absorbers
for business as for consumers.” Seldon (1961) extended the study and determined the
relationship between velocity of money and its inverse relationship with the assets size of
the firm. According to Seldom, the velocity is defined as the ratio of total outlays
including tax, and dividend payments but excluded capital expenditures debt retirement
and securities purchases from year end cash holdings. According to him, the cost of
holding money is much less for large firms that for small firms.
The journal of finance, published bimonthly by American Finance Association for

many decades is taken into account. In its volume XV of September 1960, Joseph C
Schabacker, at his article, “A study of cash planning in small manufacturing companies”
is reviewed here, which is as follows
A Study of Cash Planning in small manufacturing companies by Josephc
Schabacker (1960) University of Wisconsin. Several significant investigations have been
conducted to explain the causes of failure among small businesses. The most widely
accepted theory forthcoming from such studies is that poor internal management is the
predominant factor in failure. Business does not fail merely because they are small.
The purpose of this study is to explore one specific phase of the managerial job in
small companies, namely the forward planning of cash requirement. Many small business
owners allow themselves to be pressured into ad hoc decisions as a result of no advance
planning. The research was designed to test the hypothesis that “the financial health of a
small manufacturing firm is directly related to the amount of formal cash planning which
is done” (Schabacker, 1960)
According to Whalen (1965) “A cross section study of business demand for cash” on
Journal of finance, (September, 1965) has found the speculative demand for money many
be considered as a function of wealth. Assets and sales are the explanatory variables to
determine the cash balance of the firm. Since Whalen attempted to incorporate assets as
well as transactions into the demand function, the analysis presented by him in order to
determine the cash holding of the firm is not only for transaction purpose but also an
investment. Miller-Orr (1966) assumed that firm’s cash flows could be analyzed by a
stochastic process. He followed Baumol’s model without question and deducted that the
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firm’s pattern of payment and receipts is fixed and that the cost of non-payment is infinite.
He added that the firm or the individual is presumed to hold that amount of money which
minimise the interest cost. He further advised holding money rather that bonds, since
there is transaction cost associated with the conversion of bonds into money. This reduces
the cost of transaction and maximizes profits by an equivalent amount.
“Cash management is a broad term that refers to the collection, concentration and
disbursement of cash. It encompasses a company's level of liquidity, its management of
cash balance, and its short-term investment strategies. In some ways, managing cash flow
is the most important job of business managers. If at any time a company fails to pay an
obligation when it is due because of the lack of cash, the company is insolvent.
Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such a
dire consequence should compel companies to manage their cash with care. Moreover,
efficient cash management means more than just preventing bankruptcy. It improves the
profitability and reduces the risk to which the firm is exposed.
Cash management is particularly important for new and growing businesses. Cash flow
can be a problem even when a small business has numerous clients, offers a superior
product to its customers, and enjoys a sterling reputation in its industry. Companies
suffering from cash flow problems have no margin of safety in case of unanticipated
expenses. They also may experience trouble in finding the funds for innovation or
expansion. Finally, poor cash flow makes it difficult to hire and retain good employees”.
“Cash flow management is the process of monitoring, analyzing, and adjusting firms’
cash flows. For small businesses, the most important aspect of cash flow management is
avoiding extended cash shortages, caused by having too great a gap between cash inflows
and outflows. It won't be able to stay in business if it can't pay its bills for any extended
length of time. Therefore, firm need to perform a cash flow analysis on a regular basis,
and use cash flow forecasting so that it can take the steps necessary to head off cash flow
problems. Many software accounting programs have built-in reporting features that make
cash flow analysis easy. This is the first step of cash flow management.”
“Cash management forecasts cash flows (inflows or outflows of cash) as part of working
capital cycle, prepares cash and financial budgets and fund-flow statements, and manages
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the cash or funds flowing through the company. The basic aim of cash management is to
ensure that cash in exceeds cash out. In other words, the purpose of cash or funds
management is to ensure that the company has the cash and working capital for its
expanding or fluctuating needs without either trying up funds which could be more
profitably invested or used elsewhere, or relying too heavily on bank overdrafts or other
short-term loans.“
“Cash management is ultimately about cash flow and very few small businesses are
awash in cash. Even successful, growing companies are vulnerable to cash flow problems
because they tend to add employees and inventory rapidly. This may quickly reduce the
company funds and lead to cash shortages. Because having cash at the right time is so
important, entrepreneurs must pay close attention to cash management.”
2.3 Review of Previous Thesis

Bajracharya (1990) has studies the cash management practices in Nepalese Public
Enterprises. The study has taken 18 enterprises as a sample and used data from 1977 to
1987. The study concluded,
vii. Cash management in the public enterprises of Nepal is primarily based on the
traditional practices, lacking in a scientific approach. A more serious aspect of
cash management has been the absence of any formalised system of cash
planning and cash budgeting in many of the enterprises, although the
executives of some enterprises do have the practice of forecasting cash
requirements on a formal basis.
viii. Modern practices with respect to debt collection monitoring the payment
behaviour of customers and relevant banking arrangements in connection with
collection of receivables have been virtually ignored in many enterprises.
ix. Our survey revealed that majority of the enterprises didn't face any serious
liquidity problem. However, this was not because of the effectiveness of cash
planning and budgeting. The problem of liquidity actually didn't arise due to
the coincidence of delay in receivables collection being matched by delayed
payment to creditors.
x. By and large most enterprises had periodic accumulation of surplus cash and
corresponding cash shortage from time to time. However, none of the
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enterprises considered the implications of holding idle cash balance and few
took into account the potential benefit of investing surplus in marketable
securities. Those which did failed to consider the cost of administering such
investments.
xi. There has been wide variations overtime in the state of financial health of the
enterprises in terms of the composition of current assets and current liabilities
as revealed by the relevant financial ratios.
xii. Regression analysis revealed that there was little effect of the opportunity cost
of holding cash on the cash balances held by the enterprises. Neither interest
rate nor the rate of inflation had any effect on the cash balance. Further there
was very little evidence of the effect of economy of scale on cash balance
holding in most cases.
Further he recommended for developing appropriate strategies for cash
management. He stressed on cash planning and budgeting to cash project cash
surplus and cash deficit. Firm can accelerate the inflows as far as possible to
decelerate outflow. He also stressed to maintain optimum level of cash and at
last, it can be better to invest idle fund in marketable securities.
Chalise (2006) conducted the study on Cash management of NTC by using five years of
data from 2056/57 to 2060/61. The objective of his study was as follows:
“To observe devices of planning and control of cash in NTC, to examine the existing
internal control policy in NTC regarding cash control practices, to identify the shortage or
excess of cash in the company and the procedures of financing for the shortage and
investment of excess cash and to study the liquidity position of the company.“
Major findings of Chalise’s study is as follows
vi. Actual position of cash at the end of F/Y2056 / 2057 to F/Y 2059 / 2060 was
higher than approved budget cash balance. The deviation was insignificantly
decreasing which shows favourable trend although it is not satisfactory.
vii. The result of revision showed surplus position of cash. This shows that company
was not able to meet the target of budget. Moreover, when comparison is made in
between actual cash source and actual cash uses, there was big deviation resulting
ample surplus. So, it shows that budget was not implemented properly and surplus
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was not used in productive investment. It could have done even keeping required
level of closing cash balance in hand.
viii. When the closing balance cash is considered as source of budget, there was huge
amount of surplus in approved budget, revised budget and in actual performance of
budget. The degree of surplus was more in revised budget and actual performance
of budget than in approved budget. But the management of those surpluses was
lacking in the company.
ix. The analysis of variances in sources of cash depicts that the total actual sources of
cash in the years 2056/57 and 2058/59 was less than the approved budget sources
of cash.
x. There are strict provisions regarding cash handling in the company. The decision
making process will be lengthy due to compliance of time consuming rules and
procedure as prescribed. The Policy study shows that the company is still suffering
from centralization problem of management.
Similarly, Bhatta (2006) did another study on NTC where objectives were “to analyze the
gap between budgeted and actual revenue and its trend, to examine cash collection and
disbursement, to review cash flow from operating, financing and investing activities and
to have information, control and security over cash balances and payment system.
Major findings of his study are ad follows:
v. The lack of accurate and proper sales forecast is one of the important contains that
affect the financial performance of the company.
vi. Sales budget shows ISD sector’s sales revenue is main revenue sources of Nepal
Telecom, which contributes more than 40% in average.
vii. Correlation and coefficient value shows that there are positive correlation between
budgeted and actual sales units and Rs. By the regression line, it is clear that future
revenue will increase with compare to budgeted if other things remaining same.
viii. The collection of receivable from the customers in the company is very small
decreasing year by year. It denotes efficiency of Nepal Telecom to collect its
revenue in time. But A/R is low increasing in F/Y 2059/60. The decreasing trend
of average collection period has shown the improvement of credit management
and strict credit policy of the company.
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Rayamajhi, (2006) did study of cash management of Nepalese Commercial Banks. She
has studies cash management of 5 commercial banks i.e. Nabil Bank, Himalayan Bank
Ltd, Standard Chartered Bank Nepal Limited, Everest Bank Limited and Nepal SBI bank
Ltd. Her study mainly focused on over all cash management of selected bank with the
examination of their demand for cash. She also tried to focus and analyse the cash
disbursement needs, minimize funs committed to cash balance and access the credit
policy adopted in Nepalese commercial bank and their impact and relationship to each
other.
Her finding mainly revealed following things:
 Banks under study have the practice of preparing cash budget annually, monthly
and weekly with the help of ratio analysis, cash budget method, projected balance
sheet method and adjusted net income method. However, very few banks treated it
as formal document.
 The study showed that there has been no uniformity among the banks with regard
to cash balance, cash turnover, current ratio, account receivable, average collection
period, A/R to cash/bank balance, investment in cash/bank balance on current
assets and total assets, c cash/bank balance to current liabilities.
 Cash management in the banking sector of Nepal is primarily based on the
traditional practices, which lack in a scientific approach.
To the end, she had made some suggestion for the improvement of cash management
of selected commercial banks. She suggested to do cash planning and cash budgeting
in a formal basis so as to project cash surplus or cash deficit for a period not exceeding
one year and broken up into shorter intervals. Also she has suggested appointing cash
planning manager or experts to upgrade the current financial management skills. She
has also emphasised on paying much attention towards collection of account
receivable and decrease average collection period for effective cash management
Chataut (2008) has recently done research on NTC’s cash management. He has mainly
done research on shortage or excess of cash in the NTC. Also he tried to analyze the gap
between budgeted and actual sources of cash.
His major findings are as follows:
 The actual cash balances were higher than approved budgeted amounts. It shows
that there was no effective implication of budgeted amount.
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 Nepal Telecom prepared and approved deficit budget each year from 2056/2057 to
2061/2062. When opening balance was not included in source side of budget total
budgeted cash uses was always higher.
2.4 Research Gap

Most of the dissertation related to cash management has been reviewed. The
previous researchers had conducted their research on NTC only using financial tools. But
I have tried to analyse the effectiveness of Cash management of NTC using both financial
as well as statistical tools.
So, this study will be fruitful to those people who have invested in NTC or who are
interested to invest in NTC in future to know about cash position and cash management
of it.
Previous researchers focus only on the following points
 The study have the practice of preparing cash budget annually, monthly and
weekly with the help of ratio analysis, cash budget method, projected balance sheet
method and adjusted net income method. However, very few banks treated it as
formal document.
 It is showed that there has been no uniformity among the banks with regard to
cash balance, cash turnover, current ratio, account receivable, average collection
 The practice of preparing cash budget annually, monthly and weekly with the help
of ratio analysis, cash budget method, projected balance sheet method and adjusted
net income method. However, very few banks treated it as formal document.
 The study showed that there has been no uniformity among the banks with regard
to cash balance, cash turnover, current ratio, account receivable, average collection
 Cash management in the banking sector of Nepal is primarily based on the
traditional practices, which lack in a scientific approach
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CHAPTER III
RESEARCH METHODOLOGY
3.1 Introduction
Research methodology is a way to systematically solve the research problem. It
may be understood as a science of studying how research is done scientifically. It is
necessary for the researcher to know not only the research methods but also consider the
logic behind the methods we used in the contest of your research study and explain why
we are using a particular method or technique and why we are not using others so that
research results are capable of being evaluated either by the researcher himself or by
others. The study of research methodology gives the student the necessary training in
gathering materials and arranging them, participating in the field work which required,
and also training in techniques for collection of data appropriate to particular problems, in
the use of statistics, questionnaires and controlled experimentation and in recording
evidence, sorting it out and interpreting it.
This chapter tries to focus on different research methods, frameworks, tools and
conditions that will be used while conducting the study. Following are the major content
of research methodology in course of this dissertation.
3.2 Research Hypothesis

Quantities statement about population parameter is called a hypothesis. It is an
assumption that is made about population parameter and finally its validity is tested. The
act of verification involves testing the validity of such assumption which whom
undertaken on the basis of sample evidence is called statistical hypothesis. The hypothesis
formulation for this study is as follows:
1) Is there any significance correlation coefficient between cash balance and revenue ?
Null Hypothesis;
H0: p = 0, i.e. population correlation coefficient is zero. In other word cash balance and
revenue of NTC are uncorrelated.
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H1:p ≠ 0, The variables in population (cash balance & revenue) are correlated.
2) Is there any significance correlation coefficient between cash balance and Account
Receivable ?
Null Hypothesis;
H0: p = 0, i.e. population correlation coefficient is zero which means that the variables in
population i.e. cash balance and Account Receivable of NTC are not correlated.
3.3 Research Design

Research design is a broad plan for collecting and analysing data. It includes
methods that are used while collecting data, instruments that are used for doing research
and the sampling plan that are used for follow up.
A well settled research design is necessary to fulfil the objective of this study. It
means definite procedures and techniques are required that guide to study and advocate
for research viability. This study aims to evaluate managerial efficiency and performance
regarding cash management of NTC. Hence, descriptive as well as analytical research
designs have been used.
Descriptive research is essentially a fact finding approach relative largely to
present and abstracting generalization by the cross section study of the current situation.
Analytical approach is followed to parametric and non parametric test of data. It is
process of micro-analysis and appraisal to the data.
3.4 Nature and Sources of Data

For any research work, information and data plays vital role. Thus it is one of the
major tasks of research work. This study is based upon the secondary data. Data have
been mainly collected from following sources.
e. Published and unpublished document and annual reports of the company.
f. Journals, Government and non government publication
g. Supportive books of related topic.
h. Websites of related topic.
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3.5 Method of Data Analysis
To find out the true picture of cash management of NTC, different financial and
statistical tools are used. Some generalisation and assumption might also be made in the
course of preparation of report as demanded by the situation. The procedures of analyzing
data are described as follows.
3.5.1 Financial Tools and Techniques

Financial analysis is the process of identifying the financial strength and
weaknesses of the firm by properly establishing the relationship between the financial
figures. A widely used tool in financial analysis is ratio analysis however there are other
tools also.
3.5.1.1 Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of information in a
company’s financial statements. Ratios are calculated from current year numbers and are
then compared to previous years, other companies, the industry, or even the economy to
judge the performance of the company. Ratio analysis is predominately used to
proponents of fundamental analysis.
d. Liquidity Ratio
Liquidity ratio is used to find out firm’s ability to meet short term obligation. In other
words it helps to measure short term or current solvency of the firm. Under this, there
are two types of ratio.
ii. Current ratio may be defined as the ratio of current assets to current
liabilities. It is also known as working capital ratio or 2:1 ratio. It shows the
relationship between the total current assets and total current liabilities,
expressed as formula given below.
CurrentAss ets
Current ratio = CurrentLia bilities
Current assets mean cash or those assets convertible or expected to be

converted into cash within the accounting year and current liabilities are
those liabilities to be paid within the same time. Current assets normally
include items like cash in hand and at bank, marketable securities or readily
realizable investments, Bills receivable, book debts (excluding bad debts
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and provision), inventories and prepaid expenses. Current liabilities include
items such as Outstanding or Accrued Expenses, Sundry Creditors, Bills
Payable, Bank Overdraft, Provision for taxation, etc.
Liquid Ratio may be defined as the ratio of liquid assets to liquid
liabilities or current liabilities. It is concerned with the relationship between

liquid assets and liquid or current liabilities. The other terms used for liquid
ratio are ‘Quick ratio’ and ‘Acid test ratio’. For the purpose of computation,
the current assets and current liabilities could be classified as follows:
Current assets: (a) Liquid Assets and (b) Deferred Assets

Current Liabilities (a) Liquid Liabilities and (b) Deferred Liabilities
Establishing a simple rule that all assets and liabilities are liquid if they are
expected to be realized or paid within a month could make this
classification, otherwise they belong to ‘Deferred’ category. However, the
criterion for such classification depends upon the purpose for which the
liquid ratio is used.
Liquid assets normally include cash, bank, sundry debtors, bills receivable
and short-term investments or marketable securities. In other words, they
are current assets minus inventories and prepaid expenses. In the same
manner, liquid liabilities are current liabilities minus bank overdraft and
income received in advance.
LiquidAssets
Liquid ratio =
LiquidLiabiliites
e. Cash Position Analysis

Business needs cash for meeting its daily operating expenses and other cash
obligations. Therefore cash position should be looked into separately to highlight this
crucial business aspect. Cash means actual cash and bank balance extracted from
balance sheet of annual report.
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Current liabilities consist of account payable, current portion of long term loan, other
provision, pension fund and other short term liabilities. Total assets include net fixed
assets, investments and current assets except deferred charges.
 Absolute Cash Ratio is represented by cash and near cash items. Hence, in the
computation of this ratio, only absolute liquid assets are compared with liquid
liabilities. These assets normally include cash, bank and marketable securities. It is
to be observed that receivables are excluded from the list of liquid assets.
Cash  Bank  Marketable sec urities

Absolute Liquidity Ratio =
CurrentLiabiliites
The Cash Ratio should be at least 1.0 for any company, showing they can at least
pay their liabilities if they had to. An increasing Cash Ratio is a positive sign,
showing that the company is better able to cover its obligations to creditors.
 Cash to Current Assets Ratio measures the portion of a company's assets held in
cash or marketable securities. Although a high ratio may indicate some degree of
safety from a creditor's viewpoint, excess amounts of cash may be viewed as
inefficient.
Cash  Marketable sec urities

Cash to current assets ratio =
Currentassets
High or increasing Cash to Current Assets ratio is generally a positive sign,

showing the company's liquid assets represent a larger portion of its Total Current
Assets. It also indicates the company may be better able to convert its non-liquid
assets, such as inventory, into cash.
f. Cash Turnover Ratio

The ratio of cash in hand and at the bank to net sales is termed as cash turnover ratio
or cash velocity. The ratio indicates the efficient use of cash to generate sales. Cash
balance should be kept within reasonable limits just as debtor and stock. In theory,
the ideal ratio is said to be around 20.
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Sales
Cash turnover ratio =
Cash  BankBalances
A high ratio means relatively small amount of cash which is good because cash
involves holding cost. But if overdraft is there, it may not be advisable since interest
burden may wipe off the resources in due course of time. A lower ratio indicates
greater availability of cash which may remain idle in the business. However, too high
ratio is also dangerous, as it may be an index of overtrading i.e. doing business with
too little cash.
In the case of NTC, sales indicate total revenue of the year which is categorized as
total revenue from local telephone, domestic trunk telephone, international telephone,
domestic telegraph, international telegraph, international telex, leased circuits, telefax,
mobile & internet, interconnection, PCC card and others.
3.5.1.2 Actual Cash Flow Analysis

‘’Cash flow statement provides relevant information about the cash receipts and
cash payments of an enterprise during a period. Information about enterprise’s cash flows
is useful in assessing its liquidity, financial flexibility, profitability and risk.’’ (Fago,
Subedi, Gyawali, 2003:11.1)
In simplified term, cash flow statement shows the movement of cash in and out of
business. It also finds the reason for changes in balances of cash in hand and at bank as on
date to a next date, usually the accounting period. The main source of cash receipts and
channels of payment are found out and recorded in the cash flow statement.
3.5.2 Statistical Tools
Statistics starts with a problem, continues with the collection of data, proceeds with
the data analysis and finishes with conclusion. For data analysis and to get that analysis
in conclusion, here in this topic, five different statistical tools are used which are
mentioned below:
f. Trend Analysis
Trend analysis is useful in predicting the future events on the basis of past
tendencies. Trend analysis is based on assumption that the past tendency continues
125
in future. The future trend of any variable is forecasted by using following
equation.
Yc = a + bx
Where,
Yc = the dependent variable
a. = Y intercept
b = slope of the tendencies
x = year (with regard to data used in the study)
g. Correlation (r)
Correlation is a statistical technique which can show whether and how strongly pairs
of variables are related e.g. height and weight. ‘’In other words correlation may be
defined as degree of linear relationship existing between two or more variables. ‘’
(Sthapit, Gautam, Joshi, Dongol, 2003: 362)
It does not tell us anything about cause and effect relationship but it only helps in
determining the degree of relationship between two or more variables. ‘’In business,
correlation analysis enables the executive to estimate costs, sales price and other
variables. On the basis of some other series with which their costs, sales or prices
may be functionally related. Some of the guess work can be removed from decisions
when the relationship, between variables to be estimated and the one or more other
variable on which it depends are closed and reasonably in variant.’’(Gupta, 1983:103)
For the purpose of analysis of cash management of NTC, the correlation analysis is
used. In this topics it can be seen the correlation between dependent variable and
independent variable of cash management. The formula applied on the correlation is
as follows.

uv Where

r. = u=X– x
√u2 x √v2 v=Y- y
h. Standard Deviation
126
It is a measure of the mean distance of the data values from their mean. If the data
points are all close to the mean, then the standard deviation is low (closer to zero).
If many data points are very different from the mean, then the standard deviation is
high (further from zero). If all the data values are equal, then the standard
deviation will be zero. The standard deviation has no maximum value although it
is limited for most data sets.
SD =
 u2 SD =
 v2
N N
The standard deviation is also defined as the square root of the variance. This
means it is the root mean square (RMS) deviation from the arithmetic mean. The
standard deviation is always a positive number (or zero) and is always measured in
the same units as the original data. For example, if the data are distance
measurements in meters, the standard deviation will also be measured in meters.'
Where
2
0.6745(1-r ) r = the value of correlation coefficient
i. P.E.r. = n = number of pairs of observations
n
If 'r' is less than its PE, it is not all significant which means that there is no
evidence of correlation
If 'r' is more than its PE, it is significant which means that there is correlation.
If PE<r<6PE then nothing can be concluded.
j. Regression Analysis
’Regression analysis is used for explaining or modelling the relationship between a
single variable Y, called the response, output or dependent variable, and one or
more predictor, input, independent or explanatory variable i.e. X. In simple
regression, there will be only two variables. The main objective of regression
analysis is to predict or estimate the value of dependent variable corresponding to a
given value of independent variables.
For the analysis of cash management of NTC, simple regression analysis is
used to locate the relationship between total revenue on cash balance and net profit
on cash balance.
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CHAPTER IV
ANALYSIS AND PRESENTATION OF DATA
The basis objective of this study as stated in chapter one is to have true insight into cash
management of NTC. For this purpose, most recent published financial statements and
annual budget reports has been used. The data that are collected are tabulated and then
analyzed using different accounting and financial tools.
4.1 Analysis of data by Financial Tools

4.1.1 Liquidity Analysis
Liquidity ratios attempt to measure a firm’s ability to pay off its short-term debt
obligations. This is done by comparing a company’s most liquid assets (or, those that can
be easily converted to cash), its short-term liabilities.
In general, the greater the coverage of liquid assets to short-term liabilities the
better as it is a clear signal that company can pay its debts that are coming due in the near
future and still fund its ongoing operations. On the other hand, a firm with a low coverage
rate should raise a red flag for investors as it may be a sign that the company will have
difficulty meeting running its operations, as well as meeting its obligations.
The ratios that we’ll look at here are the current, quick and cash ratios.
C. Current Ratio
The current ratio is a popular financial ratio used to test a firm’s liquidity by
deriving the proportion of current assets available to cover current liabilities. The
concept behind this ratio is to ascertain whether a firm’s short term assets are readily
available to pay off its short-term liabilities. In theory, the higher the current ratio,
the better.
Stores & spare, sundry debtors, interest accrued, prepaid Exp/ Loans/ Adv. LC,
Advances/ Loans to Employees, Inter-branch Balance, Bank Balance & Cash is
included in current assets
Sundry creditors, interest accrued & due, others liabilities, deposit & advances and
provisions is included in current liability.
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Formula:
CurrentAssets
Current Ratio =
CurrentLiabilities
Analysis of Current Ratio of NTC
Table 18 Analysis of Current Ratio

Total Current Assets Total Current
Fiscal Year Rs. (‘000’) Liabilities Rs. (‘000’) Ratio CA/CL
2002/03 18424147 10137347 1.82
2003/04 20213763 12640965 1.60
2004/05 20598353 14722678 1.40
2005/06 22526522 15665379 1.44
2006/07 28648636 22199654 1.29
Average 1.51
Figure 17 Current Ratio
Figure No. 4.1: Figure showing Current Ratio
2.00
1.50
Ratio
1.00
0.50
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio CA/CL
The rule of thumb says that the current ratio should be at least 2, that is the current
assets should meet current liabilities at least twice.
Let’s see what does the calculated ratio in table 1 tells us. In 2002/03, the NTC had
1.82 rupees worth of current assets for every rupee of liabilities. Similarly in the
year 2004/05, this ratio was decreased and available current asset was 1.40 rupee for
ever rupee of liability. Decreasing trend was shown on liquidity in this study period
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with slight increment in ratio in the year 2005/06, which is 1.44. The ratio further
decreased and became 1.29 in the year 2006/07.
Looking after theoretical aspect, NTC could not fully support its short-term debt
from its currents assets as rule says that the current ratio should be at least 2. But
whether or not, a specific ratio is satisfactory depends on the nature of the business
and the characteristics of its current assets and liabilities. The minimum acceptable
current ratio is obviously 1:1, but that relationship is usually playing it too close for
comfort.
D. Quick Ratio
The quick ratio or the acid-test ratio is a liquidity indicator that further refines the
current ratio by measuring the amount of the most liquid assets there are to cover
current liabilities. The quick ratio is more conservative that the current ratio because
it excludes inventory and other current assets, which are more difficult to turn into
cash. Therefore, a higher ratio means a more liquid current position.
Stores & Spares and prepaid Exp. Loans/Adv/LC are deducted from current assets
that is written in table No. 1
Quick Ratio=
CurrentLiabilities
Analysis of Quick Ratio of NTC
Table 19 :Analysis of Quick Ratio

Total Quick Assets Rs. Total Current
Fiscal Year (‘000’) Liabilities Rs. (‘000’) Ratio CA/CL
2002/03 13571008 10137347 1.34

2003/04 13946011 12640965 1.10
2004/05 12958166 14722678 0.88
2005/06 15768952 15665379 1.01
2006/07 21176085 22199654 0.95
Average 1.06
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Figure 18 : Quick Ratio
Figure No.4.2: Figure Showing Quick Ratio
1.60
1.40
1.20
1.00
Ratio
0.80
0.60
0.40
0.20
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio CA/CL
The table 4.2 shows the position of highly liquid assets to meet the current liabilities
of the NTC. This ratio will be lower than the current ratio, but the difference
between the two will indicate the extent to which current assets consist of stock. In
the year 2002/03, current ratio was 1.34 which slowly decreased to 1.10 in the year
2003/04. Decrease in trend still continued and in the year 2004/05 quick ratio
become 0.88. Although ratio was in decreasing trend but quick assets were enough
to meet its current liabilities until 2003/04. Till this period NTC was maintaining
minimum generally acceptable ratio i.e. 1:1. But in the year 2004/05, ratio
drastically decreased to 0.88 meaning that NTC got weaker liquidity position than it
had before. But the year 2005/06 showed good performance in liquidity
maintenance, increasing current ratio to 1.01
4.1.2 Cash Position Analysis
c) Absolute Cash Ratio

CurrentLiabiliites
Table No: 4.3: Analysis of Absolute Cash Ratio of NTC

Rs. (‘000’)
Table 20 : Analysis of Absolute Cash Ratio

2002/03 11008439 10137347 1.09
2003/04 11755643 12640965 0.93
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2004/05 9574501 14722678 0.65
2005/06 12021625 15665379 0.77
2006/07 16165920 22199654 0.73
Average 0.83
Figure 19 : Absolute cash ratio
Figure No. 4.3: Figure Showing Absolute Cash

Ratio
1.20
1.00
0.80
Ratio
0.60
0.40
0.20
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio
Table No 4.3 shows the absolute cash ratio of NTC over the study period. In
the year 2002/03 absolute cash ratio of NTC was 1.09 which shows that company
was better able to cover its obligation to creditors. This ratio has decreased in the
year 2003/04 by 16%. There is to be noted that in the study period NTC did not
held any marketable securities. In the year after 2003/04, absolute cash ratio
started to decrease and became 0.65 in the year 2004/05. After 2004/05 ratio
slightly increase and became 0.77 and 0.73 in the year 2005/06 and 2006/07
respectively. We can not say the ratio which NTC maintained in the study period
was good or bad or enough as there is no industry standard and no rule of thumb.
d) Cash to Current Assets Ratio
Analysis of Cash to Current Assets Ratio of NTC
132
Table 21 : Cash to Current assets ratio
Fiscal Year (Cash + Bank) Balance Rs. Current Assets Ratio

(‘000’) Rs. (‘000’)
2002/03 10097738 18424147 0.55

2003/04 10780669 20213763 0.53
2004/05 9574501 20598353 0.46
2005/06 12021625 22526522 0.53
2006/07 16165920 28648636 0.56
Average 0.53
Figure 20: Cash to Current asset ratio
Figure No.4.4: Cash to Current Assets Ratio
0.60
0.50
0.40
Ratio
0.30
0.20
0.10
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Ratio
During 1st year of study period cash portion of current assets was more than 50% i.e.
cash to current assets ratio was 0.54. The ratio decreased in the year 2003/04 and
became 0.53. It further decreased in the year 2004/05 and cash portion of current
assets became less than 50% i.e. ratio became 0.46 in the year 2004/05. After this
year, this ratio gradually increased and became 0.53 in the year 2005/06 and 0.56 in
the year 2006/07. In this type of company, there is continues cash inflow and out
flow because of which cash to current assets ratio keeps on fluctuating. But it makes
no difference to company.
133
4.1.3 Cash Turnover Ratio
Cash turnover ratio indicates a firm's efficiency in its use of cash . Optimum balance
should maintain by the company to meet its current obligation in course of daily
business transaction. The cash turnover ratio explains how quickly cash is received
from the sales. A high cash turnover ratio represents sound liquidity and vice-versa.
However, too high ratio indicates excess cash balance being held idle.
Statement showing Cash Turnover Ratio
Table 22 :Cash Turnover Ratio

Fiscal Year Total Revenue Rs. Cash + Bank Balances Cash Turnover
(‘000’) Rs. (‘000’)
2002/03 7208087 10097738 0.71

2003/04 8312244 10780669 0.77
2004/05 8584144 9574501 0.90
2005/06 10413655 12021625 0.87
2006/07 14787475 16165920 0.91
Average 0.83
Figure 21: Cash Turnover Ratio
Figure No.4.5: Figure showing Cash Turnover

Ratio
1
0.9
0.8
0.7
0.6
Ratio
0.5
0.4
0.3
0.2
0.1
0
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Cash Turnover Ratio
134
Table No 4.5 shows cash turnover ratio of NTC for the period between 2002/03 to
2006/07. It is found that cash turn over ratio was in increasing trend starting from
0.71 in year 2002/03, 0.87 and 0.91 in the year 2005/06 and 2006/07 respectively. In
the study period NTC was able to utilize its cash in generating sales.
4.1.4 Actual Cash flow Analysis

“Cash flow statement provides information about the cash receipts and payments of a
firm for a given period. It provides important information that compliments the profit and
loss account and balance sheet. The information about the cash-flows of a firm is useful
in providing users or financial statements with a basis to assess the ability of the
enterprise to generate cash and cash equivalents and the needs of the enterprise to utilise
these cash flows. The economic decisions that are taken by users require an evaluation of
the ability of an enterprise to generate cash and cash equivalents and the timing and
certainty of their generation. The statement deals with the provision of information about
the historical changes in cash equivalents of an enterprise by means of a cash flow
statement which classifies cash flows during the period from operating, investing and
financing activities.’’ (Kishore, 2003)
Table No. 4.6: Calculation of Cash Flow from Operating Activities for the
Year Ended 2002/03 to 2006/07
Table 23 : Cash flow from operating activities

2002/03 2003/04 2004/05 2005/06 2006/07
Activities
tax 4093118353 4550667734 4921528988 6843726817 11298722582
Adjustment:
Depreciation 940224526 1027922573 1050485813 1196136319 1498861408
incentive 301638899 309211605 281711261 322040673 620118387
Interest on loan 3291470 696200 1107992 10303949
Bad debts 662011
bank deposit -419546350 -490270207 -463827650 -596837682 -822066146
135
Royalty 405266600 126574376 491301830 591807155 1007248557
capital change
Increase in account
receivable -562197346 135354808 -157001491 -273552303 -176215868
Payment of
Figure 22 : Cash from operating activities
Figure No:4.6 Actual Cash From Operating

Activities
12000000000
10000000000
8000000000
6000000000
4000000000 Cash
2000000000
0
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
136
Table No 4.6 represents the trend of net cash flow from operating major items. Operating
cash flow, often referred to as working capital, is the cash flow generated from internal
operations. In Nepal Telecom, cash from operating activities are generated from sales of
the product services. Operating profit before working capital includes adjustment,
depreciation, foreign exchange gain or loss provision for staff bonus, incentive, gratuity
and pension, provision for income tax, fixed assets written off, income from investment
and bank deposit and expenses on loss of goods. Net operating profit before tax is in
increasing trend i.e. Rs. 4093118358, 4550667734, 4921528988, 6843726817 and
11298722582 for F/Y 2002/03 to 2006/07 respectively.
From above analysis, it can be said that amount of operating profit before change in
working capital is in increasing trend for the study period. It is Rs. 5770827268 1 in F/Y
2002/03 and reached to Rs. 14015691282 in F/Y 2006/07.
Adjustment of working capital includes increase in A/R, increase in stock, increase /

decrease in interest accrued, increase in advance, branch account (adj), increase in
payables & payment of last year dividend, bonus, incentive, royalty, pension and working
capital changes.
By adjusting net operating profit before tax, operating profit before working capital
changes and working capital changes, we can get net cash flow from operating activities.
After the analysis, we can conclude that the operating cash flow is in increasing trend,
which is good sign for Nepal Telecom. It increases from Rs. 4070933619 to Rs.
10122030316. It is the real lifeblood of Nepal Telecom because it is generated internally
and it is under control of management. Furthermore, Nepal Telecom should monitor,
analyze and adjust its cash flow.
Similarly, the results of cash flow from investing activities are presented in given below
on table.
Calculation of cash flow from investing activities for the Year ended
2002/06 to 2006/07

Table 24 Cash from investing activities
2002/03 2003/04 2004/05 2005/06 2006/07
137
Cash Flow from Investing
Activities
Purchase of Fixed Assets -1768641894 -1549122679 -1997745812 -2243645653 -3048075299
Purchase of Investment
(Decrease in CWIP) -976527465 -41500006 -1075339893 15787272 -382629316
Increase in deffered
expenses -5320767 -42097104 -34287106 -3242822
Increase in Investment -383816890 55824025 -818214722 -3486326383
Sale of Investment 282500000
bank deposit 419546350 490270207 463827650 596837682 822066146
Net cash flow from
Investing Activities (b) -2043123009 -1489490135 -2595531134 -2483522527 -6098207674
-1000000000
-2000000000
Cash-3000000000
-4000000000
-5000000000
-6000000000
-7000000000
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Investing cash flow is generated internally from non – operating activities. This
component includes investments in plant and equipment or other fixed assets, non
recurring gains or losses, or other sources and used outside of normal operations.
Cash flow from financing activities was also in increasing trend except for the year
2003/04 which was very low than other study period. CFIA(cash from investing activities)
was negative through out the study period which shows that company has purchased more
assets and invested in fixed assets. CFIA has become fluctuating in the study period but it
has drastically increased in the year 2006/07. This was because NTC has spent huge
money in its new investment like installation of towers.
138
Table No. 4.8: Calculation of cash flow from Financing Activities
for the Year ended 2002/03 to 2006/07
Table 25 : Cash from Financing activities

2002/03 2003/04 2004/05 2005/06 2006/07
Cash Flow from
Financing Activities
Increase in Equity Share
Capital
Long term Borrowing 233906064
Repayment of long term
loan -300116190
Receipt in long term debt 11249585 24238654
Pymt of long term debt -233780333 -11249585 -24238654 -1191680000
Pymt of divident -496814035 -300000000 -433510216 -1499500000
Pymt of last year divident -92395927
Repayment of retained
earning to Nepal Govt -1000000000 - 2,900,000,000 -1611651503
Receipt of Share Capital 5000000
Capital Reserve Adjusted
to retained earnings -2318742
Net cash flow from
Financing Activities © ( 66,210,126) ( 1,109,541,895 ) (3,187,010,931) (2,071,719,115) (2,691,180,000)
Figure 23 Cash flow from financing activities
Figure No: 4.8 Actual Cash Flow from Financing Activities
-500000000
-1000000000
Cash
-1500000000
-2000000000
-2500000000
-3000000000
-3500000000
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Cash Flow from Financing Activities
Table no 4.8 shows cash flow from financing activities. Like NTC CFIA, its CFFA also
had negative cash flow. This means that company was paying its long term liabilities.
139
There was drastic increment in CFFA in the year 2003/04. It was because payment of
long term debt, payment of investment and repayment of retained earning to Nepal Govt
was 0 in the year 2002/03 which increased to 2 million, 4million and 1 billion
respectively in the year 2003/04. During the study period, CFFA was highest in the year
2004/05 which was because of repayment of retained earning to Nepal Govt which was 2
billion.
Company was paying back its loan and investing its fund simultaneously which become
possible because of retained earning.
Table No. 4.9: Calculation of actual cash flow for the Year ended
2002/03 to 2006/07
S
Table 26 : Actual cash Flow
Particulars 2002/03 2003/04 2004/05 2005/06 2006/07

CFOA 4070933619 4774587088 4827497506 6722360621 10122030316
- - - -
CFIA 2,043,123,009 1,489,490,135 2,595,531,134 2,483,522,527 - 6,098,207,674
-
CFFA -66210126 1,109,541,895 -3187010931 -2071719115 -2691180000
Net increment in cash
(a) + (b) + © 2017599085 9578049 -955044559 2167118979 1332642642
Cash at the beginning
of the year 8242138736 10548112205 10780669711 9574500796 14746337952
Foreign Exchange
Adjustment
Gain/(Loss) -162000231 222979457 -251124356 280005092 86939175
Cash at the end of the
year (I + ii + iii) 10,097,737,590 10,780,669,711 9,574,500,796 12,021,624,867 16,165,919,769
140
Figure 24 : Actual cash flow
Figure No. 4.9 Trend showing Cash Flow position from

Various Activites
12000000000
10000000000
8000000000
Amount in Rs.
6000000000
4000000000
2000000000
0
2002/03 2003/04 2004/05 2005/06 2006/07
-2000000000
Fiscal Year
CFOA CFIA CFFA
The table 4.9 indicates that net cash flow from operating activities is in increasing
trend. Similarly cash flow from financing activities is also in increasing trend. This
however is not in the case of cash flow from investment activities. There is erratic
fluctuation in the CFIA. By adding operating, investing and financing cash we can get net
increment in cash. After adjustment of beginning cash and foreign exchange gain or loss
with net increment in cash, we can reach on the closing cash balance, which is the cash
position of Nepal Telecom. Cash at the end of each study year is fluctuating. The closing
cash balance indicates whether Nepal Telecom has sufficient cash or not. The analysis
shows that Nepal Telecom has sufficient cash for its operation but it did not perfectly
followed cash flow management of avoiding extended cash shortage.
4.1.5 Cash Budget

Cash Budget is a detailed budget of cash inflows and outflows incorporating both
revenue and capital items.
A cash budget is thus a statement in which estimated future cash receipts and
payments are tabulated in such a way as to show the forecasted cash balance of a business
at defined intervals.
The cash budget is one of the most important planning tools that an organization can use.
It shows the cash effect of all plans made within the budgetary process and hence its
141
preparation can lead to a modification of budgets if it shows that there are insufficient
cash resources to finance the planned operations.
It can also give management an indication of the potential problems that could arise and
allows them the opportunity to take action to avoid such problems. The cash budget
typically consists of four major sections: (1) receipts section, which is the beginning cash
balance, cash collections from customers, and other receipts; (2) disbursement section
comprised of all cash payments made by purpose; (3) cash surplus or deficit section
showing the difference between cash receipts and cash payments; and (4) financing
section providing a detailed account of the borrowings and repayments expected during
the period.
4.1.5.1 Approved Cash Budget and Actual Cash
Table No. 4.10: Statement Showing Approved Cash Budget

and Actual Cash
Rs. (‘000’)
Table 27 : Cash Budget and Actual cash

Approved cash %
Budget Change
2002/03 5176317 10097737 4921420 48.74
2003/04 7375201 12417486 5042285 40.61
2004/05 5936374 9574500 3638126 38.00
2005/06 3399304 12021625 8622321 71.72
2006/07 6590307 14746338 8156031 55.31
142
Figure 25 : actual cash budget
Figure No: 4.10 Trend Line showing percentage

change in Approved and Actual Cash Budget
Deviation in % 80.00
60.00
40.00
20.00
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
% Change
Table 4.10 shows the approved cash budget and actual cash of NTC over the study period.
Analysis showed that actual cash balance is higher than approved budget which means
that budget has not been properly implemented. Highest deviation is found in the year
2005/06 which was due to improper planning. Overall cash balance of NTC fluctuated a
lot during study period.
4.1.5.2 Revised Cash Budget and Actual Cash
Table No. 4.11: Statement Showing Revised Cash Budget and

Actual Cash
Rs. (‘000’)
Table 28 : Revised Cash Budget and actual cash

%
Change
2002/03 9392113 10097737 705624 6.99
2003/04 10829362 12417486 1588124 12.79
2004/05 10655130 9574500 -1080630 -11.29
2005/06 8195242 12021625 3826383 31.83
2006/07 11030579 14746338 3715759 25.20
143
Figure 26 : Revised Cash budget and actual cash
Figure No: 4.11 Trend Line showing percentage change

in Revised Cash Budget and Actual Cash
40.00
30.00
Deviation in %
20.00
10.00
0.00
2002/03 2003/04 2004/05 2005/06 2006/07
-10.00
-20.00
Fiscal Year
% Change
Table 4.11 shows revised and actual cash budget of NTC for the period 2002-2008. Like
approved budget, this budget also has deviation but deviation is smaller. NTC revise its
budget in its last quarter. In the study period actual cash balance is higher than revised
budget except for the year 2004/05.
4.2 Analysis of data by Statistical tools
4.2.1 Trend Analysis

Trend Analysis is a study of a company's financial performance over an extended period
of time. It helps to understand overall financial performance over a period of time. The
analysis involves searching for a right trend equation that will suitably describe trend of
the data series. The trend may be linear, or it may not. A linear trend can be obtained by
using a least-squares method .
Table No. 4.12: Trend Analysis of Cash Balance of NTC by

Least Square Method
Rs. (‘000000’)
Source: Audited Balance Sheet of NTC (2002-2008)
Table 29 : Trend analysis

Fiscal Year Cash/Balance x x2 xy
144
(x) Balance (y)
2002/03 10097 -2 4 -16484
2003/04 10780 -1 1 -10087
2004/05 9574 0 0 0
2005/06 12021 1 1 9574
2006/07 16165 2 4 24042
 y  58637 0  x2 =10  xy  13377
Figure No: 4.12 Trend Line showing Cash Balance
12000
Cash Balanc
10000
8000
6000
4000
2000
0
2002/03 2003/04 2004/05 2005/06 2006/07
Fiscal Year
Cash + Bank Balances

e
X= Time
Y= Cash Balance
N= Number of observation
Straight Line trend (Yc) = a + bx
145
a= y =
58637
= 11727.4
N 5
b=
 xy =
13377
= 2675.4
N 10
(Yc)= 11727.4 + 2675.4x
This tend line shows the positive figure of cash balance for future. The annual rate of
increment of cash balance is seemed to be 2675.4 x 100000= 267540000.
4.2.2 Correlation Coefficient & Regression Analysis
A correlation coefficient is a numerical, descriptive measure of the strength of the linear

relationship between two variables. Values for the correlation coefficient range between -1 and
+1, with a correlation coefficient of +1 indicating that the two variables have a perfect, upward-
sloping (+) linear relationship and a correlation coefficient of -1 showing that the two variables
are perfectly related in a downward-sloping, (-) linear sense. A correlation coefficient of 0
demonstrates that the variables have no relationship, and are independent. A correlation
coefficient is determined through statistical analysis of sample data as it is fitted to a modelled
linear equation.
Regression Analysis is a statistical technique used to find relationships between variables for
the purpose of predicting future values. In other words regression analysis is a collective name
for techniques for the modeling and analysis of numerical data consisting of values of a
dependent variable and of one or more.
4.2.2.1 Between Cash and Revenue of Nepal Telecomm
Correlation (r) Between Cash Balance and Revenue

Rs.(‘000000)
Table 30 : Correlation Between Cash and Revenue
Year Cash Balance Revenue u=x- v=y- U2 V2 uv

11727.4 10261
(x) (y)
2002/03 10097 7209 -1630.4 -3052 2658204.16 9314704 4975980.8
2003/04 10780 8312 -947.4 -1949 897566.76 3798601 1846482.6
2004/05 9574 8584 2153.4 -1677 4637131.56 2812329 36112513.8
146
2005/06 12021 10413 293.6 152 86200.96 23104 44627.2
2006/07 16165 16787 -4437.6 6526 19692293.76 42588676 28959777.6
Total
 x  58637  y  51305 0 0 27971397.2 58537414 39438120
x=
 x = 58637 =11727.4
N 5
y =
y= 51305
=10261
N 5
u=x - x v=y - y
x = u 2
=
27971397.2
= 2365.2
N 5
y = v 2
=
58537414
= 3421.6
N 5
Since,
x y
Mean 11727.4 10261
SD 2365.2 3421.6
To find out the correlation between revenue and cash balance Karl Pearson’s
Coefficient of Correlation (r) is determined. By calculating ‘r’ we can examine,
whether or not cash balance will be changed in the same direction of the change in
revenue. For this purpose revenue (y) are assumed to be independent variables and
cash balance (x) are assumed to be dependent variables. It is assumed that revenue will
increases as cash increases or vice-versa. It means there should be positive correlation
between cash balance and actual sales.
147
rxy =
 uv =
39438120
= 0.97
u v2 2
27971397.2 x58537414
The value of ‘r’ shows that there are highly positive correlation between cash and revenue.
It means the test of significance of the value of r shows that there is highly significant
relationship between cash and revenue. The significance of r can be tested by the
probable error of r.
0.6745(1  r 2 ) 0.6745(1  0.97 * 0.97)

P.E (r) = = = 0.017
N 5
From we have probable error of ‘r’ = 0.017. Since r>6P.E. (r) the value of r is significant
i.e. there is evidence of correlation between sales and revenue.
A regression line can also be fitted to show the degree of relationship between the cash
balance and revenue. Cash balance can be forecasted by the value of sales revenue. For
this purpose cash and bank balance and revenue has been assumed interrelated economic
variables. So, the regression line of revenue (x) on cash balance (y) is
X
x -x = r y- y
Y
Since, x y
Mean 11727.4 10261
SD 2365.2 3421.6
rxy = 0.97
148
2365.2
X – 11727.4 =0.97 (Y-10261)
3421.6
X – 11724.4 = 0.674y -6874.87
X = 4849.53 + 0.674y
This equation shows that revenue will be increased by 0.67 per unit.
4.2.2.1 Cash and Account Receivable of Nepal Telecomm
Correlation (r) between Cash balance and Account Receivable of NTC for the study
period
Rs. (‘000000’)
Table 31 : Correlation Between cash balance and account receivable
Year Account Cash

Receivable Balance y=y-
(x) (y) u=x-3572.8 11727.4 u2 v2 uv
2002/03 3030 10097 -542.8 -1630.4 294631.84 2658204.16 884981.12
2003/04 5279 10780 5279 -947.4 27867841 897566.76 -5001324.6
2004/05 2825 9574 2825 -2153.4 7980625 4637131.56 -6083355
2005/06 3099 12021 3099 293.6 9603801 86200.96 909866.4
2006/07 3631 16165 3631 4437.6 13184161 19692293.76 16112925.6
Total 17864 58637 0 0 58931060 27971397.2 6823093.52
x =
 x = 17864 =3572.80
N 5
y=
 y = 58637 =11727.4
N 5
u=x - x v=y - y
x =
u 2
=
58931060
= 3433.1
N 5
149
y =
v 2
=
27971397.2
= 2365.22
N 5
Since,
x y
Mean 10142.8 11727.4
SD 3433.1 2365.22
Again, Karl Pearson’s Coefficient of Correlation (r) is used to determined value of r.

By calculating ‘r’ we can examine, whether or not cash balance will be changed in the
same direction of the change in account receivable. For this purpose A/R (y) are
assumed to be dependent variables and cash balance (x) are assumed to be independent
variables. It is assumed that A/R will increases as cash increases or vice-versa. It
means there should be positive correlation between cash balance and account
receivable.
rxy =
 uv =
6823093.52
=
6823093.52
=0.16
v u2 2
27971397.2 x58931060 40600296.49
The value of r shows that there is low degree of positive correlation between the cash and
account receivable. We may therefore, conclude that the actual cash will change in the
same direction as account receivable changes. The significance of r can be tested by the
probable error of r.
0.6745(1  r 2 ) 0.6745(1  0.16)

P.E (r) = = = 0.29
N 5
We have probable error of ‘r’ = 0.16. Since r<6 P.E. (r), the value of r is not significant.
A regression line can also be fitted to show the degree of relationship between the cash
balance and A/R. Cash balance can be forecasted by the value of A/R. For this purpose
cash and bank balance and A/R has been assumed interrelated economic variables. So, the
regression line of A/R (x) on cash balance (y) is
150
X
x -x = r y- y
Y
Since,
x y
Mean 10142.8 11727.4
SD 3433.1 2365.22
rxy = 0.16
3433.1
X – 10142.8 = 0.16 (Y-11727.4)
2365.22
X – 10142.8 = 0.11(Y-11727.4)
X = 0.11y +10142.8-11727.4
X =- 1574.6+0.11y
Thus, for unit increase in cash, A/R increases by 0.11 per unit.
4.2.2.1 Cash Collection Technique of NTC
Nepal Telecom is using following technique for cash collection:–
A) Direct Cash Collection:– This is the system which is providing services, direct sales
through office that is direct cash collection. Registation fee, SMS charge, Service fee &
salling of recharge card fee are collected in center, regional offices of NTC. Collected
cash is deposited day by day in Bank account.
B) Cash Collection through Bank
Nepal Telecom has been started online Bill payment through Bank. PSTN
Telephone Bill can payment by online through NMB Bank, Machhapuchchre Bank,
Laxmi Bank, Bank of Kathmandu, Nepal Investment Bank Ltd. & Bank of Asia Nepal
Ltd.
151
4.3 Analysis of Hypothesis
We know that hypothesis is quantities statement about population parameter. It is
an assumption that is made about population parameter and finally its validity is tested.
The act of verification involves testing the validity of such assumption which whom
undertaken on the basis of sample evidence is called statistical hypothesis.
Correlation (r) between Cash balance and Account Receivable of NTC for the study
period
Rs. (‘000000’)
Table 32 : Table for hypothesis Test
Year Account Cash

Receivable Balance y=y-
(x) (y) u=x-3572.8 11727.4 u2 v2 uv
2002/03 3030 10097 -542.8 -1630.4 294631.84 2658204.16 884981.12
2003/04 5279 10780 5279 -947.4 27867841 897566.76 -5001324.6
2004/05 2825 9574 2825 -2153.4 7980625 4637131.56 -6083355
2005/06 3099 12021 3099 293.6 9603801 86200.96 909866.4
2006/07 3631 16165 3631 4437.6 13184161 19692293.76 16112925.6
Total 17864 58637 0 0 58931060 27971397.2 6823093.52
x =
 x = 17864 =3572.80 y=
 y = 58637 =11727.4 u=x - x v=y - y
N 5 N 5
x =
u 2
=
58931060
= 3433.1 y =
v 2
=
27971397.2
= 2365.22
N 5 N 5
Since, x y
Mean 10142.8 11727.4
SD 3433.1 2365.22
Again, Karl Pearson’s Coefficient of Correlation (r) is used to determined value of r.

By calculating ‘r’ we can examine, whether or not cash balance will be changed in the
same direction of the change in account receivable. For this purpose A/R (y) are
152
assumed to be dependent variables and cash balance (x) are assumed to be independent
variables. It is assumed that A/R will increases as cash increases or vice-versa. It
means there should be positive correlation between cash balance and account
receivable.
rxy =
 uv =
6823093.52
=
6823093.52
=0.16
v u2 2
27971397.2 x58931060 40600296.49
let focus on Alternative Hypothesis once again

Here correlation coefficient between cash balance and revenue (rxy) = 0.16
As mentioned above the hypothesis is done on the base of coefficient correlation between
cash and revenue. Correlation coefficient between cash balance and revenue(account
receivable) is 0.16 so alternate hypothesis is accepted that means correlation between
cash and revenue (account receivable) is correlated .
4.3 Major Findings

 Current Ratio of NTC through out the study period was in decreasing trend
with the average ratio of 1.65. In the 1st three year of study period, current ratio
was above average ratio and the last two year of study period, it was below the
average ratio. The data reveal that NTC have current ratio less that two in the
study period indicating that there is cash shortage and poor management of
cash. This was especially critical in the 5th year of the study.
 Quick ratio of NTC was 1.06 on an average for the study period. The ratio was
in decreasing trend. Although ratio was in decreasing trend but was not below 1
except for 4th and 5th year
It is not uncommon for a quick ratio to be under 1, with number between 0.8
and 1.0 most common. Ratio lower than 0.8 might indicate that company is
running short on its available cash, which could create problem soon after the
purchase.
153
 The Absolute cash ratio for the five years was 0.83 on an average. The ratio
was in decreasing trend. It was found that cash position of company was bit
weak over the study period but was worst in the year 2004/05. In the 1st two
year of study, cash was almost sufficient to pay its current liabilities but in later
years it was not. So it shows that cash was not managed properly.
 Average cash to current assets ratio is 0.53. This indicated that 53% of current
assets comprises of cash which shows good liquidity position of NTC.
 The above analysis of cash turnover of NTC revealed that there is no any fixed
trend of cash turnover over the study period. Cash turn over ratio was 0.83 on
an average. This indicates that NTC is unable to utilize its idle cash in
generating revenue. The company’s position of liquid cash that remained idle
was too high. So there was lack of proper management of idle cash in the
company towards profitable sector which could have yield more revenue.
 Table 10 has shown the summary of cash flow from operating, financing and
investment activities. Cash at the end of each year of study period is in
increasing trend which shows good position of cash in NTC.
 Cash budget of the study period showed that there is high deviation in budgeted
and actual cash budget. It shows that there was no effective implication of
budgeted amount and also shows improper planning of cash. Had there been a
proper planning of cash, deviation would have been minimum and cash
available would have been utilised in effective and productive way. NTC
always revise its budget in last quarter of its fiscal year. There is still deviation
in revised and actual cash balance which is shown by table no 4.12. Actual cash
balances were higher than revised budgeted cash however deviation of revised
and cash budget was insignificant.
 Correlation coefficient between cash balance and revenue of NTC found to be
highly positive. Cash balance & revenue of NTC are correlated. This means
when revenue increases cash balance will increase or vice versa.
 There is low degree of correlation between cash and A/R receivable. Cash
balance & Account receivable of NTC are correlated. The actual cash will
change in the same direction as account receivable changes.
 NTC is using direct cash collection & cash collection through Bank technique.
154
CHAPTER V
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
Since the establishment of Nepal Telecommunication Corporation, it is providing
reliable and affordable telecommunication services to the Nation. Nepal
Telecommunication Corporation was dissolves and converted to Nepal Telecom from 1st
Baisakh 2061. It was registered under company act 2053; the privatization of Nepal
Telecom should be beneficial to company. Nepal Telecom’s vast telecommunications
networks play a key role in supporting the growth of business in the information
technology field. It has been enjoying monopoly in telecommunication sector since last
three decades but this monopoly has broken down with the establishment of UTL and
Spice Nepal(N Cell) now a days.
Now to compete with market, NTC has to do best in every aspect of its transaction.
One of its aspects of NTC’s transaction is cash management. The study focuses on the
specific aspects of the cash management practices of Nepal Telecom Company. Cash
management involves planning to controlling activities of the cash and near cash items.
As stated in the introduction chapter, the objective of the study are to observe the
liquidity position of NTC, review cash flow from operating, financing and investing
activities and to analyse the cash collection and disbursement of NTC.
Review to related literature and previous studies have been done in the second
chapter. Tools and techniques, which was implemented in fourth chapter has been
described in chapter three. Fourth chapter includes presentation and analysis of data.
Hence an effort has been made in this chapter to present major finding on specific aspect
of cash management practices of Nepal Telecom.
5.2 Conclusion
Analysis of current ratio showed that average ratio of NTC is 1.51 which is below
traditional current ratio i.e. 2. This means that company will not be fully meet it short
term obligation. However being service industry it is not necessary for NTC to have
current ratio equals to 2.
155
Analysis of quick ratio showed that NTC is able to maintain minimum acceptable
liquidity ratio i.e. 1:1. This means that NTC has enough cash to pay current obligation of
the firm.
Cash and bank balance with respect to current assets has been in fluctuating trend.
On an average, 50% of current assets consist of cash which shows the greater safety of
funds of short-term creditors.
Cash flow statement of NTC showed that company was able to collect more cash
from different sources. It shows good position of actual cash collection of the company.
On the other hand, company did not spend cash as it targeted. Due to these facts, there
was enough surplus cash in hand every year. If company could have managed these
surpluses in the productive sector then it could have yield more returns to company.
Cash Budget of NTC showed that there is high deviation in Budgeted and actual
cash balance. This shows the improper planning of Budget. Also it showed that only total
internal sources are not enough for NTC to meet it operating and non operating
expenditure. So NTC took loan from external sources. But this however was not required
as there is always surplus cash held by NTC.
5.3 Recommendation
Cash management is one the important elements of overall management area
which is interrelated and integrated with economic planning and controlling of
management. Financial efficiency is important for achieving the goal of any business
enterprises.
On the basis of the study considering target objective, following recommendations
are given for healthy financial performance and better cash management of the company.
 Company’s liquidity is satisfactory. However, it is important for the company to
estimate how much fund is necessary to maintain liquidity position and to invest
the surplus cash funds in marketable securities or profitable opportunities to
generate some income. Its seems the quick ratio is in smooth and good. so the the
company should focus to maintain current assets to get the ratio at least 2 .
 Appropriate investment policy for surplus cash: On the basis of study, there seems
enough cash surplus than it was required. So there must be appropriate policy and
strategies to use or to invest that surplus cash in profitable sector. Like, it could use
in marketable securities or bonds or hydropower sectors.
156
 NTC should have proper cash planning to estimate the cash receipts and payments
which helps to control the efficient management of cash. Similarly, Nepal Telecom
should analyze various cash management techniques and models so that it can
predict the optimal cash balance. For example direct cash collection & cash
collection through bank techniques and Baumol’s model or Miller –orr model of
cash management. Baumol approach to determine the level of cash balances based
on Economic Order Quantity of early inventory model. it assumes that the firm
faces fixed cash inflow and outflow patterns and sought to minimize the cost of
holding cash necessary for its transaction. The ratio of total outlays including tax,
and dividend payments but excluded capital expenditures debt retirement and
securities purchases from year end cash holdings. According to it, the cost of
holding money is much less for large firms that for small firms. So this kind of
technique should be followed.
 Preparation of realistic budget: while preparing budget company should analyze

the actual past data and present needs of the programs applying systematic and
scientific method of data analysis. Actual total uses of budget amount were not
matching with budgeted target for expenses purpose.
 Use internal source in full capacity: Internal source is sufficient to finance whole
budgeted expenses of the company. It should not borrow loan from foreign
institution because it involves cost. Because there is enough internal source. and
internal fund is possible to invest for internal improvement.
 NTC have good liquidity position in study period so it should also maintain in
coming year. But it must try to maintain the current ratio to 2 and should keep up
the quick ratio.
 NTC should require giving quality services to customers by effective managing

cash. Quick and effective methods should follow where there shouldn't be any
chance to wait customer to in queue to pay the bill.
157
 NTC should need to analyze the mail float, processing float, transit float &
disbursement float in money collection & disbursement.
 NTC should minimize the deviation of revised budget & actual cash balance for
earning more profit.
 NTC should require making reduced cash balance plan amount for each next
yearly increment revenue and account receivable because Cash balance & revenue
& Account receivable of NTC are correlated
 NTC should provide facility to deduct the cash directly from the account of
customer account directly. they can keep the relation with different local banks and
give the facility to customer
 NTC has to adapt a new technology for the cash management which is
suitable for the Neplese perspective. All the part of Nepal are not fully
developed . Nepal is landlocked country with agro-based economy. The
country is divided into three parts (i.e. Mountains, Hills, Terai region) with
its geographical nature. Nepal is one of the least developed and very poor
country in the world. More than 90 % of the people are still in rural areas
and most of them are deprived minimum physical facilities, which is
necessary for human being. Agriculture is still the backbone of Nepalese
economy. Economy development is not possible with out agriculture
development. National planning commission has given more emphasis to
this sector. But the real picture of this sector is very poor. This is because
Nepal has not been able to provide basic facilities to the farmers like
irrigation, electricity and transportation. So this company should focus on
this should get credit through social services also.
158
BIBLIOGRAPHY
Books and Journals

Bhusan, Y.K. (1976); Fundamentals of Business Origination and Management, (Sultan Chand and Sons
Publisher, New Delhi) 8th Edition,
Fern ends Dray, (1982): Central System For Public Enterprise in Developing Countries, ICPE,
Garrison, Ray H.(1985); Management Accounting Concept For Planning Control and Decision
Making,(Business Publication Inc.,Plano,Taxes,4th Ed.,).
Armstrong, J. Scott (1978); Long Range Forecasting From Crystal Bill to computer (New York.)
Bajarachary, Puskar Opt Cit pp 3
Joel, Dean (1992); Managerial Economics, (Prentice Hall of India Pvt. Ltd.,).
Kulkarni, P.V.,(1992); Financial Management, (Himalayan Publishing House, Bombay. 4th Edition,).
Memorial, C.B.,(1990) ; Personnel Management, (7th Edition, ).
Pandey, I.M.(1999); Financial Management, (7th Edition, Printed at Godson Paper Ltd., Maida).
Sultan, C.F.,(1953) Business Forecasting, A Paper Present at the 24th National Conference, Held at London
th
Terry, George R., Principle of Management, 5 Edition.
Van Horne James C.,(1976); Financial Management and Policy, (Prentice Hall of India Pvt. Ltd., 8th
Edition, ).
William B. Pierce,(1978); ‘International Telecommunication’, Seminar on Rural Telecom, (New Delhi, 11-22
Sep.).
Willsenore, A.W., Business Budgets and Budgeting Control, Edition London.
Wolf Howard K. and, Prem Raj, (1975); Social Science Research and Thesis Writing, (University Press, T.U.,
Kathmandu).
Gupta, S. P. (1989). Statistical Methods. New Delhi: Sultan Chand & Sons
Khan, M.Y, & Jain, P. K. (2003). Financial Management. New Delhi: Tata Mc Graw-Hill Publishing
Company Ltd
Orgler, Y.E. (1970). Cash Management Method and Model. California: Wands worth Publishing
Company
Friedman, M (1959). The Demand for Money: Some Theoretical Empirical Results. The Journal of
Political Economy. VOL LXVII. pp. 327-351
Pradhan, R. S. (2004). Financial Management. Kathmandu: Buddha Academic Publishers and distributer
Pvt. Ltd
Pradhan, S. (2002). Basics of Financial Management. Kathmandu: Educational Enterprise (P) Ltd
Saksena, R. M. (1974). Towards More Efficient Cash Management. Kathmandu: Nepal Journal of
Management, quarterly no .5
Sthapit, A.B., Gautam, H., Joshi, P. R., & Dangol, P.M. (2003). Statistical Methods. Kathmandu: Buddha
Academic Publishers and Distributors Pvt Ltd
Van H., & James, C. (2003). Fundamentals of Financial Management. USA: Prentice Hall Inc.
Dissertations
Bhatt, L. R (2006). Revenue Planning and Cash Management of Public Utility of Nepal (A case study
of Nepal Telecom. An unpublished Master Degree Thesis, submitted to faculty of management,
Tribhuvan University
Chalise, P. (2006). Cash Management of Nepal Telecommunication. An unpublished Master Degree

Thesis, submitted to faculty of management, Tribhuvan University
159
Chataut, B. R. (2008). A study on Cash Management in Nepal Telecom. An unpublished Master
Degree Thesis, submitted to faculty of management, Tribhuvan University
Rayamajhi, D. (2006). Cash Management of Nepalese Commercial Banks. An unpublished Master

Degree Thesis, submitted to faculty of management, Tribhuvan University
Schabacker, J. C. (1989). A Study of Cash Planning in Small Manufacturing Companies. Los Angeles:
An unpublished dissertation completed at the University of California
Bajracharya, S. L. (1990). Cash Management in Nepalese Public Enterprises. New Delhi: An

unpublished PHD Thesis submitted to University of Delhi
WEBSITES
www.ntc.net.np
www.nepjol.info
www.ebscohost.com/titlelists/bu-journals.pdf
www.allbusiness.com/accounting-reporting/cash-flow-management-cash-statement/737-1.html
www.answers.com/topic/cash-management?cat=biz-fin
www.books.google.com/books
www.jstor.org
www.referenceforbusiness.com
www.sbinfocanada.about.com/cs/management/g/cashflowmgt.htm
www.stat.lsa.umich.edu/~faraway/book/
www.studyfinance.com/lessons/workcap/index.mv?page=01
www.surveysystem.com/correlation.htm
www.tscpa.com
www.ntc.net.np
160
APPENDEX –1
Calculation of Ratio
Calculation of Current Ratio of NTC
Rs. (‘000’)
Total Current
Fiscal Year Total Current Assets Liabilities Ratio CA/CL
2002/03 18424147 10137347 1.82
2003/04 20213763 12640965 1.60
2004/05 20598353 14722678 1.40
2005/06 22526522 15665379 1.44
2006/07 28648636 22199654 1.29
Average 1.51
Source: NTC Annual Report 2008
CurrentAssets
Current Ratio =
CurrentLiabilities
Current Ratio(02/03)= 18424147/10137347 = 1.82
Current Ratio(03/04)= 20213763/12640965 = 1.60 and so on.
Calculation of Quick Ratio of NTC
Rs. (‘000’)
Total Current
Fiscal Year Total Quick Assets Ratio CA/CL
Liabilities
2002/03 13571008 10137347 1.34

2003/04 13946011 12640965 1.10
2004/05 12958166 14722678 0.88
2005/06 15768952 15665379 1.01
2006/07 21176085 22199654 0.95
Average 1.06
Quick Ratio=
CurrentLiabilities
Here, Quick Ratio(02/03) = 13571008/10137347 = 1.34 and so on
Calculation of Absolute Cash Ratio of NTC
Rs. (‘000’)
161
2002/03 11008439 10137347 1.09
2003/04 11755643 12640965 0.93
2004/05 9574501 14722678 0.65
2005/06 12021625 15665379 0.77
2006/07 16165920 22199654 0.73
Average 0.83

CurrentLia biliites
Absolute cash ratio(02/03) = 11008439/10137347 = 1.09 and so on
Calculation of Cash to Current Assets Ratio of NTC

Rs. (‘000’)
Fiscal Year (Cash + Bank) Balance Current Assets Ratio
2002/03 10097738 18424147 0.55

2003/04 10780669 20213763 0.53
2004/05 9574501 20598353 0.46
2005/06 12021625 22526522 0.53
2006/07 16165920 28648636 0.56
Average 0.53
Cash to Current Assets Ratio = (Cash+Bank) balance/Current Assests

= 10097738/18424147 = 0.55 and so on
Calculation of Cash Turnover Ratio
Rs. (‘000’)
Fiscal Year Total Revenue Cash + Bank Balances Cash Turnover
2002/03 7208087 10097738 0.71

2003/04 8312244 10780669 0.77
2004/05 8584144 9574501 0.90
2005/06 10413655 12021625 0.87
2006/07 14787475 16165920 0.91
Average 0.83
Cash Turnover Ratio(02/03) = (Total Revenue)/(Cash+ Bank) Balances

= 7208087/10097738 = 0.71 and so on
162
PPENDEX –2
Calculation of Cash Flow from Operating Activities for theYear Ended 2002/03 to
2006/07
2002/03 2003/04 2004/05 2005/06 2006/07

Activities
tax 4093118353 4550667734 4921528988 6843726817 11298722582
Adjustment:
Depreciation 940224526 1027922573 1050485813 1196136319 1498861408
incentive 301638899 309211605 281711261 322040673 620118387
Interest on loan 3291470 696200 1107992 10303949
Bad debts 662011
bank deposit -419546350 -490270207 -463827650 -596837682 -822066146
Royalty 405266600 126574376 491301830 591807155 1007248557
capital change
Increase in account
receivable -562197346 135354808 -157001491 -273552303 -176215868
Payment of
163
APPENDEX –3
Calculation of Deviation & Percentage Change
Approved Cash Budget and Actual Cash
Rs. (‘000’)
Approved cash %
Budget Change
2002/03 5176317 10097737 4921420 48.74
2003/04 7375201 12417486 5042285 40.61
2004/05 5936374 9574500 3638126 38.00
2005/06 3399304 12021625 8622321 71.72
2006/07 6590307 14746338 8156031 55.31

Source: Budget and Policy Program (2002-2008)
Here,
Deviation = Actual Cash-Approved Cash Budget = (10097737-5176317)
= 4921420 and so on
And % change = Deviation/Actual Cash x 100 = 4921420/10097737 x 100 = 48.74
And so on
Revised Cash Budget and Actual Cash

Rs. (‘000’)
%
Change
2002/03 9392113 10097737 705624 6.99
2003/04 10829362 12417486 1588124 12.79
2004/05 10655130 9574500 -1080630 -11.29
2005/06 8195242 12021625 3826383 31.83
2006/07 11030579 14746338 3715759 25.20

Source: Budget and Policy Program (2002-2008)
Here,
Deviation = Actual -Revised Budget = (10097737-9392113)
= 705624 and so on
And % change = Deviation/Actual x 100 = 705624/10097737 x 100 = 6.99
And so on
164

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A STUDY ON

CASH MANAGEMENT IN NTC

A Master’s Degree Thesis

This is to certify that the thesis submitted by

Santosh Kumar Neupane

Cash Management in NTC

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

(Mr. Uddhav Sapkota) Campus Chief

(Mr. Jayaram Devkota)

In partial fulfilment of the requirement of the degree of

Date: Santosh Kumar Neupane

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

Viva- Voce Committee:

Santosh Kumar Neupane

As said earlier, one of the main reasons for poor performance on

1.2.1 Introduction of Nepal Telecommunication Corporation

Definitely Nepal Telecom's widespread reach will assist in the socio-economic

Nepal Telecom Board established in October 1969 was converted to Nepal

a) Role of Nepal Telecommunication Corporation

b) Service Provided by NTC

c) Milestones Data of NTC

Deputy General Manager (Intes Audit and Inspection) NTC.

Table 1 Director at present time 2067 ashad

CORPORATE OFFICE FIELD OFFICE REGIONAL DIRECTORATE

DMD - Finance Director Director - CRD, Birgunj

Director - ERD, Biratnagar

DMD, Internal Audit

Deputy General Deputy General

Operation & Maintenance

As said earlier, one of the main reasons for poor performance on

1.4 Objective of the Study

1.5 Significance of the Study

1.6 Limitations of the Study

1.7 Organization of the Study

2.1.1 Meaning of Cash Management

2.1.2 Principles of Cash Management

2.1.3 Techniques/Processes of Cash Management

 Lock Box System

2.1.4 Factors Determining Cash Needs

2.1.4.2 Short Costs

Another general factor to be considered in determining cash need is the

2.1.4.4 Procurement and Management

2.1.4.5 Uncertainty and Cash Management

Finally, the impact of uncertainty of cash management strategy is also

2.1.5 Motives of Holding Cash

2.1.5.1 Transactions Motive

Firms are in existence to create products or provide services. The

2.1.5.2 Precautionary Motive

Besides anticipated cash needs, sometimes firm gets unexpected cash

2.1.5.3 Speculative Motive

2.1.5.4 Compensation Motive

2.1.6 Objectives of Cash Management

The main objectives of cash management are to determine the optimal

The objectives of cash management are straightforward – maximise

2.1.4 Determining the Optimum Cash Balance

2.1.5 Cash Management Models

Figure 1 Baumol’s Model of Cash

Optimum Cash Balance

Total cost of holding cash