Ratio Analysis of Civil Bank Limited

A Project Work Report

By
Ashish Gurung
Symbol No. 712060002
T.U. Regd No. 7-2-1206-0006-2018
Depot Adarsha Multiple Campus

Submitted to
The Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the requirements for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Dharan, Sunsari

April, 2023
 DECLARATION

I hereby declare that the work done in this thesis entitled “Ratio Analysis of Civil
Bank Limited " submitted to Depot Adarsha Multiple Campus, Faculty of
Management, Tribhuvan University is my original work. It is done in the form of
partial fulfillments of the requirement of the degree of Bachelor of Business Studies
(BBS) under the supervision and guidance of Mr. Jabed Mansuri, Lecturer of Depot
Adarsha Multiple Campus.

Ashish Gurung

Depot Adarsha Multiple Campus

Date:

ii
 SUPERVISOR’S RECOMMENDATION

The project work report entitled “Ratio Analysis of Civil Bank Limited” submitted
by Aashish Gurung, Depot Adarsha Multiple Campus, Dharan, Sunsri, is prepared
under my supervision as per the procedure and format requirements laid by the
Faculty of Management, Tribhuvan University, as partial fulfillment of the
requirements for the award of the degree of Bachelor of Business Studies (BBS). I,
therefore, recommend the project work report for evaluation.

Mr. Jabed Mansuri

Depot Adarsha Multiple Campus

Date:

iii
 ENDORSEMENT

We hereby endorse the project work report entitled "Ratio Analysis of Civil Bank
Limited" submitted by Ashish Gurung of Depot Adarsha Multiple Campus, Dharan,
Sunsari in partial fulfillment of the requirements for award of the Bachelor of
Business Studies (BBS) for external evaluation.

Signature: Signature:
Dr. Nuni Lal Rajbanshi Mr. Raj Kumar Rai
Management Research Committee Campus Chief
Depot Adarsha Multiple Campus Depot Adarsha Multiple Campus

iv
 ACKNOWLEDGEMENT

This thesis entitled "Ratio Analysis of Civil Bank Limited " to the Tribhuvan
University faculty of management for the partial fulfillment of the requirement of the
Bachelor in Business Studies degree at Depot Adarsha Multiple Campus. It would
have been almost impossible to complete without cooperation and help from different
section of intellectuals.

I would like to express my gratitude to my thesis supervisor Mr. Jabed Mansuri

respected lecture of Depot Adarsha Multiple Campus, for his valuable suggestion and
guidance. His continuous cooperation and coordination have been instrumental in the
process of preparing this research work.

I would like to express Mrs. Manika Subba, Principal Mr. Raj Kumar Rai and
respected lecturers of Depot Adarsha Multiple Campus for their proper
encouragement & cooperation.

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 Table of Content

Title Page i
Declaration ii
Supervisor's Recommendation iii
Viva voice iv
Endorsement v
Acknowledgement vi
Table of content vii
List of Table ix
List of Figure x
Chapter I Introduction 1
1.1 Background of the Study 1
1.2 Profile of the organization 5
1.3 Statement of Problem 6
1.4 Objectives of the Study 7
1.5 Rationale Of Study 7
1.6 Review of Previous studies 7

1.7 Limitation of the Study 8

1.8 Research Methodology 8

Chapter II Presentation of data 10

2.1 Presentation and Analysis of Data 10

2.1.1 Liquidity Ratio 10
Current Ratio 11
Cash Ratio 12
Net Working Capital Ratio 13
2.1.2 Leverage Ratio
Debt Ratio 15
Debt-Equity Ratio 16
2.1.3 Profitability Ratio 16
Return on Shareholders’ Equity 17
Return on Total Assets 18
Earnings Per Share 19

vi
 Dividend Per Share 20
2.2 Major Findings 21
Chapter III: Summary, Conclusion and Recommendation 24

3.1 Summary 24
3.2 Conclusion 25

vii
 List of Tables

Table No. Title Page No.

1 No. of Financial Institution in Nepal 4

2 Comparative Balance Sheet 26
3 Comparative Profit and Loss A/c 27
4 Calculation of Current Ratio 11
5 Calculation of Cash Ratio 12
6 Calculation of Net Working Capital Ratio 13
7 Calculation of Debt Ratio 15
8 Calculation of Debt-Equity Ratio 16

viii
 Table of Figures

Figure No. Title Page No.

1 Comparative Current Ratio 11
2 Comparative Cash Ratio 12
3 Comparative Net Working Capital Ratio 13
4 Comparison between Total Debt & Total Assets 19
5 Comparative Debt-Equity Ratio 16
6 Return on Shareholders’ Equity 17
7 Comparative Return on Assets 19
8 Earnings Per Share 20
9 Dividend Per Share 21

ix
 Chapter I: Introduction

1.1 Background of the study:

Ratios are comparison points for companies. They evaluate stocks within an industry.
Likewise, they measure a company today against its historical numbers. In most
cases, it is also important to understand the variables driving ratios as management
has the flexibility to, at times, alter its strategy to make its stock and company ratios
more attractive. Generally, ratios are typically not used in isolation but rather in
combination with other ratios. Having a good idea of the ratios in each of the four
previously mentioned categories will give you a comprehensive view of the company
from different angles and help you spot potential red flags. The various kinds of
financial ratios available may be broadly grouped into the following six silos, based
on the sets of data they provide:
1.1.1 Liquidity Ratios
Liquidity ratios measure a company's ability to pay off its short-term debts as they
become due, using the company's current or quick assets. Liquidity ratios include the
current ratio, quick ratio, and working capital ratio.
1.1.2. Solvency Ratios
Also called financial leverage ratios, solvency ratios compare a company's debt
levels with its assets, equity, and earnings, to evaluate the likelihood of a company
staying afloat over the long haul, by paying off its long-term debt as well as the
interest on its debt. Examples of solvency ratios include: debt-equity ratios, debt-
assets ratios, and interest coverage ratios.
1.1.3. Profitability Ratios
These ratios convey how well a company can generate profits from its operations.
Profit margin, return on assets, return on equity, return on capital employed, and
gross margin ratios are all examples of profitability ratios.
1.1.4. Efficiency Ratios
Also called activity ratios, efficiency ratios evaluate how efficiently a company uses
its assets and liabilities to generate sales and maximize profits. Key efficiency ratios
include: turnover ratio, inventory turnover, and days' sales in inventory.
1.1.5. Coverage Ratios

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Coverage ratios measure a company's ability to make the interest payments and other
obligations associated with its debts. Examples include the times interest earned
ratio and the debt-service coverage ratio.
1.1.6. Market Prospect Ratios
These are the most commonly used ratios in fundamental analysis. They
include dividend yield, P/E ratio, earnings per share (EPS), and dividend payout
ratio. Investors use these metrics to predict earnings and future performance.
For example, if the average P/E ratio of all companies in the S&P 500 index is 20,
and the majority of companies have P/Es between 15 and 25, a stock with a P/E ratio
of seven would be considered undervalued. In contrast, one with a P/E ratio of 50
would be considered overvalued. The former may trend upwards in the future, while
the latter may trend downwards until each aligns with its intrinsic value.
Examples of Ratio Analysis in Use
Ratio analysis can predict a company's future performance—for better or worse.
Successful companies generally boast solid ratios in all areas, where any sudden hint
of weakness in one area may spark a significant stock sell-off. Let's look at a few
simple examples
Net profit margin,
Often referred to simply as profit margin or the bottom line, is a ratio that investors
use to compare the profitability of companies within the same sector. It's calculated
by dividing a company's net income by its revenues. Instead of dissecting financial
statements to compare how profitable companies are, an investor can use this ratio
instead. For example, suppose company ABC and company DEF are in the same
sector with profit margins of 50% and 10%, respectively. An investor can easily
compare the two companies and conclude that ABC converted 50% of its revenues
into profits, while DEF only converted 10%.
Being a final year student in commercial field, I have conducted a brief study on the
Civil Bank Limited. I have concentrated my study on the Ratio Analysis of "The Civil
Bank Limited.

Financial resource is an inseparable component in every sphere of life. It is equally

important to a social organization as well as for a business organization. Moreover, its
importance to a financial organization like a bank, that keeps money for individuals or

2
companies, exchanges currencies, make loans, and offers other financial services, can
hardly be neglected.

Finance plays an important role in the economy. As banks, credit unions, and other
financial institutions provide credit, they help expand the economy by directing funds
from savers to borrowers. A wide variety of financial institutions such as a bank has
different roles in finance and the economy as it links lenders and borrowers. These
institutions act as an intermediary among consumers, businesses, and governments by
lending out deposits and help to boost up the national economy. So, the smooth
operation of a bank mainly depends upon effective management of its financial
resources and effective management is possible upon effective analysis
Meaning of Commercial Bank:
Commercial banks are the most significant of the financial intermediaries, accounting
for some 60 percent of the nation's deposits and loans. A commercial bank is a bank,
which pools together savings of community and arrange for their productive use,
accepting deposit on the condition that they are available on demand or on a short-
term notice.
According to Nepal Commercial Act 2031, a commercial bank is a bank which
operates currency exchanges transactions, accepts deposits, provides loans, and
performs dealings relating to commerce except the banks which have been specified
for the co-operative, agriculture and industry of similar specific objective.
Functions of Commercial Banks:
The main functions of a commercial bank are as follows:
 Acceptance of Deposits in
 Advancing Loans in
 Agency Service
 Credit Creation
 General Utility Services
 Safekeeping of valuables
 Assist in foreign trade
 Making venture capital loans
 Financial advising
 Offers security brokerage services
 Offers investment banking and merchant banking services
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Development of Commercial Banks in Nepal
The history of commercial banking in Nepal started after the establishment of Nepal
Bank Limited in the year B.S. with a paid-up capital of Rs 8, 45,000. Later Nepal
Rastra Bank was established as the central bank in 2013 followed by the
establishment of Rastriya Banijya Bank.

After Nepal practiced Liberalization Policies, Nepal had access to many joint venture
banks and other financial institution. Today, Nepal can take legitimate pride in the
remarkable growth and progress in the banking and financial industry. Nepal has
opened its door to foreign commercial banks to operate in the kingdom. Since then
there are 27 commercial and development banks till date.

Table 1
Financial institutions in Nepal
S. No. Financial Institution Numbers
1 Commercial Banks 21
2 Development Banks 17
3 Finance Companies 17
4 Micro Credit Development Banks 63
Source: NRB Monthly Statistics

1.2 Profile of the organization

Founded by promoters coming from a diverse professional background (such as

manufacturing, trading, financial industry & real estate) with vision of becoming the
most trusted bank by providing dedicated service to all the clients/ customers through
thick and thin, Civil Bank envisions in becoming a dominant player in the banking
industry of Nepal and firmly believes in contributing to its economic growth by
empowering our rendering services to all classes and sectors of society. Civil Bank is
a policy driven Bank which functions with the principle of "zero tolerance" in terms
of compliance with all regulations, policies, manuals/ guidelines and prudential
banking norms, and always believes and functions with ethical business values.

4
Driven by a customer-centered philosophy, Civil Bank Limited always endeavors to
provide essential banking services and access to finance to Nepali denizens from all
strata across the country through support of sophisticated technology. To ensure
quality and efficiency in service delivery to its customers/ clients, the Bank has
adopted latest banking technologies with view of establishing itself as a technology-
driven Bank. The Bank steadfastly endeavors to create value for all stakeholders
including its promoters and shareholders in its wholehearted attempts to become ‘the
Bank’ of the people through sustainable earnings.

Civil Bank has now substantially grown to become a bigger institution in terms of
capital, asset size and business volumes. With the completion of recent merger with
(former) International Leasing and Finance Company Limited, The total Asset Size,
Deposit Portfolio and Risk Assets Portfolio of the Bank have grown exponentially
over last 6 years of operations. In a short span of time, the total strength of the Bank’s
workforce has also increased significantly to exceed 850+ and its network of branches
have reached 97 enabling the Bank to meet the demands and financial/ banking
requirements of the customer across the country more efficiently. With an array of
techno-tailored products and services supported with the state-of-the art technology,
Civil Bank has placed itself as one of the leading Banks in terms of technology driven
products and services. The Bank follows prudent practices to conform to the Central
Bank’s directives while ensuring constant adherence to its values, culture and
traditions ingrained since inception. The Bank has been moving forward through
strategic growth while being socially responsible.
Credit Card:
Civil Bank Limited has been a pioneer in introducing a Nepalese Domestic Credit
Card. The bank has introduced 'Himalayan Bank Gold Card' which has eased the
banking operation. Likewise, the bank is also the member of VISA and MASTER
Card. The bank issues all range of VISA card and has a plan to issue MASTER card.
Tele-Banking:
To provide more prompt and efficient service to its customers, the bank has been
pioneering on instituting Tele-banking service. Dialing a pre-specified telephone
number, its clients will be able to:
 Make balance and statement inquires

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  Order statement and Cheque books
 Request instant faxing of statement
 Get information on foreign exchange etc.

1.3 Statement of the Problems

Commercial banks are following those types of policies made by the government to
contribute established economic stability and liberalization. Commercial banks are
interested to extend their branches at urban area. This trend cannot be contributing
much the socio-economic development of the country where 90% of the population
depend upon the reluctant to extent their operation in rural areas. Despite of the
circular of the central bank of country NRB, regarding compulsory’ investment of
10% of their total investment in rural areas hut rural areas are treated as less priority
from the profitable point of view of the banks. Even though, some small entrepreneur
and investors are benefited from the service of commercial banks at rural areas.

To enhance and mobilize the local resources at community level, the activities and
service should have centered to the rural areas. The project report basically focuses
our attention to reveal the struggle and success achieved by the commercial banks.
The main motto of the bank is providing quality and prompts services to the
customers; thus, it is possible to maximize the profitability. In this project report Civil
Bank Limited has been taken as sample for the purpose of report. The performance of
the bank is considered in operating profit, dividend distribution among shareholder
and quality of credit. The report was ultimately finds out the reasons about the
difference in financial performance of Civil Bank Limited. The present report seeks to
explore the efficiency, strength and weakness of Commercial Banks.

Attempts are being made to explore the answers to following questions.

a. What is the financial performance analysis of Civil Bank Limited?
b. How effectively is the Civil Bank Limited managing its total deposit, loan,
investment and net profit?
c. What is the trend of total deposit, loan, investment and net profit of Civil Bank
Limited?

6
1.4 Objective of the Study
The primary objectives of this report are to analyze the financial performance of Civil
Bank Limited and main objectives are as follows:
a. To examine financial performance of Civil Bank Limited.
b. To analyze the liquidity, probability and debt management of Civil Bank
Limited.

1.5 Rationale of the Study

Basically, commercial banks have given a new horizon to the financial sector of
Nepal. They have achieved tremendous success in terms of market share and
profitability due to their prompt service and professionalism. An organization’s
financial and operating performance depends upon how well its activities have been
managed and how well its resources are utilized. Moreover, the present study will be
more helpful to the shareholders regarding the financial performance of Civil Bank
Limited. Furthermore, the study has multidimensional significance in the particular
area of hank which have been undertaken that justify for finding out important points
and facts to researcher, shareholders, traders, financial institutions, stock exchange,
depositors, borrower, general public, management of bank, government and other
related stakeholders.

1.6 Review of Previous Studies

Parajuli (2017), focused on financial performance Analysis of Nepal Investment Bank

Limited and Himalayan Bank Limited. The sample size was only two banks named
NIBL and HBL. Researcher used statistical tools i.e. mean, standard deviation and
correlations etc have been used for analysis.
Main objectives of the study are:
i. To examine the financial performance analysis of sample CBL.
ii. To analyze the profitability analysis, the sample CBL.

iii. To explorer the trend of financial variable of sample CBL.

Kandel (2018), in his study entitled “Financial Performance of Nepalese Commercial

Banks” his study objectives are:

7
 a) To examine the financial performance of relative coirrcia1 banks.
b) To evaluate financial performance in terms of statistical and financial tools
then examine financial performance of relative commercial banks.

c) To trend analysis of total deposit, loan and advance, total income and
expenses, net profit.

All banks except HBL have their mean value of cash and bank balance in respect of
total deposit of more than 10% which is in satisfactory level. Going through the mean
value, all banks have sufficient cash and bank balance to meet their current deposit.
The CV of HIL is less than other’s it shows higher consistency on its cash and bank
balance. NBL and NIBL have portion of saving deposit where as KBL and HBL have
moderate but the NSBL has lower portion of saving deposit in relation with total
deposit.
1.7 Limitations of the Study:

This study was done during the busy office hours. So, it was somehow difficult to
cope along with the office personnel and the entire analysis is based on the secondary
data. The data provided then is limited to the research and the report. Detailed
information about the financial resources of the bank could not be provided due to
security reasons of the bank's operation technology and software.

1.8 Research Methodology

The main objective of this fieldwork is to study the financial position of Civil Bank
Limited. The study is purely based on the exploratory design finding access to the
requisites of the study. The analysis is diagnosed through limited resources from the
bank due to different reasons.
In the beginning, required secondary data was obtained through the bank's website
which was reviewed and presented in a systematic and tabular form along with charts
to make the study more precise. The data collected were the bank's operating
statements and balance sheets etc.
1.8.1 Method of data collection:
Data can be collected from different sources. Generally, there are two sources of data.
a. Primary Data:

8
Primary data are the first data obtained by the researchers during the field visit. These
are the first data obtained for different kinds of study related to the research. It can be
collected through interviews, interactions and questionnaires etc. Although primary
data plays an important role by making the research person familiar with the field,
work, people and the environment, in this analysis, however, primary data could not
be obtained for different reasons.

b. Secondary Data:
Secondary data are second data that has already been published before in the form of
records, annual reports, pamphlets, statistic gather, directories, publications, computer
data banks etc. This entire report is based on the secondary data.
Since the report is concerned with the financial analysis of the organization, balance
sheets of five years from the fiscal year 2072/73 - 2077/78 were collected from
different sources. The balance sheet and other required documents and information
were obtained from the Annual Report of Civil Bank Limited. Likewise, other
required information was collected from libraries, the bank's website and review of
the previous studies done by former third year students.

9
 Chapter II: Presentation and Analysis of Data

2.1 Presentation and Analysis of Data

This chapter is incorporated with different tools for the analysis of the financial status
of Civil Bank Limited. Different ratios are used for the purpose of analysis. The first
presentation of the analysis is the comparative balance sheet.

2.1.1 Liquidity Ratio:

Liquidity ratio is defined as the test for solvency position for the payment of short-
term liabilities, solvency position or liquidity denotes ability for the payment of short-
term liabilities. It is extremely essential for a firm to be able to meet its obligation as
they become due. Liquidity ratio measures the ability of a firm to meet its current
obligation. In fact, analysis of liquidity need preparation of cash budget and cash and
funds flow statement; but liquidity ratio by establishing cash and other current assets
to current obligations, provide a quick measure of liquidity. A firm should ensure that
it does not suffer from lack of liquidity and that it does not have excess liquidity. The
failure of a company to meet its obligation due to lack of sufficient liquidity will
result in a poor credit worthiness, loss of creditors’ confidence or even legal tangles
resulting closure of the company. A very high degree of liquidity is also bad; idle
assets earn nothing. The firm’s fund will be unnecessarily tied up in current assets.
Therefore, it is necessary to strike a proper balance between high liquidity and lack of
liquidity.

While considering liquid assets, it includes cash and those assets, which can be
converted into cash within a year, such as sundry debtors, short-term investments,
bank deposits; stock advances and accrued income etc. current; liabilities includes
those obligations which mature within one year such as creditors, bills payable,
outstanding expenses, bank drafts, income tax payable etc.

a. Current Ratio:
Current Ratio is the ratio between the current assets and the current Liabities of a
firm. The current ratio is a measure of a firm’s short-term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. This
ratio helps the company to determine the desirable liquidity position to meet its
10
maturing obligations so; the company may neither suffer from lack of liquidity nor
too much high liquidity.

The current ratio is calculated by dividing current asset by current liability. As a

conventional rule, current ratio of 2:1 or more is considered satisfactory.
Mathematically,
Current ratio = Current assets
Current liabilities
Where,
Current assets = cash and bank balance + receivables + advances and
deposits
Current liabilities = sundry creditors + payables and provisions

Table 5
Calculation of Current Ratios
Amount Rs. in "000"
Years Current Assets Current Liabilities Current Ratios
2073/74 10642982 10005389 1.064
2074/75 15025812 14171743 1.060
2075/76 18591336 17611931 1.056
2074/77 20331266 19162388 1.061
2077/78 23149343 21653219 1.069
Source. Annual report of Civil Bank Limited

Figure 1. Current ratio

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The above Table 1 shows different level of Current Ratios at varying level of Current
Assets and Current Liabilities during the five year of observation. The highest and the
lowest Current Ratios are 1.069 and 1.56 in the F.Y 2077/78 and 2075/76
respectively. Generally, Current Ratio of 2:1 is considered satisfactory. In case of the
Civil Bank Limited, the current ratio is below the standard. However, the current ratio
trend is increasing slowly which is a good sign of good liquidity management and
satisfactory performance done by the bank.
b. Cash Ratio
Since cash is the most liquid asset, a financial analysis may examine cash ratio and its
equivalent current liabilities. Trade investments or marketable securities are
equivalent of cash; therefore, they may be included in the computation of cash ratio.
Mathematically,
Cash Ratio = Cash + Marketable securities (investment)
Current Liabilities

Table 6
Calculation of Cash Ratio
Amount Rs in
'000'
Fiscal Year Cash Investment Current Liabilities Cash Ratio
2073/74 1271153 10005389 0.127
2074/75 3118323 14171743 0.220
2075/76 5518335 17611931 0.313
2076/77 10421779 19153388 0.544
2077/78 12154644 21653219 0.561
Source. Annual report of Civil Bank Limited

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Figure 2. Cash ratio
The above table shows the highest and the lowest cash ratio of Civil Bank Limited as
0.561 and 0.127 times in the FY 2073/74 and 2077/78 respectively. The cash ratio
trend of The Himalayan Bank is not satisfactory which means that the cash and the
investments of this bank have very low liquidity to meet its current obligation.
However, the Cash Ratio trend is increasing which shows that the banks performances
in meeting its current obligation are increasing.

c. Net Working Capital Ratio:

The difference between the current asset and the current liabilities excluding the
short-term bank borrowings is called the net working capital of net current assets. Net
working capital is some time used as the measure of firm’s liquidity. It is considered
that, between two firms, the one having the larger working capital has larger ability to
meet its current obligations. This is not necessarily so, the measure of liquidity is a
relationship, rather than the difference between the current assets and the current
liabilities. Net working capital however measures the firms’ potential reservoir of
funds.
Mathematically,
Net Working Capital Ratio = Net working Capital
Net Assets
Where Net Assets = total current assets - total current liabilities-short - term bank
borrowings

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 Table 7
Calculation of Net Working Capital Ratio
Amt Rs in '000'
Fiscal Year Current Current Net Working Net Net Working Capital Ratio
Assets Liabilities Capital Assets
2073/74 10642982 9772736 870246 695103 1.252
2074/75 15025812 14043097 982715 870535 1.129
2075/76 18591336 17532404 1058932 1198272 0.884
2076/77 20331266 18619375 1711891 1501529 1.140
2077/78 23149343 21007379 2141964 1905883 1.124

Source. Annual report of Civil Bank Limited

Figure 3. Net working Capital ratio

During the study of period, net working capital ratio of the Civil Bank Limited is
satisfactory. It has recorded the highest ratio of 1.252 and the lowest of 0.884 times in
the fiscal year 2073/74 and 2075/76 respectively. However, the ratio after the F.Y
2075/76 is increasing towards satisfactory which shows the Bank has been
maintaining sound liquidity position to meet its current obligations.

2.1.2 Leverage Ratio:

Leverage ratio is defined as the ratio of relationship between the total debt and total
assets organization’s long-term solvency. The short-term creditors, like bankers and

14
supplies of raw materials, are most concerned with the firms’ current debt paying
ability. On the other hand, long-term creditors like debenture holders and financial
institution etc are more concerned with the firms’ long-term financial strength. To
judge the long-term financial position of a firm, financial leverage and structure ratio
are calculated. These financial positions indicate mix of funds provided by owners
and lenders. Generally, there should be an appropriate mix of debt and owner’s equity
in financing the firm’s assets.
a. Debt Ratio:
Several Debt ratio s may be used to analyze long-term solvency of a firm. The firm
may be interested in knowing the proportion of the interest-bearing debt in the capital
structure. We may therefore compute debt ratio by dividing total debt by total asset.
Total debt will include long-term and short- term from financial institutions,
debenture, bonds, and different payments arrangements for buying capital
equipment’s, bank borrowings, public deposits and any other interest-bearing loan.
Mathematically,

Debt Ratio = Total Debt

Total Assets
Where, Total Debt = Borrowings + Deposit Liabilities + other Liabities
Total Assets = cash and Bank Balances + Placements + Investments + Loans,
Advances and Bills Purchased + Fixed Assets + Other
Assets

Table 8
Calculation of Debt Ratio
Amount Rs. In ‘000’
Fiscal Year Total Assets Total Debt Debt Ratio
2073/74 11244096 10548993 0.938
2074/75 15863740 14993205 0.945
2075/76 19500572 18302300 0.939
2076/77 21315848 19814319 0.930
2077/78 24197974 22292091 0.921
Source. Annual report of Civil Bank Limited

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Figure 4. Debt ratio

From the above study, the highest and the lowest debt ratio of Civil Bank Limited are
0.945 and 0.921 times in the F.Y. 2074/75 and 2077/78 respectively. Normally debt
financing is costly and riskier in the long run. In this context, HBL has been reducing
its debt financing since the F.Y. 2075/76 which is a good sign of financing. The
current year's debt ratio is 0.921, which indicate that the bank has financed 92.10% of
debt from total assets.

b. Debt Equity Ratio:

This ratio reflects the relation between the shareholder’s fund and the outsider’s fund.
The Relationship describing the lenders’ contribution for each rupee of the owners’
contribution Is called Debt-Equity Ratio. It is relationship between debt and equity,
i.e. debt-equity ratio Indicates to what extent the firm depends upon the outsiders for
its existence.

Mathematically,
Debt-Equity Ratio = Long Term Debt
Shareholders’ Equity

16
Table 9
Calculation of Debt-Equity Ratio:
Amount Rs. in ‘000’
Fiscal Year Total Debt Share Holders Equity Debt Equity Ratio
2073/74 10548993 695103 15.176
2074/75 14993205 870535 17.223
2075/76 18302300 1198272 15.274
2076/77 19814319 1501529 13.196
2077/78 22292091 1905883 11.696
Source. Annual report of Civil Bank Limited

Figure 5. Debt equity ratio

From the above study, the highest and the lowest debt-equity ratio of Civil Bank
Limited are 17.223% and 11.696% in the F.Y. 2074/75 and2077/78 respectively. It
indicates that the firm does not need to depend more on the outsiders for its financing.
It has different other reliable sources for its financing.

2.1.3 Profitability Ratio:

A company should earn profit to survive and grow over a long period of time. Profit is
essential but it would be wrong to assume that every action initiated by management
should be aimed at maximizing profit, irrespective of social consequences. Profit is
the difference between revenue and expenses over a period of time, usually one year.
Profit is the ultimate output of a company, and it would have no future if it fails to

17
make sufficient profit. Therefore, a financial manager should continuously evaluate
the efficiency of his company in terms of profit. The profitability ratios are calculated
to measure the operating efficiency of a company. Besides management of a
company, creditors and the owners are also interested in the profitability of the firm.
Creditors want to get interest and repayment of principals regularly. Owners want to
get a required rate of return on their investments. This is possible only when the
company earns enough profits.
Generally, higher value of profitability ratio shows better financial performances of
the company and vice versa.

a. Return on Share Holder’s Equity (ROSE):

Common or ordinary shareholders are entitled to the residual profit. The rate of
dividend is not fixed; the earnings may be distributed to the shareholders or retained
in the business. A return on shareholders’ equity is calculated to see the profitability
of the owners’ investments. ROSE indicates how a firm has used the resources of the
owners. In fact this ratio is on of the most important relationships in financial
analysis. Generally, higher ratio shows the efficient utilization of owner’s fund.

Mathematically,
ROSE = Net Profit after Tax x 100
Shareholders’ Equity
Table 10
Calculation of Return on Shareholders’ Equity
Amount Rs. in ‘000’
Fiscal Net Profit After Share Holders Return on Shareholders’
Year Tax Equity Equity
2073/74 165248 695103 23.773
2074/75 199380 870535 22.903
2075/76 277039 1198272 23.120
2076/77 235023 1501529 15.652
2077/78 212128 1905883 11.130
Source. Annual report of Civil Bank Limited

18
Figure 6. Return on shareholders’ Equity
In the above table, the highest and the lowest return on shareholders’ equity is
23.773% and 11.13% in the fiscal year 2073/74 and2077/78 respectively. The return
on shareholders’ equity of CBL is in decreasing trend. It may be due to decreasing
profit after tax and increasing shareholders equity over the few years. The lowest
percentage in return on shareholders’ equity in the current year may indicate
inefficient management of incomes and expenses.
b. Return on Total assets:
Return on total assets is defined as the ratio of relationship between net profits after
tax to total assets. It evaluates the efficiency of a firm in utilizing and mobilizing its
assets.

Mathematically,
Return on total Asset = Net Profit after Tax
Total Assets

Table 11
Calculation of Return on Total Assets
Amount Rs. In ‘000’
Fiscal Year Net Profit After Tax Total Assets Return on Total Assets
2073/74 165248 11244096 1.470
2074/75 199380 15863740 1.257
2075/76 277039 19500572 1.421
2076/77 235023 21315848 1.103
Source. Annual report of Civil Bank Limited

19
Figure 7. Return on total assets

In the above table, the highest and the lowest return on total assets is 1.47 and .877 in
the fiscal year 2073/74 and 2077/78. It shows that the management has utilized its
assets to earn profit at it full capacity. The lowest ratio does not mean that the firm's
profit is in a decreasing trend. It is due to the increasing trend in fixed assets. The
profit after tax and the return on total assets of the company is satisfactory.
c. Earnings Per Share (EPS):
Earnings per share expresses the amount the shareholders get on every share held by
them. It also helps to determine the market price of the equity share of the company
and also helps in estimating the company's capacity to pay dividend to its
shareholders.
Mathematically,
EPS = Net profit after tax available to equity shareholders
No. of equity shares outstanding

20
Table 12
Calculation of Earnings per Share
(Amt Rs in '000')
Fiscal Net Profit After Tax No of Equity Shares Earnings Per
Year in "000" in"000" Share
2073/74 165248 192000 86.067
2074/75 199380 240000 83.075
2075/76 277039 300000 92.346
2076/77 235023 390000 60.262
2077/78 212128 429000 49.447
Source. Annual report of Civil Bank Limited

Figure 8. Earning per share

The above table shows the highest and the lowest earning per share at 92.346% and
49.447% in the FY 2075/76 and 2077/78 respectively. During the five years analysis,
although the EPS of HBL is good, it has gradually decreased. However, it does not
mean that the EPS in the decreasing trend. It is due to bonus share of 107250 provided
in the year 2077/78. It shows that profit of Civil Bank Limited is highly satisfactory.

d. Dividend Per Share (DPS):

21
The net profit after tax belongs to the shareholders. But the income, which they really
received, is the amount of earnings distributed as cash dividends. Therefore, a large
number of present and potential investors may be interested in DPS, rather than EPS.
DPS is the total dividends divided by the total numbers of equity shares outstanding.
Mathematically,
DPS = Total Dividends
No. of Equity Shares Outstanding

Where, Total Dividend = interim dividend + proposed dividend

Table 13
Calculation of Dividend per Share
(Amt Rs. In '000')
Fiscal Year Total Dividend in No of Equity Shares Dividend Per Share
2073/74 96000 192000 50.000
2074/75 120000 240000 50.000
2075/76 82500 300000 27.500
2076/77 97500 390000 25.000
2077/78 5645 429000 1.316
Source. Annual report Civil Bank Limited

Figure 9. Dividend per share

The above table shows that the highest and the lowest dividend per share as 50 in the
F.Y.2077/78 and 1.316 in the FY 2073/74 to 2074/75 respectively. The DPS of Civil

22
Bank Limited has gradually decreased since the F.Y.2075/76 which is not a good sign
to the shareholders.

2.2 Major Findings

Financial performance concerns with the measurement and analysis of financial
operation of a firm through liquidity, leverage, profitability, turnover and other useful
ratios. By using ratio analysis as an analytical tool, some of the results found through
this study are as follows:

 Current ratio of Civil Bank Limited shows that the higher ratio is 1.069 and
the lowest ratio is 1.056 times. Generally, the current ratio is concerned
satisfactory when 2:1. In this sense, the current ratio of this bank is not much
satisfactory.
 Cash ratio of Civil Bank Limited shows highest and lowest ratios as 0.561 and
0.127 respectively. The cash ratio trend of Civil Bank Limited is not
satisfactory and has very low liquidity to meet its current obligation.
 Net Working Capital Ratio of Civil Bank Limited has recorded highest and the
lowest as 1.252 and 0.889 times. It shows that Civil Bank Limited has
maintained a sound liquidity position to meet its current obligation.
 The highest and lowest debt ratio of Civil Bank Limited is 0.9456 and 0.921
times respectively. HBL has been reducing its debt financing since the F.Y.
2073/74 which is a good sign of financing. The current year's debt ratio is
0.921, which indicate that the bank has financed 92.10% of debt from total
assets.
 Higher return on shareholders’ equity ratio shows efficient utilization of
owners' investment. Here, highest ratio is 23.773% and the lowest ratio is
11.13%. The lowest percentage in return on shareholders’ equity in the current
year may indicate inefficient management of incomes and expenses.
 Return on total assets measures the profitability of invested funds in the
organization. The highest and the lowest ratios recorded here are 1.47% and
0.877% respectively. The lowest ratio does not mean that the firm's profit is in
a decreasing trend. It is due to the increasing trend in fixed assets. The profit
after tax and the return on total assets of the company is satisfactory.

23
 Earnings per share helps in estimating the organization's capacity to pay
dividends. In this respect, the highest and the lowest ratios of Civil Bank
Limited are 92.346% and 49.447%. During the five years’ analysis, although
the EPS of Civil Bank Limited is good, it has gradually decreased. However, it
does not mean that the EPS in the decreasing trend. It is due to bonus share
provided in the year 2077/78. It shows that profit of Civil Bank Limited is
highly satisfactory.
 A large number of present and potential investors may be interested in DPS.
The highest and the lowest DPS recorded are 50% and 1.316. The DPS of
Civil Bank Limited has gradually decreased since the F.Y.2072/73 which is
not a good sign to the shareholders.
 The dividend pay-out ratio measures the earnings belonging to the ordinary
shareholders and dividend paid to them. In the previous table, the highest and
the lowest D/P ratio is 60.187% and 2.661%. In the current year, the D/P ratio
has decreased sharply due to very low dividend compared to the earnings.
 Higher return on loan and advances are preferable. Here, the highest and the
lowest ROLA are 3.15% and 1.956. The rate of ROLA is inefficient for the
bank. It shows that HBL has defaulted in collecting its return on the loans and
advances.

24
 Chapter III: Summary and Conclusion

3.1 Summary
Nepal being a development country has not been able to reach the peak of
development due to the lack of finance. It has many sectors to develop, which can be
done by the government or the private sectors. For this development, a bank has
played a vital role. It has been providing loans to the government and private sectors
for development as well as for business purpose to the public and the private sectors.
A bank provides money to the government by purchasing treasury bills and providing
loans to the public for agriculture, small as well as cottage industries by keeping
reasonable securities. A bank is a financial institution that deals with financial
securities. It also works as a financial intermediary for the public.

There are many banks involved in this field, amongst which Civil Bank Limited is
one.

The objective of this study is to investigate whether Civil Bank Limited is sound or
not. To fulfill this objective, financial data are collected from Civil Bank Limited for a
period of five years, from the fiscal year 2073/74 to 2077/78.

After they have organized in a suitable table and charts, financial position and
performances of Civil Bank Limited is determined using the financial tools such as
Ratio Analysis.

3.2 Conclusion
The following conclusion referring to the ratio calculated and interpreted has been
drawn regarding the financial situation of the organization.

 Liquidity position of Civil Bank Limited is good. It has a satisfactory

liquid asset and there is no liquidity crisis in the organization. The current
ratio, cash ratio and the net working capital has been balanced but is not
very satisfactory. Nobody can predict the future. The main obligation of a
commercial bank is to pay to its depositors on demand. In case if a bank
25
 defaults so, it may have a negative impact on its worthiness. In addition to
this, in this competitive world good will is a must. Hence, the bank should,
in future, try to maintain a sound liquidity position.

 Civil Bank Limited has properly balanced the leverage ratio. It seems that
the bank has properly balanced the debt from the total assets. The ratio is
satisfactory which implies that management has been utilizing its assets
and capital efficiently and optimally.
 Profitability position of Civil Bank Limited is not highly satisfactory.
Although the bank has been earning profits every year, the profit so earned
is not enough for a financial firm. On the basis of this analysis, we can
clearly see that the main profit indicators such as Return on shareholders’
equity, return on total assets, dividend per share, earning per share etc. are
in a decreasing trend. Hence, it can be concluded that profitability position
of Civil Bank Limited is not so good.

 Other ratios such as D/P ratio, return on loans and advances, return on net
fixed assets, exchange earnings to gross income, commission to gross
income, external assets to total deposits and total shareholder equity risk
ratios are satisfactory however the firm should try to minimize risk much
as possible.

 Last but not the least, this analysis is based only on the availability of an
annual report. Other necessary documents required for the total analysis
could not be obtained due to various reasons. Likewise, an analysis based
only in terms of ratios may not be sufficient for the overall analysis of a
bank. Hence, due to these limitations this report cannot be concluded as
the overall and the actual analysis of Civil Bank Limited. This analysis
report may only be used as reference concerning the Financial Analysis of
Civil Bank Limited. In addition, since the bank is run by highly competent
personnel, they may have utilized the bank's assets and loans to its
optimum capacity.

26
 BIBLIOGRAPHY

Armstrong, J.S. & Overton, T.S. (2012). Estimating non-response bias in mail
surveys.

Journal of Accounting Research, 14: 396-402

Evans, N. (2009). Assessing the Balanced Scorecard as a Management Tool.

International
Journal of Contemporary Hospitality Management, 17: 376-390.

Gupta, S.C. (2005). Fundamentals of Statistics. New Delhi: Himalayan Publishing

House.

Hakansson, H. & Lind, J. (2012). Accounting and Network

Coordination. Accounting Organizations and Society, 29: 51-72.

Hilton, R.W. (2009). Managerial Accounting, USA: McGraw Hill Company

Inc.

Hinderson, G. V. (2004). An Introduction to Financial Management, USA: McGraw

Hill Company Inc.

Horngreen, C.T. (2006). Cost Accounting Principle and Practice, New Delhi:
Prentice Hall of India Pvt. Ltd.

Hynes, N. (2008). Corporate Culture, Strategic Orientation, and Business

Performance: New Approaches to Modeling Complex Relationships. Technological
Forecasting and Social Change
Joel, D. (2008). Managerial Economics. New Delhi: Prentice Hall of India Pvt.
Ltd.

27
 Appendix I

Comparative Balance Sheet of

Civil Bank Limited
Table 3 Amt Rs. in '000'
Particulars 2073/74 2074/75 2075/76 2076/77 2077/78
1. Assets
Cash & bank 802208 901907 1435175 1264672 1979209
balance
Placement 4125854 4682762 4057654 352350 150100
Investment 468945 2216416 4083160 9157107 10175435
Loans, advances 5245975 7224727 9015347 9557137 10844599
& bills purchased
Total Current 10642982 15025812 18591336 20331266 23149343
Assets
Fixed Assets 171313 193046 201679 318844 2,29,871
Other Assets 429801 644882 707557 665738 8,18,760
Total Assets 11244096 15863740 19500572 21315848 2,41,97,974

2. Liabilities
Borrowings 232653 128646 79527 534013 645840
Deposit 9772736 14043097 17532404 18619375 21007379
Liabilities
Total current 10005389 14171743 17611931 19153388 21653219
Liabilities
Other Liabilities 543604 821462 690369 660931 6,38,872
Total Liabilities 10548993 14993205 18302300 19814319 2,22,92,091

Net Assets 695103 870535 1198272 1501529 19,05,883

28
Paid up capital 192000 240000 300000 390000 429000
Proposed 48000 60000 90000 39000 107250
capitalization of
profit bonus
share
Reserves 157144 200600 261697 309585 404389
Reserves for 243919 344484 477681 643414 842751
doubtful debt
Retained 54040 25451 68912 119530 122494
earnings
Total 695103 870535 1198272 1501529 1905883
shareholders'
Equity
Total Capital + 11244096 15863740 19500572 21315848 24197974
liabilities

29
 Appendix II
Comparative Profit and Loss A/C
Of Civil Bank Limited

Table 4

Rs in '000'
Particulars 2073/74 2074/75 2075/76 2076/77 2077/78
Income
Interest Income 862054 1033660 1326378 1148998 1201234

Interest Expenses 533590 594800 734518 578134 554128

Net Income 328464 438860 591860 570864 647106
Commission and Discounts 101983 110330 96065 101704 102561
Foreign Exchange Income 63958 87327 119261 104601 109599
Other Income 5624 9685 31220 32038 30154
Non-Operating Income 1061 1695 2303 2451 10760
Total Income 501090 647897 840709 811658 900180
Expenses
Staff Expenses 47364 59880 85575 101537 120146
Operating Expenses 109746 132545 141116 155786 177132
Provision for Doubtful 64570 103249 134320 166506 202873
Debts
Provision for staff Bonus 27941 34855 48336 38783 400003
Non-operating Expenses 0 3672 0 0 0
Total Expenses 249621 334201 409347 462612 900154
Profit before Tax 251469 313696 431362 349046 360024
Income Tax Provision 86221 114316 154323 114023 147896
Net Profit After Tax 165248 199380 277039 235023 212128

PL Appropriation

30
Profit/Loss Carried Down 234419 253420 302491 303936 331656
Statutory General Reserve 33050 39876 57117 47005 42426
Exchange Equalization 429 3580 3962 901 1720
Fund
Interest Spread Reserve 770 0 0 0 0
Fund
HBL Bond 2066 0 0 0 0 51429
Redemption Reserve
Interim Dividend 28800 36000 60000 0 0
Proposed Dividend 37200 84000 22500 97500 5645
Transfer to Paid up Capital 0 0 0 0 0
Proposed Capitalization of 84000 60000 90000 39000 107250
Profit Bonus Share
Income tax of Last Year 0 813 0 0 0
Staff Gratuity Fund 2130 37000 0 0 0
Profit Transfer to Balance 54040 25451 68912 119530 122493
sheet

31