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INTRODUCTION
In general terms, bank is a financial institution that accepts deposits from the public
and creates credit. It accepts deposits from public with idle money paying certain
interest and provides credit to the needy ones for certain interest. Apart from its basic
function to accept deposits and grant loan, banks also issues cheque, act as an
intermediary for financial transactions, provides locker services and many other
services. In today’s economy, banks collect small savings from general people and
lend it for various productive purposes. Bank is a financial institution involved in
credit creation that deals in money and helps in the socio-economic growth of a
nation.
Although, the basic concept is to accept deposit and create credit, various writers
have defined bank in various ways.
According to C.R. Crowther, “A banks collects money from those who have it to
spare or who are saving it out of their income and lends this money to those who
required it.” (investopedia, 2017)
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Thus we can say that bank is a financial institution that receives the idle money in
form of deposit, invests and creates credit to the public for certain interest.
Types of Bank
Central Bank
The main or central body of the banking system of a country which controls regulates
and supervises the activities of banks and whole money market is known as central
bank. It focuses on monetary stability. Central bank provides banking services for its
Government, and Commercial Banks, implements monetary policy, controls
monetary supply and issues currency.
The history of Central Bank goes back to 1694 when Bank of England was
established. In Nepal, Nepal Rastra Bank is the central bank established in 14th
Baishakh, 2013 B.S.(26th April 1956).
Its core activities include issuing notes and coins, perform agency function for
government, acts as clearing house and the lender of the last resort.
Commercial Banks
As per Commercial Bank Act, 2031 B.S., “a commercial bank means the bank which
deals in exchanging currency, accepting deposits, giving loans and doing commercial
transactions.” It performs functions like accepting deposits, advancing loans,
remitting money, letter of credit, e-banking, agency functions for customers, bills etc.
Bank of Venice is the first commercial bank established in 1157. Nepal Bank Limited
established in 30th Kartik 1994 B.S. and Rastriya Banijya Bank established in 23
January 1966 are the first and second commercial banks in Nepal respectively. Such
institutions are rated “ka” by NRB.
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Development Banks
Such banks are established in developing and underdeveloped countries to suit the
development need of the countries. They focus on priority sector development. They
collect funds from share capital, debentures, long term deposits and finance from
central banks and provide long and medium term loans.
Merchant Banks
Merchant banking functions include underwriting of shares, issuance and
management of shares and unit trust management. In Nepal, Ace capital, National
Merchant Banker, etc. are the merchants banks under SEBON.
Saving Banks
These banks have a main purpose to promote saving habits among general public and
mobilize their savings. They were established to tackle the problem of poverty. In
Nepal, Postal saving bank is doing this job.
Co-operative Banks
The banks which collect deposits among the members and give loans to members
only are known as co-operative banks. Navajeevan Co-operative Society Limited is
the first co-operative bank in Nepal.
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Banking in Nepal
In Nepalese context, like as in other countries landlords, goldsmiths and merchants
were ancient bankers. But people were exploited by charging high interest rates. But
with rise in economic activities there was need of some permanent institutions for
dealing in monetary transactions. So in Kartik 30, 1994 B.S. Nepal bank limited was
established as the first semi government commercial bank. The bank had 10 million
authorized capitals with 8,42,000 as paid up capital. The bank played a vital role in
spreading banking habits among the people. But the need to control the banking
practice, to help the government in monetary policies and direct commercial banks,
gave rise to establishment of Nepal Rastra Bank i.e. central bank of Nepal. So in
Baisakh 14, 2013 B.S. Nepal Rastra Bank was established under Nepal Rastra Bank
Act.
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Commercial Banks in Nepal
Nepal Bank limited, the first commercial bank of Nepal was established in 1994 B.S
with 51% government equity. Then after, Rastriya Banijya Bank came into existence
in 2022 B.S being 100% owned by government. Prioritizing the agricultural
development in the country Agricultural Development Bank was established in 2024
B.S. In order to create a healthy competition, government decided to give permission
to form joint ventures. Nepal Arab Bank limited was established as a first joint
venture bank of Nepal in 2041 B.S.
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1.2 Statement of Problem
The study attempts to evaluate the profitability in respect of Sunrise Bank Limited. It
attempts to know the behavior from Profitability ratios, if the company is able to
generate profit or not. And this study seeks to know if the company’s ratios has been
in increasing or decreasing trend. To point of the basics the study deals with the
following issues:
Do profitability ratios vary widely from year to year in books of Sunrise Bank
Limited?
To analysis the profitability ratio of Sunrise bank Ltd. during the fiscal year 067/068 to
73/74
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1.3 Propose of the Study
In order to prepare the report or selected topic the main object is to Profitability analysis
of sunrise bank LTD. However, specific objectives are as follows:
To describe the profit & loss account and balance sheet of Sunrise bank Ltd.
To define the funds management
To know about current financial position of Sunrise bank Ltd..
To compare the profitability, Liquidity & credit management of sunrise bank last
5 years.
To discussed the financial ratio measurement & analysis.
To know overall bank financial performance condition.
To know the condition of ratios like return on assets, profit margin, return on
equity etc of the bank. To know overall bank financial performance condition.
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1.5 Research Methodology
The methodology which is used in the research is called research methodology. How the
data is collected and which source the researcher used for getting the data is under the
research methodology. Research methodology covers the data analysis tools as well.
Research is a systematic and organized effort to investigate a specific problem that needs
a solution. This process of investigation involves a series of well-thought out activities of
gathering, recording, analyzing, and interpreting the data with the purpose of finding
answer to the problem. Thus, the entire process by which we attempt to solve problems or
search the answer to question is research. It is undertaken not only to solve a problem
existing in work setting, but also to add or contribute to the general body of knowledge in
a particular area of interest to the researcher.
According to Michael V.P., (2000), “Research is the process of systematic and in-depth
study or search for any particular topic, subject or area of investigation backed by
collection, presentation and interpretation or relevant details or data.”
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1.5.3 Types of Data Used
Data is the building block of any research. Data can be defined as the values collections
through record-keeping or polling, observing, or measuring. More simply, data is facts,
text, or numbers that can be collected. Here, data should not be thought of only as
statistical or quantitative. It may take many other forms, such as transcripts of interviews,
maps, photographs, and videotapes of social interaction
Secondary data
. Secondary data has been collected from various sources including the annual
report of Sunrise Bank Ltd. Internet and reports from NRB has been also used for the
purpose of this study.
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1.6 Instruments
The instruments that have been used for the purpose of this study are financial
tools. Various financial ratios have been calculated and analyzed to derive the
findings of the study. Mainly profitability related ratios have been used for the
purpose of this study.
i. Return on Equity
This ratio is computed by dividing net profit after tax by net worth of the company.
It measures the profitability of equity funds invested in the firm. This ratio reveals
how owner’s find have been utilized by the firm to generate profit. Firms with high return
on equity with little or no debt are able to grow without large capital expenses. It allows
owners to invest the fund elsewhere.
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐴 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐼 =
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑
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Profitability Ratios in Terms of Shareholders
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Profitability Ratios in Relation to Income
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = ∗ 100%
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
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The purposes of Literature Review are listed below:-
• To avoid needless duplication of work.
• To explain historical background of a topic.
• To describe and compare the schools of thought on an issue.
• To highlight and critique research methods.
• To note areas of disagreement.
• To highlight gaps in the existing research.
• To justify the topic the researcher plans to investigate the system, which may be goods
or services.
This report uses two types of review. They are:-
a) Liquidity ratio
b) Leverage ratio
c) Activity ratio
d) Profitability ratio
Profitability
Profit is the financial benefit realized from a business when the amount of income
exceeds expenses, costs and taxes of the bank needed to sustain the operation of bank.
Regardless the size of business, every business has a goal to earn profit. Profitability is a
measure of firm’s efficiency (Jain, 1998). Brigham and Houston (2004) views that
financial profitability lies in a firm’s ability to generate revenues in excess of its costs: for
either long or short term. Different ratios are used to measure the profitability of the firm
and they show whether firms are being efficiently operated. These ratios help to find out
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how effectively the organization is being managed. A company must earn profit for its
stakeholders and for its existence. A high degree of profitability ensures the investors of
their return, customers of the safety of their deposits and interests, government of its tax
and employees of their salary and bonuses. Loss may result in its extinction and the bank
may lose trust of customers and other stakeholders, its credit worthiness and creditor’s
confidence as well. There should be a consistent and adequate profit margin to maintain
and grow the business. It is beneficial to a company that its profit goes on increasing
trend. The following ratios are generally used to measure the profitability of the firm.
Here the researcher had collected three different reports prepared by three different
people in same topic financial statement to compare with his/her research. The researcher
has collected the objectives and findings of their report. The collected data of their report
are as follows:
Several different studies have been carried out in the area of profitability analysis of
commercial banks in Nepal as well as other countries. Some of the most prominent of
similar nature is reviewed as follows:
A study made by (Shrestha, 2011), on Nabil bank, Nepal Investment bank, Himalayan
bank, Bank of Kathmandu and Everest bank with a aim to know the Long Term
Profitability of Commercial Banks in Nepal. Time series data covering 2003-2010 was
analyzed.
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Another study made by (Silwal, 2016), on Arun Valley Hydropower Company, with the
objectives to evaluate the profitability ratios and to find out relationship between liquidity
and profitability of the company.
A study made by (Tamang, 2015), on Agriculture Development Bank Ltd., with the aim
to identify trend of profitability of the bank and calculate its earnings per share.
1.9 Limitations
The study is primarily conducted for partial fulfillment of the requirements for the degree
of Bachelor of Business Studies (BBS). Following are the limitations of the study:
Most of the data used are secondary data. Therefore, reliability of all the analyzed
results and conclusion depend on the information provided by the bank.
Only various profitability ratios have been considered for computation and analysis of
the data.
The study is based on five-year data only. It may be misleading to use for long-term
planning.
The study is focused only on Sunrise Bank Ltd; therefore, it may be not useful for
judging the entire banking industry.
Chapter Two - Results and Findings: Presentation of results and findings of project
work.
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Chapter Three-Discussion and Conclusion Evaluating and interpreting the
implications results obtained. Include similarities and differences between results
obtained and the work of others. Present implications of conclusion for practical
application or future studies.
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CHAPTER TWO
RESULT AND Analysis
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Table 2.1: Profitability position of Sunrise bank limited
In the table 2.1, we can see that the net profit of Sunrise Bank Limited is in
increasing trend since FY 2067/68 to 2069/70. In the FY 2070/71, net profit of the bank
decreased by 20.8069%. The highest increase in net profit is recorded in FY 2069/70 i.e.
by 180% and the highest decline in profit was in FY 2070/71 i.e. by 20%. Despite the ups
and downs, the net profit of Sunrise Bank Limited is in increasing trend. The table above
can be presented by following figure:
40000
35000
30000
25000
Net Profit
20000
Net Income
15000
Total Assets
10000
5000
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2.1.2 Profitability Ratios of Sunrise Bank Limited
The following are the ratios of profitability of Sunrise bank Limited:
In relation to investment
i. Return on Equity
It is the ratio of net income to shareholders’ equity. It measures the rate of return
on common stockholders’ investment. It shows how effectively the bank has utilized the
owners’ fund. Return on shareholders’ equity is calculated dividing net profit after taxes
by shareholders’ equity.
From the above table 2.2, we can say that the return on shareholder’s equity of Sunrise
Bank Limited is in increasing trend. ROE in F/Y 069/70 is 2.06% and the year later is
5.16%. The ratio reached all time high in F/Y 073/774 by 14%. Despite the decrease in
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F/Y 072/73, the bank succeeded to increase its ROE in the later year and maintained the
increasing trend. The table above can be presented by following figure:
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14
12
10
8
Series1
6
0
2069/70 2070/71 2071/72 2072/73 2073/74
The ratio of net income to total assets measures the return on total assets (ROA) after
interest and taxes. The total profit earned on the assets of the bank is known as return on
assets. It measures the productivity of the bank’s assets. It conveys information on how
well the bank’s resources are being used in order to generate income. More efficiently-
run banks tend to have higher ROA.
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Table2.3 : Return on total assets
Fiscal year Net income Total Assets Return on Assets( %)
2069/70 44.2391 15850.4579 0.279
2070/71 111.1935 21279.0084 0.523
2071/72 311.609 26128.839 1.193
2072/73 246.7726 29661.322 0.832
2073/74 470.857 37388.8149 1.259
Return on total assets of Sunrise Bank Ltd. is on increasing trend. It was 0.279% in the
FY 2069/70 while in the FY 2070/71, it was 0.523%. In the FY 2071/72, ROA increased
to 1.193%, thereby falling to 0.832% in the FY 2072/73and increased to 1.259% in the
FY 2073/74
40000
35000
30000
25000
Net Income
20000
Total Assets
15000 Roe
10000
5000
0
2069/70 2070/71 2071/72 2072/73 2073/74
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2.1.3 In relation to shareholders
i. Earnings per Share
Earnings per share (EPS) are the income of per common stock. It is the ratio which
measures the earnings available to the equity shareholders on a per share basis. It is the
ratio of earnings available to equity shareholders to total number of common stock
outstanding.
Market price per share (MPS) is the closing price of stock in the stock exchange.
It gives management an indication of what investors think of the company’s past
performance and future prospects.
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600
500
400
300 EPS
MPS
200
100
0
2069/70 2070/71 2071/72 2072/73 2073/74
The price earnings ratio indicates the expectation of equity investors about the
earning of the firm. It relates earnings to market per share.
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Table2.6 : DPR and P/E ratio
70
60
50
40 DPR (%)
P/E ratio
30
20
10
0
2069/70 2070/71 2071/72 2072/73 2073/74
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2.1.3 In Relation to Income
i. Net Profit Margin
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 ∗ 100%
From the above table 4.7, we can say that net profit margin of the bank has a
fluctuating trend in the given five fiscal years. Above table can be represented by
following figure:
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1.4
1.2
0.8
0.6
Net profit margin
0.4
0.2
0
2069/70 2070/71 2071/72 2072/73 2073/74
The overall profitability position of the bank is sound during period 2069/70 to
2073/74.
Net income of the bank has an increasing trend despite the fall in income in the
FY 2072/73. We can say that the bank has invested in quite profitable sectors.
ROE is on rising trend it increases from 2.061% to 14.064% during period
2069/70 to 2073/74 which means bank is trying to make effective utilization of
owners’ capital. The ROE of the bank has fallen in the year 2072/73. But the bank
has done a very good comeback in the later year with a ROE of 14.064%.
ROA is in increasing trend from the last five years which indicates total assets are
properly utilized.
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ROCE of the bank also has an increasing trend. We can say that the bank has
gained a good percentage of returns on owner’s fund over the years. The effort of
the owners put into the business has been worthwhile.
MPS of the bank has been increasing because of its good performance and EPS of
the bank is fluctuating due to change in number of shares.
DPR and P/E ratio both are in fluctuating trend. DPR is increasing up to fiscal
year 071/72 and then went to nil at later year whereas P/E ratio has exactly
opposite behavior. This is due to heavy negative change in income of the bank in
the year 071/72.
Net profit margin of the bank has a fluctuating trend in the given five fiscal years.
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CHAPTER THREE
DISCUSSION AND CONCLUSION
3.1 Discussions
A bank is a financial institution which collects money from the surplus unit and lends to
the deficit unit. In this process, the bank earns income. The rate of interest paid to
depositors is generally lower than the rate of interest charged to the borrowers. The
difference between these two rates of interest is the profit of the bank. Bank directly or
indirectly affects the economy of the country. Since the banks mobilize the funds to their
optimum use by giving life to the idle cash put under the mattress, they play a significant
role in the economic development of a country. Moreover, banks make available the
necessary funds to perform the development activities of the country.
The comparison of total profit of the bank over the five fiscal years from the year
2067/68 to 2071/72 is done. Different profitability ratios are calculated to find out the
overall profitability position of the bank. Profit margin, return on equity, return on total
assets, earning per share etc of the bank are calculated. The output of the data analysis is
presented in suitable diagrams.
This report also shows the in line finding with the previous report (Shrestha, 2011), i.e
the increasing trend of Profitability of commercial bank in Nepal, so the previous
research can be justifiable.
3.2 Conclusion
The report reveals some important information about the financial aspect of the bank
from the year 2067/68 till the date 2071/72.The main feature of the study is to get actual
knowledge about the position of Sunrise bank. It examines the ROE and ROA of Sunrise
bank. Under this study following consideration could be made.
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The Previous research by (Shrestha, 2011) concluded that the profitability in future is
sound for the commercial banks in Nepal. Similar findings has been seen in this report as
well since the overall profitability position of the sample bank is in increasing trend.
The overall profitability position of the bank is sound during period 2067/68 to
2071/72. Profit of the bank has been in increasing trend except in the year 2070/71.
ROE is on rising trend it increases from 2.061% to 14.064% during period 2067/68 to
2073/74 which means bank is trying to make effective utilization of owners’ capital.
The ROE of the bank has fallen in the year 2070/71. But the bank has done a very
good comeback in the later year with a ROE of 14.064%.
ROA is in increasing trend from the last five years which indicates total assets are
properly utilized.
MPS of the bank has been increasing because of its good performance and EPS of the
bank is fluctuating due to change in number of shares.
Net profit margin of the bank has a fluctuating trend in the given five fiscal years.
This revelation indicates efficiency in the part of bank management. In all, the bank’s
profitability in relation to income; investment; and shareholders is in satisfactory position
and trend. So it is suggested for Sunrise Bank to maintain is ratios.
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Pandey, I. (2015). Financial management (1st ed.). New Delhi: Vikas Publishing House
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Sthapit, A. (2009). International business: Text and cases (2nd Revised ed.). Kathmandu,
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www.wikipedia.com
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