summer project of siddhartha bank limited

Working capital position of Siddhartha Bank Limited

CHAPTER ONE

1. INTRODUCTION

1.1 Background of study

It is very difficult to give definition to any particular subject matter. Different

scholars have presented the definition or meaning of the same subject matter in different

ways. In the same way the definition of bank given by different scholars also varies.

Though there is no universal definition of bank, the definitions of the writers are

somehow similar to each other’s.

Bank is an institution established by law, which deals with money and credit. In a

common sense, an institution involved in monetary transaction is called bank. So, Bank is

the financial institution, which is especially related with economic transaction. It is an

important financial institution in economy and essential business in the world. It must be

identified by the role and services, they performed in the economy. Banks work as credit

creature, money maker, currency exchanger, transfer etc in the country. Today, Banks are

playing the changes roles in the modern economy and the function of their principal

competitors like finance company, insurance, insurance company, brokerage firm, co-

operative institution etc are also trying to be played the similar roles and function. So,

Bankers are challenging these non- bank competitors by lobbying for expanded authority.

The meaning of bank can be made clear from the following definition.

According to Nepal Commercial Bank Act 2031 B.S. “ A commercial

bank refers to such type of bank which deals in money exchange accepting deposits,

advancing loans and commercial transactions except specific banking related to co-

operatives, agriculture & industry and other objectives.

According to professor Kinsley, “ Bank is an establishment, which awakes

to individual such as advances of money as may be required and safety made to and to

which individual withdrew money when and required by them for use.”.

According to U.S. Law,” Any institution offering deposits subject to

withdraw on demand and making loan of a commercial or business nature is a bank.

Bank can, therefore, be definition which renders a lost of financial services

besides taking deposits and giving loan. Bank provides other much more important

services to its clients and also the Operation of bank, today, is not confined with in the

boundary of a nation. It has spreader the function in different foreign country.

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Name, Year of Establishment and Head office of Existing

Commercial Banks of Nepal

Table 1.1

S.No

.

Name Year of Estd.

(AD)

Head Office

1 Nepal Bank Ltd. 1937/11/15. Kathmandu,Dharmapath.

2 Rastriya Banijya Bank 1966/01/23 Kathmandu,Singhadurbarplaza.

3 Nabil Bank Ltd. 1984/07/16. Kathmandu,kantipath.

4 Nepal Investment Bank Ltd. 1986/02/27. Kathmandu,Durbarmarg.

5 Standard Chartered Bank Nepal

Ltd.

1987/01/30. Kathmandu,Nayabaneshwor.

6 Himalayan Bank Ltd. 1993/01/18. Kathmandu, Thamel.

7 Nepal SBI Bank Ltd. 1993/07/07. Kathmandu,Hattisar.

8 Nepal Bangladesh Bank Ltd. 1994/06/05. Kathmandu,Nayabaneshwor.

9 Everest Bank Ltd. 1994/10/18. Kathmandu,Lazimpat.

10 Bank of Kathmandu Ltd. 1995/03/12. Kathmandu,Kamaladi.

11 Nepal Credit and commerce

Bank Ltd.

1996/10/14. Rupandehi,Siddharthanagar.

12 Lumbini Bank Ltd. 1998/07/17. Chitwan,Narayangadh.

13 NIC Bank Ltd. 1998/07/21. Biratnagar,Morang.

14 Machhapuchree Bank Ltd. 2000/10/03. Pokhara,prithivichowk.

15 Citizens Bank International Ltd. 2007/06/21. Kathmandu,Kamaladi.

16 Sunrise Bank Ltd. 2007/10/12. Kathmandu,Gairidhara.

17 Kumari Bank Ltd. 2001/04/03. Kathmandu,Durbarmarg.

18 Laxmi Bank Ltd. 2002/04/03. Birgunj,Adarshanagar.

19 Siddhartha Bank Ltd. 2002/12/24. Kathmandu,kamaladi.

20 Agriculture Development Bank 1968/01/21. Kathmandu,Ramshahpath

21 Global IME Bank Ltd. 2007/10/02 Birjung, Parsa.

22 Prime commercial Bank Ltd. 2007/09/24. Kathmandu,Newroad.

23 Bank of Asia Nepal Ltd. 2007/10/12. Kathmandu,Tripureshowr

24 Grand Bank Nepal Ltd. 2008/05/07. Kathmandu,Kamaladi.

25 NMB Bank Ltd. 2008/06/05. Kathmandu,Babarmahal.

26 Kist Bank Ltd. 2009/05/07. Kathmandu,Anamnagar

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27 Janata Bank Nepal Ltd. 2010/04/05. Kathmandu,Nayabaneshwor.

28 Mega Bank Nepal Ltd. 2010/07/23. Kathmandu,Kantipath.

29 Commerz and Trust Bank Nepal

Ltd

2010/09/20. Kathmandu,Kamaladi.

30 Civil Bank Ltd. 2010/11/26. Kathmandu,Kamaladi.

31 Century Commercial Bank Ltd. 2011/03/10 Kathmandu,Putalisadak.

32 Sanima Bank Ltd. 2012/02/15. Kathmandu,Naghpokhari.

Having the opportunity to pick a bank of my choice for my study I choose

Siddhartha Bank Ltd. For the reason, that it is easily accessible and they would provide

me with all the data and information.

Siddhartha Bank was established by 100% domestic investment. Being a

commercial bank, it provides the greater part of the money/check in the form of deposit.

In this bank, 51% of share is allotted by Nepalese promoters and remaining 49% of shares

allotted to general public of Nepal.

Siddhartha Bank has ever since its establishment been included in banking

services including Working Capital position which happens to be the subject of my study.

Since its establishment in 2002, the Bank has come a long way. The portfolio size

of the Bank has been consistently growing each year. At the end of FY2067-68(2010-

2011), deposit portfolio stood at Rs 21.57 billion while the loan portfolio reached Rs

18.64 billion. The net profit of the Bank stood at Rs 311.4 million. This growth trajectory

is expected to further go up with the infrastructure the bank has been building up over the

recent years. The Bank has installed a new state – of – the – art software FLEXCUBE, an

oracle financial services and software (OFSS) product which is highly regarded

worldwide and has been used by number of international banks. This technology platform

supports the ever widening branch and ATM network that currently stand at 41 and 42

respectively.

The branches have been strategically expanded to meet our existing customer

value chain requirements and to penetrate into new customer segment. Similarly, the bank

has been established a dedicated payment solutions department to look into alternative

delivery channels such as card service, internet Banking, ATMs and Mobile Banking with

3


this set-up, the bank has been able to delivery technologically driven products and

services to its customers.

1.1.1 Definition and Importance of Working capital

Working capital, also known as net working capital or NWC, is a financial metric

which represents operating liquidity available to a business. Along with fixed assets such

as plant and equipment, working capital is considered a part of operating capital. It is

calculated as current assets minus current liabilities. If current assets are less than current

liabilities, an entity has a working capital deficiency, also called a working capital deficit.

Working Capital = Current Assets – Current Liabilities

A company can be endowed with assets and profitability but short of liquidity if its

assets cannot readily be converted into cash. Positive working capital is required to ensure

that a firm is able to continue its operations and that it has sufficient funds to satisfy both

maturing short-term debt and upcoming operational expenses. The management of

working capital involves managing inventories, accounts receivable and payable and

cash.

1.1.2 Capital Structure of Siddhartha Bank Ltd

This Bank started its functioning with the following amount of capital:

Authorized capital 3,000,000,000

Issued capital 1,571,130,000

Paid up capital 1,571,130,000

Par value of shares 100

No. of shares 15,713,000.

4


1.1.3 Organization Board of Director of Siddhartha Bank Ltd.

S.No. Name Position

1. Mr. Surendra Bhandari. CEO

2. Mr.chiranjilal Agrawal. Chairman

3. Mr. Mahesh Prasad pokhrel. Director

4. Mr. subodh todi. Director

5. Mr.Ratan lal Kedia. Director

6. Mr.Poonam chand Agrawal. Director

7. Mr. Bishwa nath shah. Director

8. Mr. Hemant Gyawali. Director

9. Mr.Bhagwat Bista. Director

10. Mr. Manoj kumar Kedia. Director

11. Mr. Tara Chand Kedia. Alternative Director

1.1.4 Management Committee of Siddhartha Bank Ltd

S.No. Name Position Department

1. Surendra Bhandari CEO ---

2. Surendra Prasad kandel Head Deputy General

Manager

3. Rameshwor Prasad

Bashyal

Head Assistant General

Manager

4. Sher bahadur Budhathoki Head Assistant General

Manager

5. Arjun Bhadra khanal Manager Business support

6. Anindra Acharya Manager Control and

compliance

7. Pankaj Pant _ Branch Manager.

8. Ira Pradhan Relationship

Manager

Credit

9. Bhola Nath Dhungana _ Company Secretary

5


and Manager

10. Ram Chandra Khanal Manager Finance and Account

11. Laxman Subba Head SME and Consumer

Banking

12. Rudra nath Dhungana Relationship

Manager

SME and Consumer

Banking

13. Shambhu nath Gautam _ General Manager

14. Ashok Upadhya Manager Branch operation

15. Biplavi Singh Relationship

Manager

Credit admin.and

Control

16. Santosh panday Relationship

manager

Marketing

17. Pradeep Pant Ralationship

Manager

Marketing

18. Chandan Karki Manager Treasury

19 Surya Bahadur Tamang Branch manager -

20. Sailaja Gyawali Manager Marketing

21. Srijan Krishna Malla Head It

22. Amit Shrestha Relationship

Manager

Credit.

1.1.5 Corporate Social Responsibilities Siddhartha Bank Ltd

Siddhartha bank has a strong tradition of supporting the communities in which it

operates. “We understand we have a direct impact on the community through our

operation and indirectly through our business activity and we are committed to treating

our employment and customer fairly “. Siddhartha is trusted within its territories and it is

dedicated in making difference.

Social and community programs –installed billboards across the highways with

social messages to create social awareness on child labor, domestic violence, anti-

smoking and anti-drug addiction.

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With the bank’s focus on youth and education, the bank continued its support to

the deserving students.

The Bank goes all out to help people in times of natural calamities.

Every year, the Bank organizes blood donation camps within the Bank premises in

coordination with Nepal’s major blood bank.

1.1.6 Performance of Siddhartha Bank Ltd

Performance of SBL Up to now have:

Established its branchless services from Dailekh. The first project under

branchless banking which was launched to facilitate “cash for work” program of

UNWFP.

Raised awareness, internally and externally, of their priorities and intentions.

Aligned Corporate Responsibility aspirations and priorities with their business

goals.

Established clear goals for all areas overseen by the Corporate

Responsibility committee.

Engaged with key stakeholders on reporting and the Banks priority areas.

Published their second Corporate Responsibility Review.

Establish a dedicated payment solutions department to look into alternative

delivery.

7


1.1.7 Priorities of Siddhartha Bank Ltd

To publish a sustainable business strategy and sustainability report in early

2009 and continue to report on their progress.

To develop a global stakeholder research network.

To develop a Group-wide approach and stance towards building a

sustainable business, including a gap analysis of activities and policies.

To understand and define the focus and boundaries of their influence.

Publish their approach to climate and the environment, including targets

and key actions the Bank will take.

To embed a consistent understanding internally of what building a

sustainable business means for Siddhartha.

To focus on the boundaries of sustainability reporting in particular in

relation to sustainability risk evaluation and the Equator Principles.

To continue to build momentum as an international thought leader in

building a sustainable business.

Embedded processes for talking with their stakeholders and communication

performance.

8


1.2 Objectives of Study.

Generally, working capital is known as the amount of fund necessary to cover the cost

of daily operation of the enterprise. And the study of working capital of Siddhartha bank

is to focus on ascertainment of the current assets and current liabilities. Besides

following are the objectives of the study:

1) To know the level of working capital of siddhartha bank limited.

2) To identify total working capital trend of siddhartha bank limited.

3) To study the relationship between current assets and current liabilities with

working capital.

4) To measure the ability of company to meet its short term obligations.

5) To provide necessary suggestions for improvement based on finding of the study.

1.3 Needs and Significance of study .

This fieldwork study has been prepared for the achievement of the BBA degree.

Students are well benefited by such report writing. Mainly aiming to broaden the mind of

researchers by getting practical knowledge the study directly helps to the students. The

importance of fieldwork can be summarized as follows:

1) Importance to the other researchers

2) Importance to investors

3) Importance to the company itself to improve its financial position

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4) Importance to other stakeholders.

1.4 Review of Literature

1.4.1 Net Working Capital

The Working Capital refers to the net current assets i.e. difference between

Current Assets and Current liabilities. Working Capital, sometimes, is also termed as

firm’s liquidity. The larger the net working capital in the firm, larger will be the firm’s

capability to meets its current obligation. Working Capital, however, measures the firm’s

reservoir of the funds. It is calculated by subtracting the current liabilities from the

current assets.

i.e., Working capital = Current assets – current liabilities.

According to Weston and Brigham, “Working capital refers to a firm’s investment in

short term assets such as cash, short term securities, account receivables and inventories”.

According to John J. Hampton, “working capital is defined as all the short term assets

used in daily operation. They consist primarily of cash, marketable securities, account

receivable and inventories”.

According to Shubin, “working capital is the amount of funds necessary to cover the cost

of operating the enterprises”.

According to Mead,Baker and Mallot,” working capital means current assets”.

According to J.S Mill,” The sum of current assets is the working capital of a business “.

According to Gestanburg,” It is ordinarily been defined as the excess of current assets

over current liabilities”.

According to Hogland,” working capital is to consider it as the difference between the

book value of current assets and current liabilities”.

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I) Net Working Capital Ratio

Working capital ratio is computed by dividing the working capital by net assets.

Net assets refer to the sum of net working capital and net fixed assets. It can be expressed

as following:

Net working capital ratio = Net working capital

Net assets

[Where, net asset = net working capital + net fixed asset]

1.4.2 Liquidity Ratio

Liquidity ratio is the ratio to analyze current and quick assets. Liquidity refers to the

ability to lay ones hand on cash when needed within no time. And liquidity ratio is the

ratio that measures the liquidity position and short term solvency position of the bank i.e.

bank’s ability to meet its short term obligation and cash needs. Liquidity is the pre-

requisite for the survival of the firm as it checks the liquidity position and the managerial

effectiveness in the working capital and its components.

I) Current Ratio

The current ratio is computed by dividing current assets by current liabilities. It is

the most common measure to calculate the short term solvency. Mathematically, it can be

illustrated as follows:

Current assets

Current ratio =

Current liabilities

11


current assets represent those asset which can be converted into cash within an accounting

period For example: cash, bank balance, marketable securities, account receivable,

inventory, etc. similarly, current liabilities refers to the obligation that must be met within

a year such as short term debt, accrued income, trade creditor, bills payable, bank credit,

outstanding expenses. The current ratio represents margin of safety and higher the ratio,

higher the margin of safety.

II) Quick Ratio

Quick ratio is also termed as Acid Test ratio or liquid ratio. This ratio is computed

by dividing the current assets minus inventories by the current liabilities.

Quick Ratio = Current assets - Inventories

Current Liabilities

Quick assets refer to current assets that can be converted into cash immediately. An asset

is said liquid if it can be converted into cash immediately or reasonably soon without and

loss of the value. Cash, book debts, marketable securities etc are considered to be the

liquid assets.

1.4.3 Correlation Analysis of Siddhartha Bank Ltd

Correlation Analysis is the statistical tool used to describe the degree, where one

variable is related to another. The analysis helps us in determining the degree of

relationship between two or more variables. Correlation measures the extent to which two

random variables move together. The correlation may be positive or negative (i.e., +1 or -

1) and most cases lies between these two extreme values. If both variables are moving in

the same direction, then it is to be positive and vice- versa. And in our context, the

purpose is to find out correlation between working capital & current assets and working

capital & current liabilities over the study period.

(I) Karl Pearson’s Correlation Coefficient

Karl Pearson’s correlation coefficient is one of the popular mathematical tools

to calculate the correlation coefficient between the two variables. It is denoted by

simply ‘r’ and defined as:

xy

12


r =

xy2

Where, x = X - Xy = Y-Y

The value of ‘r’ always lies between -1 and +1 and (r = ±1) denotes the positive

correlation between two variables and (r = - 1) denotes the negative correlation

between two variables.

(II) Probable Error

Probable error of the correlation coefficient is the measure of testing the

reliability of the calculated value of ‘r’. It is denoted by P.E. If r be the calculated

value of r from sample of n pair of observation, then P.E is defined by

1- r2

P.E = 0.6745

n

It is used to interpret, whether the calculated value of r is significant or not. If r <

P.E, it is insignificant, so there may not be evidence of correlation. And if r > 6

P.E, it is significant.

1.4.4 Trend Analysis of Siddhartha Bank Ltd

Trend Analysis is a series formed by a group of statistical data arranged in

accordance with their time of occurrence. It is least square method used in this

study. The analysis shows the relationship between two variables in which one is

time. The equation of the straight line trend is

Yc = a + bx….. (i

13


Where,

a = y

n

b= xy

x2

1.5 Fieldwork Procedure

A planned procedure is of utmost need for the successful accomplishment of any

task. As per the instructions provided in class and by studying related books following

procedures are taken while preparing this fieldwork report

Site visit was the first step where researcher makes direct interview with

related personnel.

Secondly, the related data such as annual reports, journals, income statements

etc was collected.

Then the data was analyzed and evaluated for the right solution.

Last step was to give logical result of the study.

1.6 Research Methodology

Basically, this field report was made on the basis of the annual reports of

Siddhartha Bank which is the secondary source or published ones. With the objectives of

finding the working capital and operating financial position of the bank and to

recommend with necessary suggestions for the improvement of the financial position in

the future. The research Methodology applied in this fieldwork study is Research Design,

14


Data Collection Procedures and Processing Techniques and other statistical tools and

measures.

1.6.1 Research Design

The task of defining the research problems in the preparation of the Design of

Research project is widely known as the Research Design. It generally constitutes the

blue print for the collection Measurement and Analysis of Design. It is the planned

structure and strategy of investigation. The Research Design refers to the entire process of

planning and carrying out the Research study. And in this report writing, secondary data

are analyzed and both analytical and descriptive methods are used for the analyzing the

data.

1.6.2 Sources of Data of Siddhartha Bank

The required data for this study is collected through contacting concerned staffs

from the concerned authorities of siddhartha bank. Generally, annual report and other

official reports are the main sources of data for this report writing.

The data, used for this study are of two types:

a) Primary data

b) Secondary data

Primary data are self prepared by site visiting the company office and interviewing the

concerned personnel. Use of primary data is statistical investigation but is not always

practicable. Secondary data are the published sources which are readily available. So due

to the limited time secondary data are used for this study which are as follows:

I. Annual report of siddhartha bank ltd.

II. Balance sheet of the bank

III. Income statement of the bank.

15


1.6.3 Tools for Analysis or Analytical of Tools of Siddhartha Bank Ltd

This Fieldwork is prepared considering the accuracy. Various statistical tools such

as percentages, averages, correlation etc. to meet the required standard of accuracy and

effective result of the research. For the analysis of the data, mainly two sorts of tools have

been followed:

a) Financial Tools

Working capital is calculated subtracting the current liabilities from the current

assets. It can be denoted as follows:

I. Net Working Capital = Current Assets – Current liabilities

II. Current Ratio = Current Assets

Current liabilities

III. Quick Ratio = Quick Assets

Current Liabilities

b) Statistical Tools

Data requires be classifying and tabulating after collecting the numerical data.

And for this, various other statistical tools are used to analyze the financial data of the

bank. They are as follows:

1) Arithmetic Mean

2) Karl Pearson’s Correlation Coefficient

3) Percentages

4) Pie chart

5) Standard Deviation

16


6) Coefficient of Variation

1.7 Limitations of the Study

The study is simple and partial requirement of B.B.A. program. It is just a mini

research of working capital of siddhartha bank ltd. Which helps to fulfill the requirement

of P.U. to get the B.B.A. Degree. This report is prepared in short time period. More

orientation classes and extra reference books are required to the students for coming out

with best efficient and effective result on the fieldwork report.While preparing the report

following limitations was found.

a) The result of the study depends on the information provided by the

company as secondary data has been used.

b) Limited budget and time is another problem.

c) The study includes the data of just 3 years (2009-2011).

d) The qualitative factors, plans and policies, management techniques of the

company and the political impacts have not been included.

1.8 Plan of the Study of Siddhartha Bank Ltd

This study has been organized into three chapters each concerned to some aspects of

the working capital analysis.

The first chapter contains the introduction, purposes, methods of data collection,

statement of problems, limitations and the conceptual structure frame work of the study.

The second chapter covers the presentation of the data, Analyzing and findings of the

study.

This last chapter includes summary, Conclusion and the Recommendations of the

study.

17


CHAPTER TWO

2. RESEARCH METHODOLOGY

2.1 Research Design:

The research methodology is the process of arriving to the solution of the

problems through planned and systematic dealing with the collection, analysis and

interpretation of facts and figures. As the research entirely consists about the “saving

deposit analysis of the Siddhartha bank “,the main purpose of this study are to show

deposits and its utilization in SBL financial position, collection and uses of funds, its

prospects and its position in the context of Nepal as well as recommend suggestion for its

implement. This research methodology has been used which proves helpful to deposit

analysis. For the purpose of achieving the objective, the following methodology is used

acquiring various kinds of reports, Bulletins and journals from the organization. Similarly

the data has been acquired from SBL also.

The study report is based mostly on secondary information of SBL. In addition to

this reference has been made in library consult, class lecture, books related to banking,

financial management and accounting during the preparation of this report.

2.2 Types of Methodology in Research:

Collection of data means the methods that are used for getting the necessary

information from the units under investigation. The method of collecting the data depends

upon the nature, object & the scope of the inquiry. There are two types of data:

(a) Primary Data

(b) Secondary Data

According to Selltiz, Wrightsman and Cook as quoted by Ritchie (1989) the

purpose of various data collection techniques are to produce truth worthy evident that is

relevant to the research question being asked.

18


(a) Primary Data:

The first hand data, which is collected by the researcher himself, is primary data.

The data are thus originated in character. These types of data are obtained in the survey

and inquire conducted by Government, some individual institutions & research bodies.

This fieldwork is based, to some extent, on the primary data collected from the concern

sample group of officers working in SBL. The different sets of questionnaire used in the

collection of primary data are given in appendix I & II.

(b) Secondary Data:

Any data, which are already published in other sources, like book, newspaper,

website, etc. is secondary data. For this purpose of this fieldwork, I have collected the

secondary data from the following sources:

01. 2063/64, 2064/65. 2065/66, 2066,67 and 2067/68 Annual report of EBL.

02. Field work report of previous BBS II year.

03. Other related Manuals & Bulletins stamen published by SBL.

2.3 Data Processing Technique:

The data collected from the above stated sources has been classified, tabulated

and interpreted for easier study. Research was conducted on the basis of observation,

work experience, customer interaction, prepareation of questionnaires and interaction w

ith department heads and senior assistance. For the purpose of collection data we also

used the following methods which are as listed here below:

a. Questionnaire Method:

This method is an instrument consting of a series of questions and other prompts

for the purpose of gathering information from respondts. We provided with open-ended

question so, it was easy and quick method to get required information from the

respondents. It does not require much effort as in verbal or some other collection

procedure.

19


b. Sampling Method:

As the time limit for the internship period was very limited we have used quota

sampling method in the process of survey to get required information. Here we can decide

the number of people we want to sample and conduct survey. So this process is less time

consuming and quite important enough to get required information.

2.4 Diagrammatic Representation of Data:

Various diagrams are used to present the data more clearly. The diagrams used are as

follows:

Bar Diagram

Pie-chart

Line Graph

20


CHAPTER THREE

PRESENTATION AND ANALYSIS OF DATA

This study focuses on ascertaining the total working capital trend of Siddhartha Bank.

Total working capital trend refers to the total working capital expenditure during different

years which is shown in following table:

3.1 Net working capital of SBL

Table 3.1: Net working Capital of SBL.

Fiscal

year

Current assets

(NRs)

Current liabilities

(NRs)

Net working capital

(NRs)

2008/09 17,537,573,410 16,375,235,600 1,162,337,810

2009/10 22,211,979,800 20,626,117,190 1,585,862,610

2010/11 23,710,408,870 22,144,697,200 1,565,711,670

Total 63,459,962,080 59,146,604,990 4,313,912,090

(Sources: Annual Report of SBL)

.

The above table shows working capital trend of Siddhartha Bank Limited for three

years from fiscal year 2009 to 2011. The working capital for the year 2009 was Rs.

1,162,337,810 (i.e. Rs17,537,573,410-16,375,235,600), 2010 was Rs. 1,585,862,610 (i.e.

22,211,979,800-20,626,117,190), and 2011 was Rs. 1,565,711,670 (i.e. 23,710,408,870-

22,144,697,200). Above working capital is derived by deducting current liabilities from

current assets i.e. WC = CA – CL.

In above table, the total current assets exceeds the total current liabilities i.e. Rs

63,459,962,080 > 59,146,604,990 which means the liquidity position of the company is

strong. The difference between the total current assets and total current liabilities i.e

working capital is Rs. 4,313,912,090. The creditors of the bank are satisfied and have

good faith over the bank.

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Figure 3.1: Net Working Capital of SBL

The figure shows the trend line of working capital of three different years from 2008/09

to 2009/10 of Siddhartha Bank Limited. There is no uniformity in growth of working

capital. In 2009/10 there is increase in working capital up to Rs1, 585,862,610 then, it

decreases to Rs 1,565,711,670 in the year 2010/11. It shows the negative sign to the

company because there is no improvement in working capital each year.

3.2 Current Ratio of SBL

Table 3.2: Current Ratio of SBL

Fiscal

year

Current assets

(NRs)

Current liabilities

(NRs)

Net working capital

(NRs)

2008/09 17,537,573,410 16,375,235,600 1.07

2009/10 22,211,979,800 20,626,117,190 1.08

2010/11 23,710,408,870 22,144,697,200 1.07


22


The above table shows the current ratios of Siddhartha Bank Limited for 3 years.

The ratio rises from 1.07 times to 1.08 times in the year 2009/10. Again, it tends to

decrease to 1.07 times in the year 2010/11.

Figure: 3.2 Trend Showing Current Ratio

The above trend line shows that the current ratio of the bank is in increasing trend

from the year 2008/09 to the year 2009/10 and it decreases then in 2010/11.

3.3 Quick Ratio

Table 3.3: Quick Ratio of SBL

Fiscal year Current assets

(NRs)

Current liabilities

(NRs)

Net working capital

(NRs)

2008/09 17,537,573,410 16,375,235,600 1.07

2009/10 22,211,979,800 20,626,117,190 1.08

2010/11 23,710,408,870 22,144,697,200 1.07


Since we don’t have inventory in the bank, we found that the current ratio and

quick ratio is same in the year 2005/06, 2006/07and 2007/08.

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3.4 Computation of correlation between WC and CA

Table 3.4: correlation between WC and CA

(Amount in 10 million)

Year WC (X) CA (Y) X = x – x Y = y – y X2 Y2 XY

2008/09 116.23 1753.76 (27.56) (361.57) 759.55 130732.86 9964.87

2009/10 158.58 2221.19 14.79 105.86 218.74 11206.34 1565.67

2010/11 156.57 2371.04 12.78 255.71 163.33 65387.60 3267.97

Total x =

431.38

y =

6345.99

x2 =

1141.62

y2 =

207326.8

xy =

14798.51

(Source: Annual Report of SBL)

N = No. of the years

x 431.38

Mean (X) = =

N

y 6345.99

Mean (Y) = = = 2115.33

N 3

Again,

24


xy

r =

xy2

14,798.51

=

1141.62207326.8

14798.51

=

33.78

r = 0.9621

From the above calculation, the correlation coefficient ‘r’ is 0.939 which is nearly +1.

Therefore, it shows the high degree of positive correlation between working capital and

current assets. Now, to find out whether the value of r is significant or not, we calculate

the probable error. So,

1- r2

P.E = 0.6745

n

1- (0.9621) 2

= 0.6745

1.7320

= 0.0289

P.E = 0.0289

6 P.E = 6

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Since, r > 6P.E so the correlation coefficient is significant. Hence, there is positive

relationship between WC and CA.

3.5 Computation of correlation coefficient between WC and CL

Table 3.5: correlation coefficient between WC and CL

Year WC (X) CL (Y) X = x –

x

Y = y – y X2 Y2 XY

2008/09 116.23 1637.52 (27.56) (334.02) 759.55 111569.36 9205.59

2009/10 158.58 2062.61 14.79 91.08 218.74 8295.57 1347.07

2010/11 156.57 2214.47 12.78 242.94 163.33 59019.84 3104.77

Total x =

431.38

y =

5914.61

x2 =

1141.62

y2

=178884.77

xy =

13657.43


N = No. of the years

x 431.38

Mean (X) = =

N

y 5914.6

Mean (Y) = = = 1971.53

N 3

Again,

xy

r =

xy

26


13657.43

=

13657.43

=

33.79

13657.43

r = 0.9556

From the above calculation, the correlation coefficient ‘r’ is 0.9556 which is nearly 1.

Therefore, it shows the positive degree of correlation between working capital and current

liabilities. Now, to find out whether the value of r is significant or not, we calculate the

probable error. So,

1- r2

P.E = 0.6745

n

1- (0.9556) 2

= 0.6745

1.7320

= 0.0337 P.E = 0.0337

Since, r < P.E so the correlation coefficient is significant. Hence, there is positive

relationship between WC and CL.

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3.6 Calculation of trend values of working capital

Table 3.6 Calculation of trend values of working capital

(Rs. In 10 million)

Year (X) WC (y) x= X – 2010 x Xy Yc

2009 116.23 -1 1 -116.23 629.573

2010 158.58 0 0 00 742.69

2011 156.57 1 1 156.57 855.807

y = 431.38 x xy = 40.34


where,

y = 431.38 x

x = 0 xy = 40.34

n = 3

Now, we have,

y 431.38

a = = = 143.79

n 3

xy 40.34

b = =

x

Now, putting the value of a and b in equation (i)

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For year 2012,

Yc = a + bx

= 143.79 + 20.17

For year 2013,

Yc = 143.79 + 20.17

For year 2014,

Yc = 143.79 + 20.17

The above calculation clearly shows that the value of working capital is increasing each

year. The trend value of WC for three years has been calculated. For the year 2012, 2013

and 2014, the values are184.13, 204.3 and 224.47 respectively.

Trend line showing the trend value of WC from 2012 to 2014

Figure 3.6 Trend Value

In the above figure, the working capital trend line is increasing for the three years so that

the trend line has upward slope from the year 2012 to 2014. Therefore the upward trend

line shows the high profit and a positive sign to the company.

3.7 Study Result:

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During the study period of Siddhartha Bank limited from 2004 to 2011, we found

that there was excess amount of current assets than current liabilities and the working

capital is also increasing yearly. This shows more current assets had been invested than

the current liabilities in each year. However, there was no uniformity in increasing of the

working capital. By the study we found following results:

The calculation of working capital shows that the current asset exceeds current liabilities and the working capital is also increasing yearly.

The working capital trend line is increasing yearly which means it is upward sloping.

The study results the positive relationship between WC and CA and indicates a favorable position of the company.

The current ratio is also increasing and above the standard and sound.

Table 3.7 comparative study

Source: Annual report of SBL

3.7.1 Group performance of Siddhartha Bank

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Table 3.8 Group performance

US$m 2010 2011 YOY%

Income 15,184 16,062 6

Expenses 7,952 9,032 13

Operating Profit Before

Impairment

7,232 7,039 (3)

Loan Impairment (2,000) (883) (56)

Other Impairment (102) (76) (25)

Profit from associates 21 42 100

Profit before tax 5,151 6,122 19

Profit attributable to

ordinary shareholders

3,279 4,231 29

3.7.2 Income and profit of Siddhartha Bank Limited

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Table 3.9 income statementParticulars This Year (Rs.) Previous Year (Rs.)

1. Interest Income 2,690,294,141 2,018,291,8132. Interest Expenses 1,925,243,099 1,406,489,572 Net Interest Income 765,051,042 611,802,2413. Commission & Discount 68,049,045 42,758,2834. Other Operating Income 62,252,282 50,694,4225. Exchange Fluctuation Gain 38,689,741 12,167,702 Total Operating Income 934,042,110 717,422,6486. Employees Expenses 155,803,411 103,680,1787. Other Operating Expenses 265,477,124 175,735,3008. Exchange Fluctuation Loss - - Operating Profit Before Provision for Possible Loan Loss 512,761,575 438,007,1709. Provisions for Possible Losses 42,628,156 65,322,221 Operating Profit 470,133,418 372,684,94910. Non- Operating Income/(Expenses) 1,432,733 10,858,57711. Possible Loss Provision Written Back 20,871,446 - Profit from Regular Activities 492,437,598 383,543,52612. Income/Expenses from Extraordinary Activities - - Net Profit after including all Activities 492,437,598 383,543,52613. Provision for Staff Bonus 44,767,054 34,867,59314. Provision for Income Tax (a+b-c) 136,255,252 107,828,164a. This year Provision 136,139,826 104,917,398b. Provision upto Last Year 2,040,129 1,363,819c. Deferred Tax Income/(Expenses) 1,924,703 (1,546,947)

Net Proft/ (Loss) 311,415,291 240,847,768

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CHAPTER FOUR

SUMMARY, CONCLUSION AND RECOMMENDATION

4.1 Summary

Generally, the liquidity position of any company is measured by the working

capital. A company should have sufficient amount of the working capital in order to be

able to meet the claims of the creditors and meeting the day to day needs of the business.

Shortage of working capital is the prime sign of financial crisis. Working capital for an

organization indicates its potential reservoir of the funds. So working capital is an

important topic.

This study primarily focuses in examining the working capital of Siddhartha Bank ltd.

The main objective is to measure the current trend of working capital, its level, based on

the current assets and current liabilities. The result of analysis shows the positive

correlation between CA and WC and negative correlation between CL and WC. The trend

line of working capital shows the upward slope from the year 2008/09 to 2009/10 and

downward slope from 2009/10 to 2010/11. The current ratio also matches the standard

and is in sound position.

This study is based on the financial data which are collected from financial statement

namely balance sheet, income statement etc. for the three years from 2009/10 to 2010/11.

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4.2 Conclusion

Greater the working capital, greater the liquidity of the company. Large working

capital shows the strength of the company. And the study also reveals the sound position

of the working capital of the bank. However, holding large amount of current assets is an

expensive affair. We can conclude the study in following ways:

The weight of CA is greater than weight of CL throughout the study period

whose difference creates working capital.

The working capital is increasing year by year.

The relation of WC with CA and CL is good and the trend value is also

increasing yearly i.e. the trend line has upward sloping.

The current ratio in the year was 1.07, 1.08 and 1.07 in the years 2008/09,

2009/10 and 2010/11 respectively. The ratio also shows sound position of the current

assets over the current liabilities and was in increasing trend.

4.3 Recommendation

The company is in strong position, it is sound in working capital and ratios too

show sound economic condition.

The level of working capital is increasing. But holding excessive current assets is

however expensive. So maintaining the CA in current position is prime requirement.

The current ratios also were at the standard level, so more focus is to be done for

maintaining the current levels of current ratios.

The current liabilities were also decreasing so investing on the current liabilities

also should be reduced maintaining the standard current ratio and uniform trend slope.

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Bibliography

A) Books Bajracharya, B.C. (2065). Business Statistics. Kathmandu: M.K. Publisher and

Distributor.

Singh, H.B. (2065). Banking and Insurance. Kathmandu: Asia Publication.

B) Reports Siddhartha Bank Limited (2008/09). Annual Report, Kathmandu: Siddhartha Bank Limited

Siddhartha Bank Limited (2009/10). Annual Report, Kathmandu: Siddhartha Bank Limited

Siddhartha Bank Limited (2010/11). Annual Report, Kathmandu: Siddhartha Bank Limited

C) Others http://[email protected]

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APPENDIX

Questionnaires + interviews:APPENDIX –I

Question to Branch Manager:

1. From the numerous people who apply in your bank, how do you select your staffs?A. Interview B. on the job training C. Written exam D. Other

2. How do you encourage your staffs to do better work?A. Good Incentives B. Moral Encouragement C. Other

3. What are the problems faced by your bank?A. Administrative problems B. Customer’s Problems C. Other

APPENDIX-II

Question to customer:1. What do you think about the management of the bank?

Good ……… Average ……… Poor ………

2. Do you get help from the staffs for the bank procedures?

Yes ……… No ……… Don’t Know ………

3. Do you think deposits are efficient?Yes ……… No ……… Don’t Know ………

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summer project of siddhartha bank limited

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