LA GRANDEE INTERNATIONAL COLLEGE

Simalchaur, Pokhara, Nepal

A Proposal Report

On

Comparative Liquidity and Profitability Ratio Analysis of

Standard Chartered Bank Nepal Limited & Nabil Bank
Limited

Submitted to:

La Grandee International College

Bachelor in Business Administration (BBA) Program

In partial fulfillment of the requirements for the degree of BBA under

Pokhara University

Submitted by:

Name: Program, Semester: PU Registration No.:

Dikson Limbu BBA, 5th Semester 2015-2-03-1734

Date: 17th April, 2018

 TABLE OF CONTENTS
TABLE OF CONTENTS .................................................................................................
1. Background of the Study ........................................................................................ 1
2. Statement of Problem ............................................................................................. 3
3. Objectives of the study ........................................................................................... 4
4. Significance of the study ........................................................................................ 5
5. Research Methodology ........................................................................................... 6
5.1. Data Collection ............................................................................................... 6
5.2. Data Analysis .................................................................................................. 6
5.3. Clarification of important concepts ................................................................ 7
5.4. Research Framework ...................................................................................... 8
Chapter 1- Introduction .......................................................................................... 8
Chapter-2 Literature review: .................................................................................. 8
Chapter-3 Theoretical Framework: ........................................................................ 8
Chapter 4- Details about the banks: ..................................................................... 10
Chapter 5– Analysis & Interpretation .................................................................. 10
Chapter 6- Finding, conclusion ............................................................................ 10
6. References ............................................................................................................ 11
1. Background of the Study

In any economy a strong financial sector is an indicator of economic growth. A strong

financial sector attracts investors to invest in such an economy. The financial sector
includes banking, insurance and financial services companies. In analyzing the
performance of these companies a financial ratio analysis is used to give a perspective
on the performance and productivity of the companies (Clausen, 2009).

Financial analysis is much more relevant when comparing companies in the same
sector. The ratio analysis is used to measure the liquidity position, profitability, and
asset management condition and debt coverage situation of the banking institutions
being evaluated. The financial ratio analysis determines how the different companies
use their assets and control their expenses (Palmer, 1983). This research determines
the extent of their efficient use of resource, and the shortage they have, and hence
give an indication of the ability of the companies to meet their short term and long
term liabilities due. This analysis is also an efficiency comparison between the
various companies based on past financial performance published by the company’s
annual financial statements. (Morley, 1984)

Therefore this research aims at looking at the liquidity and profitability ratio analysis
between Standard Chartered Bank Nepal Limited & Nabil Bank Limited.

Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987
when it was initially registered as a joint-venture operation. Today the Bank is an
integral part of Standard Chartered Group having an ownership of 70.21% in the
company with 29.79% shares owned by the Nepalese public. The Bank enjoys the
status of the largest international bank currently operating in Nepal.

Standard Chartered has a history of over 150 years in banking and operates in many
of the world's fastest-growing markets with an extensive global network of over 1700
branches (including subsidiaries, associates and joint ventures) in over 70 countries in
the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom
and the Americas. As one of the world's most international banks, Standard Chartered
employs almost 87,000 people, representing over 115 nationalities, worldwide. This
diversity lies at the heart of the Bank's values and supports the Bank's growth as the
world increasingly becomes one market with 15 points of representation, 23 ATMs

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across the country and with more than 450 local staff, Standard Chartered Bank Nepal
Ltd. is in a position to serve its clients and customers through an extensive domestic
network. In addition, the global network of Standard Chartered Group gives the Bank
a unique opportunity to provide truly international banking services in Nepal.

Nabil Bank Limited is the nation’s first private sector bank, commencing its business
since July 1984. Nabil was incorporated with the objective of extending international
standard modern banking services to various sectors of the society. Pursuing its
objective, Nabil provides a full range of commercial banking services through its
62 points of representation. In addition to this, Nabil has presence through over 1500
Nabil Remit agents throughout the nation.

Nabil, as a pioneer in introducing many innovative products and marketing concepts

in the domestic banking sector, represents a milestone in the banking history of Nepal
as it started an era of modern banking with customer satisfaction measured as a focal
objective while doing business. Operations of the bank including day-to-day
operations and risk management are managed by highly qualified and experienced
management team. Bank is fully equipped with modern technology which includes
international standard banking software that supports the E-channels and E-
transactions.

Nabil is moving forward with a Mission to be “1st Choice Provider of Complete

Financial Solutions” for all its stakeholders; Customers, Shareholders, Regulators,
Communities and Staff. Nabil is determined in delivering excellence to its
stakeholders in an array of avenues, not just one parameter like profitability or market
share. It is reflected in its Brand Promise “Together Ahead”. The entire Nabil Team
embraces a set of Values “C.R.I.S.P”, representing the fact that Nabil consistently
strives to be Customer Focused, Result Oriented, Innovative, Synergistic and
Professional.

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2. Statement of Problem
Most of the research of financial ratio analysis is just on single bank so, here research
in done focusing two banks. The purpose of this study is to measure and evaluate the
performance of the selected banks i.e. Standard Chartered Bank Nepal Limited &
Nabil Bank Limited, and compare them to each other. The analysis of the financial
conditions of the companies would help in reaching to conclusions. There is evidence
that financial management affects the overall performance of a banking institution.
The question arises is whether the accounting ratios especially liquidity can be used to
give strategies for better financial performance in terms of cash management for
optimal profitability. The study will give an insight into the financial condition of the
two banks based on the financial statements that lead to the level of their
performance.

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3. Objectives of the study
The general objective of the study is to do conduct comparative liquidity and
profitability ratio analysis of Standard Chartered Bank Nepal Limited & Nabil Bank
Limited.

The specific objectives of the study are listed below:-

1. To check the comparative liquidity position of the Standard Chartered Bank Nepal
Limited & Nabil Bank Limited.

2. To check the comparative Profitability position of the Standard Chartered Bank

Nepal Limited & Nabil Bank Limited.

3. To give an insight into the financial condition of the two banks based on the
financial statements that lead to the level of their performance.

4. To make a performance comparison of the Standard Chartered Bank Nepal

Limited & Nabil Bank Limited on the basis of liquidity and profitability ratios.

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4. Significance of the study
This report is prepared to analyze the financial position of Standard Chartered Bank
Nepal Limited & Nabil Bank Limited.

This will help to make a comparative financial analysis between two banks and find
which has better liquidity and Profitability position.

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5. Research Methodology
5.1.Data Collection
The main financial statements namely income statements, balance sheets, cash flow
statements and statements of shareholder’s equity and footnote will be used in the
study. These statements are obtained from annual reports from the company websites
and will be used in the liquidity and profitability ratio analysis.

5.2.Data Analysis
A model for performance evaluation of the two banks is used. The model consists of
six steps: selection of financial statements, identification of income statement, balance
sheets and statements of cash flow, ratio analysis, the mathematical and statistical
calculation, and comparison of the two banks and declaration of the best performer
among the chosen banks depends on the average of the industry.

The first step involves choosing of financial reports. These reports are produced by
banks periodically as a regulation to give the company’s performance, fund flow and
financial position in a certain accounting period, the annual financial statements of the
previous five fiscal year.

The second step of the model is to identify the suitable ratios for evaluating financial
performance of the companies and explain what they measure. There are various
ratios such as asset management ratios, debt ratio, liquidity ratio, market value,
coverage ratio & etc. Most of the ratios are important in giving a picture of how a
company is well suited to generate assets, manage its debts, liquidity levels, efficiency
in terms expenses and level of shareholder equity profit or loss among others. But in
this study we are focusing on liquidity and profitability positions.

The third step involves calculating the identified figures from the statements of
financial reports for each of the two banks for previous five years separately.

In the fourth step, a graphical analysis of the evaluations of the banks is tabulated.
This is an easy to understand and clear method that can be used to present the
performance for two banks for each year charts will be provided. This will be created
in Microsoft Excel to graph and draw pie charts for the two companies’ performance.

The fifth step involves the comparison of the four banks with regards to liquidity
position, and profitability position from the ratio analysis. Based on this comparison,

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a recommendation can be made and explanations of good or poor performance could
be made.

Sixth, based on the ratio analysis and graphical representation, the research can
conclude on the best performing company based on the kind of ratio used and
analyzed.

5.3.Clarification of important concepts

Financial ratio derives from the information in a company’s financial statement

calculated to measure facts and figure of the company’s financial and operation.
These are the ratios that will be computed in the research and will analysis the
performance upon.

Liquidity ratio

Current ratio = current assets/ current liabilities

Quick or Acid Ratio = (current assets – inventories) / current liabilities

Cash ratio = cash/ current liabilities

Profitability ratio

Net profit margin = net profit after tax/ sales

Gross profit margin ratio = gross profit/ sales

Return on total assets = net profits after taxes/ total assets

Return on common stock equity = net income / common stockholders’ equity

Operating profit margin = operating profits / sales

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5.4.Research Framework
The research papers comprise of six to seven chapters namely introduction, literature
review, theoretical framework, methodology, results and analysis, conclusion and
recommendation and finally a list of references.

Chapter 1- Introduction: This chapter basically gives the overview of the research,
general structure and framework and state the purpose and research question. The
chapter introduces the big picture of the research and the relevant information and
assumptions made in the research. This helps in introducing the readers to have an
idea of banks performance and resource management and captures their interest based
on the importance and the analysis of this study. In this chapter, the motivation and
rationale in this study conducted and discuss expected results biased on past and
market facts. It also gives the limitations of the research and gives the general outline
of the research paper presented.

Chapter-2 Literature review: This chapter reviews, summarizes and analyzes

previous studies and those used by the research. In this chapter, the writer summarizes
works by other scholars and researcher on ratio analysis in the banking secretor, also
about some facts and conditions that lead to the level of performance of the selected
banks. Provide some reports about financial ratio analysis researches and papers on
banks in comparative studies between Standard Chartered Bank Nepal Limited &
Nabil Bank Limited if any. Also relevant publications on financial ratios in the recent
past that give the current trends among scholars and researchers. Based on these
findings the researcher would be able to develop a proper research methodology to
validated and build on these previous studies based on the recommendations of
previous researchers.

Chapter-3 Theoretical Framework: It is the conceptual model that shows the

relationships among the several factors that have been identified as important to the
problem.

It presents the relationship between dependent and independent variables that helps to
develop hypothesis.

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Independent variables

Current assets

Current liabilities

Inventories and total assets

Cash

Net profit after tax Dependent variables

 Liquidity
Gross profit
ratios
 Profitability
Sales ratios

|Net income

Common stockholders’ equity

Operating profits

Fig 1: schematic diagram of theoretical framework of liquidity and profitability ratio.

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Chapter 4- Details about the banks: This chapter will give a brief history and give
an idea of the operation and management and investment of each bank and illustrate
some differences between banks in Standard Chartered Bank Nepal Limited & Nabil
Bank Limited. And will also provide some facts and figures of their performance in
the past few years to give an idea of the level of their performance.

Chapter 5– Analysis & Interpretation: In this chapter the actual calculation will be
computed from data collected from financial statement of the company, it will be
analyzed and presented in a chart for the two banks and declaration on the best bank is
also given.

Chapter 6- Finding, conclusion: In this chapter the ratios are calculated and the
results tabulated. The results are then compared with the hypothesis formulated and
tested to see if the hypothesis formulated would be accepted or rejected. Then will
reach to a conclusion of the best performing bank is given among the chosen banks in
the research. Based on the best performing banks, also the poor performing banks
could be explained in terms of their financial performance based on their ratios.

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6. References
 Clausen, J. (2009). Accounting 101 – Financial Statement Analysis in
Accounting: Liquidity Ratio Analysis Balance Sheet Assets and Liabilities.
Journal of financial statement.

 Morley, M. F. (1984). Ratio analysis. (I. o. Scotland, Ed.) Published for the
Institute of Chartered Accountants of Scotland by Gee & Co.

 Weygandt, J. J., &Kieso, D. E. (1996).Accounting Principles (4th ed.). New

York: John Wiley & Sons.

 Data analysis: Analyzing data - ratio analysis. (1995, May ).

 Financial ratio analysis of selected banks in KSA and UAE, ManalAlsabti

(200801150)

 Internet

 (n.d). Retrieved from http://www.sc.com/np

 (n.d). Retrieved from http://www.nabilbank.com

 Essentials of finance, Asmita Publication

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