Report A STUDY ON WORKING CAPITAL MANAGEMENT OF TOURISM DEVELOPMENT BANK
A STUDY ON WORKING CAPITAL
MANAGEMENT OF TOURISM DEVELOPMENT BANK
A Project work
Summited by:
Bibek
paudel
TU Regd no.
7-2-25-111-2014
Nepal commerce campus,minbhabwan
Kathmandu.
Submitted to:
The faculty of management
Tribhubwan Univercity
Kathmandu
In
the partial fulfilment of the requirement for the degree of
Bachelor
of Business study (BBS)
Kathmandu, Nepal
December 2017
DECLARATION
I
hereby declare that the work reported in this thesis entitled “A STUDY ON
WORKING CAPITAL MANAGEMENT OF TOURISM DEVELOPMENT BANK LTD”. Submitted to
office of the Dean, faculty of management, Tribhuvan University, is my original
work done in the form of partial fulfilment of the requirement for the degree
of Bachelor of business studies ( BBS) under the supervision of Dhurba Raj
Pokharel of Nepal commerce campus, T.U.
…………………………………
Bibek
paudel
Nepal
Commerce Campus
Campus
Roll No: 720
T.U.
Regd. No: 7-2-25-111-2014
Fourth
Year Exam Symbol No:
ACKNOWLEDGEMENTS
This
research has not been completed by my sole efforts only, many helping hands
made contributions in different ways to bring out it in this shape.
Firstly,
I would like to extend my sincere gratitude to my thesis
supervisor………………………………….. Of Nepal Commerce Campus, T.U., for his valuable
guidance, suggestion, timely supervisions and kindly treatment as well as
co-operation in completing thesis work. Without their valuable suggestion and
time, I would not have been able to complete it in this form.
I
would like to extend my gratefulness to the professors and lecturers of Nepal
Commerce Campus, staff of library and administration of Nepal Commerce Campus,
central library of T.U. and Nepal Commerce Campus and all my colleagues who
have extend their helping hands towards the accomplishment of this thesis.
I
would like to extend my appreciation to the staff of Tourism Development Bank
Ltd for their kind co-operation in furnishing lot of valuable information and
data.
Finally,
I would like to extend my heartily thank to all my family members who inspired
me in my ways to cope with during the entire period of thesis.
Bibek Paudel
Nepal Commerce Campus
Chapter-1
Introduction
1.1 Background of study
The study of working capital behaviour occupies an important
in financial management. Working capital is nothing but the capital needed to
run day to day operation of a business, are put together, it is called working
capital. It is concerned with current assets and current liabilities. The term
current assets reefer to those assets which can be converted into cash within
one operating cycle or accounting period without undergoing a diminution in
value and without date disrupting the operations of the firm. The major current
assets are cash and bank balances, marketable securities, account receivable
and inventory. Current liabilities are payable within one operating cycle or
accounting period. The basic current liabilities are account payable, bills
payable, bank overdraft and expenses due. Therefore the goal of working capital
management is to manage the firm’s current assets and current liabilities in
such a way that satisfactory level of working capital is maintained.
Working capital is a broader term and there are chances of
misunderstanding it. Therefore it can be studies under two concepts i.e. gross
concept and net concept. Both the concepts are of equal value. Gross concept
emphasizes that investment in current assets should be adequate, not more or
not less, to the needs of the business firm. Excessive investment in current
assets affect profitability as idle investment yields nothing. Similarly, in
adequate investment in current assets makes it difficult to carry out the day
to day operations of the business smoothly. It also threatens the solvency
position of the business. The need for net concept of that short term creditors
want an enterprise to maintain current assets at a higher level as compared to
current liabilities. It shows the extant of protection provided to short term
liabilities. The current ratio i.e. current assets to short term debt ratio of
2:1 and liquid ratio 1:1 is considered to be the appropriate standards but they
are simply the conventional rules of thumb. The quality of current assets is
more important than the current ratio of 2:1. The illiquid firm it difficult to
borrow from outside. The net concept of working capital is simply an excess of
current assets over current liabilities (NWC=CA-CL).
The net working capital may be positive or negative if
current assets are greater than current liabilities and it is negative if
current liabilities are greater than current assets. Working capital management
is concerned with the problems that arise in attempting to manage the current
assets, the current liabilities and the interrelationship that exist between
them. The management of working capital is synonymous to the management of Short
term liquidity. It has been regarded as one of the conditioning factors in the
decision making issues. It is no doubt, very difficult to point out as to how
much working capital is needed by a particular business organization. An
organization, which is not willing to take more financial risks, can go for
more short-term liquidity. The more of short-term liquidity means more of
current assets and less of current liabilities. The less current liabilities
applies less short term financial heading to the lower returns resulting from
the use problems and its solutions to make efficient use of finds for
minimizing the risk of loss to attain profit objectives.
Working capital management on bank is also difficult that of
manufacturing. Commercial banks are great monetary institutions, which are
playing important role to general welfare of the economy. The responsibility of
commercial banks is more than any other financial institutions. They must be
ready to pay on demand. Without warning of notice, a good share of their
liabilities. Banks collect funds from different types of deposits for providing
loan and advances to different sector. To get higher returns banks must try to
increase funds from deposits as well as their investment. The first motive of
banking business is to borrow public saving and lend to needy people. But
commercial banks always face the problem for utilizing more deposits on
investment fully and productively. The gap between collection of deposits and disbursement
of loans increase the cash balance on bank. Which require playing its large
amount of liabilities on its depositors, demand without notice, But large
amount of the idle cash balance also decrease probability of banks.
The term working capital management is closely related with
short term financing and it is concerned with collection and allocation of
resources. Working capital management is related to the problems that arise in
automatic to manage the current assets, the current liabilities and the
interrelation that exit between them.
The goal of working capital management is to support the long
term operation and financial goals of
the business. In effect, this involves recognizing the relationship between
risk and return. Three elements must be included in analysing the trade-off
between risk and return when managing working capital.(1) Insolvency; this
condition occurs when a firm can no longer pay its bills and, must default on
obligation and possibility declares bankruptcy. A firm without adequate level
of working capital may have to face this risk. (2) Profitability of assets: Different
level of current assets will have varied effects on profits. A high level of
inventory will require high carrying cost. At the same time, the firm will have
a wide range of goods to sell and may be able to generate higher sales and
profit. Each decision on the level of cash, receivables and inventory should
consider the effect to different level.(3) Cost of financing: when interest
rates are high, its costs more to carry inventory then when rates are low-large
cash balances may not earn the return that is possible if the cash of
alternative investment are items to consider when evaluating working capital
level.
The meaning of the term working capital should not be allowed
to limit either the gross or net concept of working capital only. It is true
that very often working capital is interpreted as circulating capital as it
keeps on circulating in the course of operations. Working capital is constantly
flowing and changing its form as the enterprise accomplishes its objectives and
performs its operations.
1.2 Tourism development banks:
Tourism development bank
is a national level development bank licensed by Nepal Rastra bank and has
started its operation from 7th flagon 2066. Tourism Development bank
Ltd (TDBL) is established with a primary focus on financing for the development
of hydropower and infrastructure and providing banking facilities to the
general public for various purposes. TDBL aims to serve wide range of customers
with its unique customer-oriented quality services from branches all over the
country. TDBL, at present has 39 branches providing its services to public.
The capital structure of
the bank is allocated as authorized capital NPR 3 billion, issued and paid up
capital 2.10 billion, out of which 48.22 Percent allocated to general public.
The board of directors of
TDBL
Chairman Professor Dr.
Puspa Raj kandel
Director Bishwombhar
Krishna Parajuli
Director Dipak mahat
Director Shyam raj
Thapaliya
Director (public) Mukul Mani Dahal
Director (public) Mukti Ram Pandey
Director (public) Thakur Prasad Bhattarai
Vision mission and values
of tourism development bank;
Vision:
Be the first institution
in financial sector providing superior financial services.
Mission:
To drive economic
development and empowerment, whilst remaining financially sustainable with
skilful, Adaptable, Believable and Accountable resources.
Capital structure:
Authorised capital: Rs 3
billion
Paid up capital: Rs 2.10
billion
1.3 objective of the study
The main objective of this study is to asses and shows the
management of working capital in Tourism Development Bank limited. The specific
objectives of this study are as follows:
1.
To indicate liquidity position in current assets of Tourism
Development Bank over the year.
2.
To point out the position of current liabilities and current
assets Tourism Development Bank over the year.
3.
To recommended the solution of the study.
1.4 limitation of the
study
The report is limited by the information and data, time
period and area of the study. This report has
1.
The study has covered only five years period of time.(i.e.
FY:2067/68 to 2071/72)
2.
The study has completely based on secondary data.
3.
Limited financial tools and techniques will be used for
analysis.
4.
Only data of Tourism Development Bank has been analysed and
used for this study.
5.
This study does not consider the price level chance of
previous data.
6.
It only considers the quantitative data not qualitative data.
7.
This study is based on bounded time frame, circumstances
and data of TDBL so the conclusion derive from this study may not be equally
useful for all financial institution.
8.
The investments and
deposits are not classified according to their maturities. The current assets
are not clearly mentioned in the financial statements of the bank,
fixed assets are deducted from the total assets to calculate the current
assets.
1.5 Statement of the problem
This study is conducted
trying to show the working capital management process, its effect to the
profitability, whether the bank has managed it properly or not, and its
appropriate portion to current asset of the bank.
1.6 Rational of the study
Nepalese commercial banks
are operating in the competitive environment. In this situation, banks have to
adopt suitable strategies for their existence. They should balance and
co-ordinate the different functional area of any organization depends on its
strategy, which is affected by working capital management is the crux of
problem to prepare proper strategy on its favours. The study has
multidimensional significance, which can be divided into broader headings.
1. Its significance to the
shareholders
The study might be helpful
to aware the shareholders regarding the working capital management, i.e.
liquidity and profitability of their banks. The comparison will help them to
identity the productivity of their funds in each of these two banks.
2. Its significance to the
management
The study might be helpful to go deep into the matters as to
why the working capital management of their banks is better than their
competitors.
3.
Its significance to the outsider
Among outsiders, mainly the customers, financing agencies,
stock exchanges and stock traders are interested in the performance of banks
and the customers (both depositors and debtors) can identify to which bank they
should go. The financial agencies can understand which there is more secured
and stock exchange stockbrokers and stock traders can find out the relative
worth of the stocks of each bank.
4.
Its significance to the policy makers
Policy makers here refer to the govt. and Nepal Rasta Bank.
The study will be helpful to them while formulating the policy regarding
commercial banks.
Therefore, considering all these facts, the study of working
capital management of TDBL is considerably important.
1.7 Review of literature
1.7.1 Introduction
Review of literature means
reviewing research studies or their relevant preposition in the related areas
of the study so that all past studies, their condition and deficiencies may be
known and further research can be conducted. This chapter highlights on the
conceptual framework of working capital management. It also provides insight
into the findings of earlier studies thought the review of books, publications
and previous studies.
1.7.2 Concept of working capital management
Working capital management
was studies as a part of economies in the beginning of the 19th
century but today it is being studies as a separate entity. It is considered as
the heart and soul of any business and working capital decision directly
relates to everything that happens in business. Working capital policy affects
everything of business such as production, personal, marketing and finance etc.
working capital management ensure better liquidity stock control and
profitability (Pradhan, 1986). Financial management is mainly concerned with
two aspects. Firstly, fixed assets fixed liabilities, or in other words, long
term investment and sources of funds, and secondly, current uses and sources of
funds play a vital role in business finance.
Working capital refers to
the resources of firm that are used to conduct operations to do day to day
works that makes the business successful. Without cash, bills cannot be paid,
without receivables; the firm cannot allow timing difference between delivering
goods or services and collecting the money to pay for them. Without inventories
the firm cannot engage in production nor can it stock goods to provide
immediate deliveries. As a result of the critical nature of current assets, the
management of working capital in one of the most important areas in determining
whether a firm will be successful. The term working capital refers to the
current assets of the firm-those items that can be converted into cash with in
the year. Hence, working capital management is the management for the
short-term. It is a process of short-term operation of an enterprise. It is a
process of planning and controlling the level of mix of current assets of the
firm as well as financing these assets. It concludes decision regarding cash
and marketable securities, receivables, inventories and current liabilities
with an objective of maximizing the overall value of a firm. There are two
concept of working capital (Pandey, 1995).
Gross working capital
In simple terms, gross
concept of working capital may be defined as the total of current assets. In
other words, if all experience needed to run day to day operation of business,
such as amount to be invested in the form of cash, finished goods receivables
etc. are put together it is called working capital. Current assets are the
assets which can be converted into cash with in an accounting year and include
cash, marketable securities, inventories, account receivables and debtors (
pandey, 1995).
Net working capital
This is of critical
importance to a firm net working capital refers to the difference between
current assets and current liabilities. Current liabilities are those claims of
outsiders that are expected to mature for payment within an accounting year and
include creditors (account payable) bills payable and outstanding expenses.
Another way of defining working capital is that portion of firms current assets
financed with long term fund. Both liquid assets and liabilities are important
in working capital management. Net working capital can be positive or negative.
A positive net working capital will arise when current assets exceed current
liabilities. A negative net working capital occurs when current liabilities are
in excess of current assets.
1.7.3 Type of working capital
There are two type of
working capital: they are permanent working capital and variable working
capital. These working capitals are necessary for any organization for
continuous production and sales without any interpretation.(Van Horne, 1999).
Permanent (Fixed) working capital
Permanent working capital
refers to that level of current assets, which is required on a continuous basis
over the entire year. A manufacturing concern cannot operate regular production
and sales function in the absence of this portion of working capital.
Therefore, a manufacturing concern holds certain minimum amount of working
capital to ensure uninterrupted production and sales functions. This portion of
working capital is directly related to firm’s expansion capacity (Van Horne,
1999).
Permanent working capital
has the following characteristics
·
It is classified on time basis.
·
It continuously varies from one asset to another and
continuously to remain in the business process.
·
It also varies with the growth of business.
Variable working capital
Variable working capital
represents that portion of working capital, which is required over permanent
working capital. If the nature of production and sales of a firm is directly to
seasonal variation, it should stock extra raw material, working in progress and
inventory of finished goods. Therefore, this portion of working capital depends
upon the nature of firms production related between labour and management. It
is temporarily invested in current assets and its main features are (Pradhan,
1986):
·
It is particularly paired to a concern of a seasonal or cycle
nature.
·
It is not always gainfully utilized, thought it may change
from one asset to another as fixed working capital does.
1.8 Research methodology
This chapter describes the
methodology employed in this study. The research methodology is the process of
arriving to the solution of the problem through planned and systematic dealing
with the collection, analysis and interpretation of facts and figure. It
consists of design, population and sample study, sources of data, data
processing procedure and technique of analysis of data.
This study is more
analysis and empirical. It covers qualitative methodology using financial and
statistical tools. The study is mainly based on secondary data gathered from
respective annual report of concerned banks especially from profit and loss
account, balance sheet other publication made by the banks.
1.8.1 Population and sample
During the time of writing
this report, there are 57 development banks are established and providing their
services in Nepal. These all development banks are population. Among them I
have selected TDBL as sample for this study. The basis for selection of this
sample is random sampling technique.
1.8.2 Period covered
As mentioned earlier, this
study covers the period of five years from 2067/68 to 2071/72. The analysis is
done on the basis of the data for five years.
1.8.3 Nature and resources of data
The data used in this
study are secondary in nature. Published annual reports of the concerned banks
are taken as basic source of data. The data relating to financing performance
are directly obtained from the concerned banks. Similarly, related books, articles,
journals, Nepal Rastra Banks, related website from internet etc. as well as
other supplementary data and various economic surveys are also used. Previous
related studies to the subject are also counted as source of information.
1.8.4 Financial tools
To assess the working
capital management of TDBL, there are various financial tools available. Ratio
analysis might be appropriate tools to find out result of study matter. Among
them prominent analyst choose the following tools so do I.
1) Current Ratio, it gives
the relationship between the current assets and current liabilities. It is
obtained by dividing the total of current assets by total current liabilities.
Current ratio =
2) Quick
ratio: The ratio is ascertained by company’s liquid assets and current
liabilities. It shows the ability of the enterprise to meet its short term
obligation without sale and collection of inventories. It is calculated as:
Quick ratio =
3) Total
assets turnover ratio: The total assets turnover ratio reflects the efficiency
of management for investment in each of the individual assets items. It shows
the effective utilization of assets in the generation of income. It can be
calculated as:
Total assets turnover ratio =
4) Cash
Reserve Ratio: Cash and bank balance are the most liquid current assets. This
ratio measures the percentage of most liquid fund with the bank to take
immediate payment to the depositor. It is computed as follows:
Cash Reserve Ratio =
5)
Capital Employed
Turnover Ratio: The ratio shows the relationship between total income and
capital employed. It determines the efficiency in the utilization of total
permanent capital in the revenue generation. Higher the capital employed
turnover ratios, the better and efficient utilization of the capital employed.
It can be calculated as follows:
Capital Employed
Turnover Ratio =
1.9 Organization of the study
This
report has been divided into three chapters.
The
chapter one is the introductory which deals with background of the study.
Profile of TDBL, problem of study, objective of study and its rational, methods
of study, literature review, and limitation of study.The second chapter deals
with the presentation and analysis of relevant and information through a
definite course of research design. This chapter also presents the result
relating to working capital management.
The
last chapter is concerned with the summary of the study. Various conclusions
will be drawn from the study.
Finally,
an extensive bibliography and appendix are presented at the end of the study.
Chapter - 2
PRESENTATION AND
ANALYSIS OF DATA
2. Introduction
This
chapter consists the presentation of empirical data and analysis them with the
help of various financial and statistical tools. This chapter has presented the
analysis components of working capital of TDBL. Similarly, the liquidity ratio,
capital structure ratio, activity ratio and profitability ratio are the major
financial ratios and standard deviation, coefficient of correlation, trend
analysis etc. are the main statistical tools, which help to know the financial
position of bank.
2.1 Current Ratio
Current ratio shows the relationship between current assets
and current liabilities. It is calculated by dividing current assets by current
liabilities. The objective of computing this ratio is to measure the ability of
the firm to meet its short-term financial obligation. Higher current ratio
indicates better liquidity position. The formula is given below.
Current Ratio =
Table 2.1
Current ratio
(Rs.
In Times)
|
Fiscal year
|
TDBL
|
||
|
Current
assets
|
Current
liabilities
|
Current
ratio
|
|
|
2067/68
|
1,706,212,129.00
|
1,382,751,772.00
|
1.26
|
|
2068/69
|
2,770,383,292.00
|
2,246,693,033.00
|
1.28
|
|
2069/70
|
4,287,869,377.00
|
3,743,858,891.00
|
1.29
|
|
2070/71
|
5,420,115,028.00
|
4,803,232,739.00
|
1.20
|
|
2071/72
|
7,475,368,668.00
|
8,941,937,717.00
|
1.21
|
|
Mean
|
1.25
|
||
|
Standard deviation
|
0.03
|
||
|
C.V.
|
2.743%
|
||
Source:
Appendix 1
Above table 2.1
represent the current ratio of TDBL. The mean of the current ratio of TDBL is
1.25:1. This is lower than the standard current the standard ratio. The highest
current ratio is 1.29 times in the FY 2069/70 and the lowest is 1.20 times in
the FY 2070/71. Standard deviation of current ratio of TDBL is 0.03. Similarly,
coefficient of variation of TDBL is 2.743%. So, there is more variation in
current ratio. At conclusion, above analysis shows that bank is unable to
maintain standard ratio 2:1. But there is good liquidity position due to not
too low ratio or nearest ratio. The table 2.1 also indicates that the current
ratio of TDBL is rises from the FY 2067/68 till the FY 2069/70 after that it is
in decline.
2.2 Quick Ratio
In finance, the quick
ratio measures the ability of a company to use its near cash or liquid assets
include assets to extinguish or retire its short term debt immediately. Liquid
assets include those current assets that presumably can be quickly converted to
cash at close to their book values, known as liquid assets or quick assets. A
company with a liquid ratio of less than I cannot currently fully pay back its
short term debt, for liquid ratio cash and
bank balance and government securities are included in liquid assets.
This ratio can be found out by dividing the total of liquid assets by total
current liabilities. The formula is given below.
Quick Ratio =
Table 2.2
Quick ratio
( In Times)
|
Fiscal year
|
TDBL
|
|||
|
Total current
Asset
|
Stock
|
Short term
Debts
|
Quick ratio
|
|
|
2067/68
|
1,706,212,129.00
|
-
|
1,382,751,772.00
|
1.2339
|
|
2068/69
|
2,770,383,292.00
|
-
|
2,246,693,033.00
|
1.2331
|
|
2069/70
|
4,287,869,377.00
|
-
|
3,743,858,891.00
|
1.1453
|
|
2070/71
|
5,420,115,028.00
|
-
|
4,803,232,739.00
|
1.1284
|
|
2071/72
|
7,475,368,668.00
|
-
|
6,691,937,717.00
|
1.1171
|
|
Mean
|
1.25
|
|||
|
Standard
Deviation
|
0.03
|
|||
|
C.V.
|
2.743%
|
|||
Source:
Appendix 2
Above table 2.1
represent the Quick ratio of TDBL. The mean of the Quick ratio of TDBL is
1.25:1. This is lower than the standard current the standard ratio. The highest
Quick ratio is 1.29 times in the FY 2069/70 and the lowest is 1.20 times in the
FY 2070/71. Standard deviation of Quick ratio of TDBL is 0.03. Similarly, coefficient
of variation of TDBL is 2.743%. So, there is more variation in Quick ratio. At
conclusion, above analysis shows that bank is unable to maintain standard ratio
2:1. But there is good liquidity position due to not too low ratio or nearest
ratio. The table 2.1 also indicates that the Quick ratio of TDBL is rises from
the FY 2067/68 till the FY 2069/70 after that it is in decline.
2.3
Total Assets Turnover Ratio
Total assets turnover
ratio measures the turnover of all the firm’s assets. The total assets include
the current assets and fixed assets. A higher ratio implies the efficient
utilization of total assets and vice versa. So, a higher ratio is preferable.
But it is known that high ratio may not be better from the liquidity point of
view. This ratio is presented in the table below:
Total Assets
Turnover Ratio =
Table 2.3
Total assets turnover ratio
( In times)
|
Fiscal year
|
TDBL
|
||
|
Total
Income
|
Total
Assets
|
Total Assets
Turnover Ratio
|
|
|
2067/68
|
266,244,851.00
|
1,834,414,795.00
|
0.1451
|
|
2068/69
|
390,897,683.00
|
2,911,546,391.00
|
0.1343
|
|
2069/70
|
685,741,906.00
|
4,455,489,459.00
|
0.1539
|
|
2070/71
|
796,135,528.00
|
5,551,752,968.00
|
0.1434
|
|
2071/72
|
1,001,902,287.00
|
7,573,748,545.00
|
0.1323
|
|
Mean
|
0.1416
|
||
|
Standard
Deviation
|
0.0072
|
||
|
C.V.
|
5.53%
|
||
Source:
Appendix 3
The Above table 2.3
depicts the total assets turnover ratio of TDBL. The total assets turnover
ratio of TDBL is the FY 2067/68 i.e. 0.1451 times, After that, it has decreased
in the FY 2068/69 i.e. 0.1343 times. Again the ratio increases to 0.1539, which
is the highest ratio. The mean of total assets turnover ratio of TDBL is 0.1416
times. Similarly, the standard deviation of total assets turnover ratio is
0.0072 times and coefficient of variation is 5.53%. Above analysis shows that
the total assets turnover ratio of TDBL from FY 2067/68 to FY 2071/72 is fluctuating
2.4
Cash Reserve Ratio
Cash and bank balance
are the most liquid current assets. The ratio between the cash and bank balance
to total deposit measure the ability of the bank to meet the unanticipated cash
and all type of deposits. The ratio measures the percentage of most liquid form
with the bank to make immediate payment to the depositors. Higher the ratio is
not desirable since bank has to pay interest on deposit. It is presented in the
table below:
Cash Reserve
Ratio =
Table 2.4
Cash Reserve ratio
|
Fiscal
year
|
TDBL
|
||
|
Cash
and Bank
Balance
|
Total
Deposit
|
Cash
Reserve
Ratio
|
|
|
2067/68
|
49,839,676.00
|
1,355,614,217.00
|
0.0368
|
|
2068/69
|
274,867,712.00
|
2,160,754,630.00
|
0.1272
|
|
2069/70
|
488,220,728.00
|
3,318,531,392.00
|
0.1471
|
|
2070/71
|
472,784,573.00
|
4,503,659,558.00
|
0.1050
|
|
2071/72
|
691,423,496.00
|
6,192,663,422.00
|
0.1117
|
|
Mean
|
0.1055
|
||
|
Standard
Deviation
|
0.0373
|
||
|
C.V.
|
35.36%
|
||
Source: Appendix 4
Above table 2.4 shows
that the cash reserve ratio of the TDBL. The mean of cash reserve ratio of TDBL
is 0.1055. Its cash reserve ratio is fluctuating over the study period. The
highest cash reserve ratio of TDBL is 0.1471.in the fiscal year 2069/70 and the
lowest ratio is 0.0368 in the fiscal year 2067/68. Similarly, standard deviation
of cash reserve ratio is 0.0373. Coefficient of Variation of TDBL is 35.36%. It
shows the TDBL is maintaining adequate liquidity position regarding cash
reserve ratio. Too low ratio is also not preferable. Bank should meet its
obligations any time when necessary.
2.5 Capital Employed
Turnover Ratio
Capital employed
represents the long-term source of fund availed and used to finance fixed
assets and net current assets. The ratio measures the efficiency of the bank in
utilizing the permanent source of capital. Usually, greater ratio serves as an
indicator of better utilization of long-term funds provided by owners and
creditors. This ratio is shows in the following table:
Capital Employed
Turnover Ratio =
Table 2.5
Capital Employed Turnover Ratio
(In
Times)
|
Fiscal year
|
TDBL
|
||
|
Total Income
|
Capital
Employed
|
Capital Employed
Turnover Ratio
|
|
|
2067/68
|
266,244,851.00
|
451,663,023.00
|
0.5895
|
|
2068/69
|
390,897,683.00
|
664,853,358.00
|
0.5879
|
|
2069/70
|
685,741,906.00
|
711,630,568.00
|
0.9636
|
|
2070/71
|
796,135,528.00
|
748,520,229.00
|
1.0636
|
|
2071/72
|
1,001,902,287.00
|
881,810,828.00
|
1.1362
|
|
Mean
|
0.8682
|
||
|
Standard
Deviation
|
0.2347
|
||
|
C.V.
|
27.03%
|
||
Source:
Appendix 5
Above table 2.5 shows
the capital employed turnover ratio of TDBL. The capital employed ratio is
decrease in second FY, 2068/69 and then after it is in increasing trend. The
highest ratio of capital employed turnover ratio is 1.1362 times in FY 2071/72.
Similarly, the mean, standard deviation and coefficient of variation are 0.8682
times, 0.2347 times, and 27.03% respectively. The CV measures the risk about
the mobilization of permanent source of capital. So, above analysis shows this
ratio is satisfactory. Its increasing ratio of succeeding FY shows YDBL has
better utilization of long term funds provided by owners and creditors.
Chapter-3
Summary and Conclusion
The summary and
conclusion of the study are concluded in this chapter. The final and most
important task of the researchers is to enlist fact-finding of the study and
suggestions for further improvement. The analysis is performed with the help of
the financial tools and a statistical tool, which is associated with the
comparisons and interpretation under financial analysis, various ratios related
to working capital management are used and under statistical analysis some
relevant statistical tools are used.
3.1 Summary
Economic development is
largely depends on the development of any country. It demands transformation of
savings or resources into the actual investment. Capital formation is the
prerequisite in setting the overall pace of the economic development of the
country. It is the financial institutions that transfer funds from surplus spending
units to deficit units. Banking sector plays a vital role for the country’s
economic development. Bank is a resource mobilizing institutions, which accepts
deposit from various sources and invests such accumulated resources in the
field of agriculture, trade, commerce, industry, etc. Banks help to mobilize
the small savings collectively to huge capital markets. Commercial banks
basically help to promote the money market by providing expert managerial
skills and by using the advanced and often state of the art technologies to
serve the customers in an efficient and effective manner. There are 57
development banks at present competing which each other in their business in
Nepal.
In the financial
sector, there are various development banks established as joint venture. After
implementation of open market policy, in competitive financial market,
performances of joint venture banks are very good. This study is mainly concerned
on the case study of Tourism development bank limited on working capital
management. The main objective of the study is as follows:
·
To analyse the size and
structure of working capital of Tourism Development Bank.
·
To analyse the leverage
and profitability of Tourism Development Bank limited.
·
To examine the financial
position of Tourism Development Bank limited.
·
To analyse the
utilization of working capital of sample bank.
To
fulfil this objective and other specific objective as describe in charter one,
an appropriate research methodology has been developed, which include the ratio
analysis as a financial tools and statistical tools. The major ratio analysis
consists of the composition of working capital position, liquidity ratio,
capital structure ratio, activity ratio and profitability ratio. The latest
five fiscal years data i.e. balance sheet and profit and loss account are
presented in chapter four and by using it, the main ratio and their trend
position are studied there.
Studies
of sample bank are introduced. Problems are stated to set the objectives of the
study. The objectives are to evaluate the working capital management and
financial analysis of TDBL and to identify their strengths and weaknesses.
Theoretical framework of ratio analysis, correlation between two variables, its
importance and limitation, research methodology and limitation of the study are
mentioned. The findings of major ratios are presented on a comparative basis.
Beside statistical analysis, i.e. mean, standard deviation, coefficient of
variance of all ratios and coefficient of correlation of current assets with
current liabilities, the total deposit with loan net profit and loans and
advances is also done of the bank i.e. websites, annual reports, etc. the
operation efficiencies of the sample bank and their abilities to ensure
adequate returns to the shareholders have been measured.
5.2 Conclusion
On
the basis of entire research study, some conclusions have been found. This
study particularly deals about the working capital position of TDBL with
financial analysis by using various statistical tools. The major conclusions of
the study are as follows:
·
Analysing the liquidity
ratio of TDBL, it has found that, TDBL is unable to maintain standard ratio,
but it has good liquidity position and low risk also because of its nearest
standard current ratio.
·
On the basis of analysing,
the capital structure ratio of TDBL, it can be concluded that, TDBL is
improving its debt position due to decreasing trend of debt to capital ratio.
·
In the case of loans
and advances to current assets ratio, it shows that, TDBL has tried to maximum
mobilize its collected funds on it as well it has low risk also.
·
In the case of turnover
ratio of TDBL, it can be found that the turnover position is better. TDBL has
better utilization of total deposit on the sector of loans and advances as well
as it has lower risk also. Similarly, TDBL is trying to efficient utilization
of its total assets and permanent source of capital also as well as it has
fluctuated utilization on its cash and bank balance.
·
Analysing the
profitability ratio, it has been found that, the profitability position of TDBL
is normally better. There is efficient utilization of resource to generate
adequate profit. As well as TDBL has maintained high risk also there.
Similarly, TDBL is trying to give the best performance in upcoming days.
·
On the basis of
evaluation of coefficient of correlation between two variables of TDBL, it is
concluded that, there is high degree of positive correlation between two
variables and it is significantly correlated. It indicates that, TDBL has
exercised the sound policy regarding related activities.
BIBLIOGRAPHY
Books:
Agrawal,
N.P. (1996). Working Capital Management.
New Delhi: Indus
Valley
Publication.
Bajracharya, B.C.
(2061). Business Statistics. Kathmandu: M.K.
Publishers
and Distributors.
Basant.
A. & Rai, C. (1978). Corporate
financial management. New Delhi:
Tata
McGraw Hill publishing co. Ltd.
Gopal,
K. P. (1976). Inventory and working
capital management.
Handbook.
New Delhi: McMillian Indi Ltd.
Thesis:
Aslami,
B. (2016). Working capital management of
Everest Bank Ltd.
Kathmandu:
Nepal Commerce Campus, Faculty of management,
T.U
Websites:
www.tdbl.com.np
www.nrb.org.np
www.nepalstock.com.np
Appendix-1
Current Ratio
|
Fiscal
Year
|
TDBL
|
|
|
X
|
d2=
(x-
|
|
|
2067/68
|
1.26
|
0.0001
|
|
2068/69
|
1.28
|
0.0009
|
|
2069/70
|
1.29
|
0.0016
|
|
2070/71
|
1.20
|
0.0025
|
|
2071/72
|
1.21
|
0.0016
|
|
|
|
|
Here,
Mean (
) = 1.25
Standard Deviation ( )
= 0.037
Coefficient of
variation (C.V.) = 2.743%
Apendix-2
Quick Ratio
|
Fiscal Year
|
TDBL
|
|
|
X
|
d2=
(x-
|
|
|
2067/68
|
1.26
|
0.0001
|
|
2068/69
|
1.28
|
0.0009
|
|
2069/70
|
1.29
|
0.0016
|
|
2070/71
|
1.20
|
0.0025
|
|
2071/72
|
1.21
|
0.0016
|
|
|
|
|
Mean (
) = 1.25
Standard deviation ( )
= 0.037
Coefficient of
variation (C.V.) = 2.743%
Appendix-3
Total Assets Turnover
Ratio
|
Fiscal
Year
|
TDBL
|
|
|
X
|
d2
= (x-
|
|
|
2067/68
|
0.1451
|
0.00001225
|
|
2068/69
|
0.1343
|
0.00005329
|
|
2069/70
|
0.1539
|
0.0001513
|
|
2070/71
|
0.1434
|
0.00000324
|
|
2071/72
|
0.1323
|
0.00008649
|
|
|
|
|
Mean (
) = 0.1416
Standard deviation ( )
= 0.0072
Coefficient of
variation (C.V.) = 5.07%
Appendix-4
Cash Reserve Ratio
|
Fiscal
Year
|
TDBL
|
|
|
X
|
d2
= (x-
|
|
|
2067/68
|
0.0368
|
0.00472
|
|
2068/69
|
0.1272
|
0.000471
|
|
2069/70
|
0.1471
|
0.00173
|
|
2070/71
|
0.1050
|
0.00000025
|
|
2071/72
|
0.1117
|
0.00003844
|
|
|
|
|
Mean (
) = 0.1055
Standard deviation ( )
= 0.0373
Coefficient
of variation (C.V.) = 35.36%
Appendix-5
Capital Employed Turnover Ratio
|
Fiscal Year
|
TDBL
|
|
|
X
|
|
|
|
2067/68
|
0.5895
|
|
|
2068/69
|
0.5879
|
|
|
2069/70
|
0.9636
|
|
|
2070/71
|
1.0636
|
|
|
2071/72
|
1.1362
|
|
|
|
|
|
Mean (
) =
Standard deviation ( )
=
Coefficient of
variation (C.V.) =
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