A PROPOSAL ON RATIO ANALYSIS OF EXCEL

DEVELOPMENT BANK LTD.

Submitted By:
Sudin shakya
T.U. Registration Number: 7-2-927-478-2019
Nepal Commenrce Campus
Group: Finance

Submitted To:
The Faculty of Management
Tribhuvan University
Kathmandu

In partial fulfillment of the requirements for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu, Nepal
February, 2024
 TABLE OF CONTENTS
Page No.

1.Background of the Study 1

2.Statement of the Problem 1

3.Objectives of the Study 2

4.Significance of Study 3

5.Theoretical Framework and Literature Review 3

6.Research Methodology 4

7.Limitation of the Study 5

8.Organization of the Study 6

9.References 8
 Chapter One
INTROUDCTION

1.Background of the study

The financial sector plays a pivotal role in the economic development of a country.
Development banks, in particular, are crucial in providing financial support for
projects that contribute to national development. Excel Development Bank is one such
institution, which has been instrumental in funding various development projects and
initiatives. To evaluate the financial health and performance of Excel Development
Bank, ratio analysis serves as an essential tool. This study aims to conduct a
comprehensive ratio analysis of Excel Development Bank to provide insights into its
financial stability, operational efficiency, profitability, and growth potential.
1) 2.Statement of the Problem
Excel Development Bank Ltd. (EDBL), like many financial institutions, relies on robust
financial performance to sustain its operations and support its growth. However, recent
observations suggest that the bank faces several financial challenges that may impact its
overall health and competitiveness. This statement of problem aims to outline the key issues
necessitating a thorough ratio analysis to evaluate and improve EDBL's financial stability and
performance.Excel Development Bank Ltd. is experiencing multiple financial challenges that
could threaten its operational efficiency and market position. These challenges include:
1.Declining Profitability:
Reduced profit margins despite growth in revenue, indicating potential inefficiencies.
Decreasing Return on Assets (ROA) and Return on Equity (ROE), which suggest diminishing
effectiveness in utilizing assets and equity to generate profits.
2.Liquidity Issues:
Difficulties in maintaining adequate liquidity ratios, potentially compromising the bank's
ability to meet short-term obligations.
Imbalance between liquid assets and liabilities, affecting cash flow management.
3.Solvency Concerns:
Increasing debt levels relative to equity, raising concerns about the bank's long-term financial
stability.
Elevated Debt to Equity ratio, suggesting potential over-reliance on borrowed funds.
4.Asset Quality Deterioration:
Rising levels of non-performing loans (NPLs), which negatively impact the bank's earnings
and capital.
Need for improved credit risk management to mitigate bad debts and enhance asset quality.
5.Operational Efficiency:

1
Higher operating costs relative to income, indicating inefficiencies in resource utilization.
Suboptimal Asset Turnover ratios, reflecting the bank’s inefficiency in generating revenue
from its assets.
Competitive Pressure:
Challenges in maintaining competitive financial ratios compared to peer institutions.
Need to identify areas where the bank can improve its financial performance to better
compete in the market.
Research Questions:
1:What are the primary factors contributing to the declining profitability of Excel
Development Bank Ltd.?
2:How can the bank improve its liquidity management to ensure it meets its short-term
obligations?
3:What strategies can be implemented to address solvency concerns and reduce reliance on
debt?
4:How can asset quality be improved to reduce the impact of non-performing loans?
5:What measures can be taken to enhance operational efficiency and reduce operating costs?
6:How does Excel Development Bank Ltd.'s financial performance compare with industry
benchmarks, and what areas require improvement?
3.Objectives of the Study
The purpose of this study is multifaceted, focusing primarily on evaluating the financial ratios
of Excel Development Bank Ltd. The overarching goal is to address the statement of the
problem, with specific objectives outlined as follows:
 Comprehensive Financial Ratio Analysis:
o Assess the liquidity, solvency, and profitability of Excel development Bank Ltd.
through a thorough examination of its financial ratios. This involves a detailed
analysis of key indicators to gauge the bank's short-term and long-term financial
health.
 Historical Trajectory Examination:
o Investigate and analyze trends and patterns in the bank's financial performance
over previous years. By delving into historical data, the study aims to provide
insights into the trajectory of the bank's financial standing, identifying patterns
that may influence current and future outcomes.
 Benchmarking against Industry Standards:
o Compare the financial ratios of Excel Development Bank Limited with industry
benchmarks. This comparative analysis helps in understanding the bank's relative
position within the broader financial sector, providing context for its performance
and identifying areas of strength or improvement.
 Stakeholder Insights and Decision Support:

2
o Provide informed insights to stakeholders, including the bank's management,
investors, and regulatory bodies. This information is crucial for strategic decision-
making, as it offers a comprehensive understanding of the bank's financial
dynamics. These insights can aid in formulating effective strategies, making
informed investment decisions, and ensuring regulatory compliance.
Overall, this study aims to contribute valuable information to the stakeholders
involved, enabling them to make well-informed decisions based on a comprehensive
understanding of Excel Development Bank Limited's financial position and
performance within the broader financial landscape.

3
4.Significance of study

The significance of this study on the ratio analysis of Excel Development Bank Ltd.
lies in its potential to provide valuable insights and practical recommendations for
various stakeholders:

1.For Management: This study will offer a clear understanding of the bank’s financial
health, highlighting strengths and weaknesses. It will aid in strategic planning and
decision-making, helping management to improve profitability, liquidity, solvency,
and operational efficiency.

2.For Investors: By providing a detailed analysis of the bank’s financial performance,

the study will help current and potential investors make informed investment
decisions. Understanding the financial ratios will allow investors to assess the bank’s
stability and growth prospects.

3.For Regulators: The study will assist regulatory bodies in ensuring that the bank
operates within financial norms and maintains stability. It will provide insights into
areas where the bank needs to comply with regulatory standards and improve risk
management.

4.For Researchers: This study will contribute to the academic literature on financial
performance analysis of development banks. It will serve as a case study for similar
institutions, offering a framework for analyzing financial health using ratio analysis.

5.For Competitors: Understanding EDBL’s financial position through this analysis can
help competitors benchmark their own performance and identify areas for
improvement.

Overall, this study will provide a comprehensive view of Excel Development Bank
Ltd.'s financial performance, supporting better decision-making and strategic
improvements across the organization.

5.Theoretical Framework and Literature Review

Definition of Terminologies

The project report on the Ratio Analysis of Excel Development Bank Limited involves the
utilization of various terms to effectively describe and interpret financial information. Below
are definitions of key terminologies pertinent to the study:

4
 5.1. Profitability Ratios
Profitability ratios gauge the ability of a financial institution, such as Excel Development
Bank Limited, to generate earnings in relation to its expenses and other relevant costs
during a specified period. The following are some common profitability ratios:
 Net Profit Margin: Represents the percentage of profit earned compared to total
revenue.
 Return on Assets (ROA): Measures the bank's ability to generate earnings from its
total assets.
 Return on Equity (ROE): Evaluates the profitability of the bank in relation to
shareholders' equity.
 Earnings Per Share (EPS): Indicates the amount of profit attributable to each
outstanding share of common stock.
5.2. Liquidity Ratios
Liquidity ratios assess the bank's capability to meet short-term obligations and maintain
financial stability by measuring the availability of liquid assets compared to short-term
liabilities. Key liquidity ratios include:
 Current Ratio: Compares current assets to current liabilities.
 Quick Ratio: Measures the bank's ability to cover short-term obligations with its most
liquid assets.
 Cash Reserve Ratio (CRR): Indicates the proportion of total deposits that a bank must
hold in reserve as cash.
 Statutory Liquidity Ratio (SLR): Represents the percentage of net demand and time
liabilities that a bank must maintain in the form of liquid assets.
5.3. Turnover Ratios
Turnover ratios, also known as asset management or efficiency ratios, assess how
effectively a financial institution utilizes its assets to generate sales or income. Some key
turnover ratios include:
 Total Assets Turnover Ratio: Measures the efficiency of using total assets to generate
revenue.
 Loans to Deposits Ratio: Evaluates the proportion of loans to total deposits.
 Loan to Assets Ratio: Indicates the percentage of total assets financed by loans.
 Investment Turnover Ratio: Assesses the efficiency of generating revenue from
investments.

6.Research Methodology

Research methodology serves as the systematic framework that delineates the procedures,
steps, and techniques utilized in the comprehensive research process. It provides a structured
approach for data collection from diverse sources to facilitate the preparation of a detailed

5
report. This section elucidates the chosen methodology for conducting the research on the
financial analysis of Excel Development Bank Limited.
The research methodology for the ratio analysis of Excel Development Bank Ltd. is designed
to provide a thorough and systematic evaluation of the bank’s financial performance. By
leveraging secondary data sources, applying robust analytical frameworks, and employing
statistical tools, this study aims to offer valuable insights and actionable recommendations to
enhance the bank's financial health and strategic positioning.

6.1 Research design

This study on Excel Developmemt Bank concentrates on assessing its financial ratios,
employing a research design that integrates both analytical and descriptive methodologies.
The analytical approach allows for an in-depth examination of the interrelationships among
various financial metrics, while the descriptive component ensures a clear and comprehensive
presentation of the bank's overall financial landscape. This combined research design
enhances the depth of the financial analysis and facilitates a nuanced understanding of Excel
Development bank's performance.

6.2 Population and sample

There are currently several development banks operating in Nepal, totaling 17
establishments. For the purpose of this study, these banks collectively constitute the
population under consideration. Among them, Excel Developmemt Bank Ltd. has been
selected as the focal point for the research. The sample for this study will be drawn from the
annual reports of Excel Development Bank Ltd. spanning the past three fiscal years, up to FY
2079/80 BS. This targeted selection aims to provide a representative snapshot of Excel
Development Bank's financial performance over the specified period for a comprehensive
analysis.

6.3 Data collection procedure

Data for the study on Sindhu Bikash Bank will be derived from secondary sources, primarily
obtained from the bank's official website, financial reports, and regulatory filings. These
secondary data, representing pre-existing information, will be utilized to conduct a
descriptive and analytical research approach, aiming to comprehensively evaluate Sindhu
Bikash Bank's performance over the specified period. The study will focus on extracting
meaningful insights from the collected secondary data sources.

6.4 Nature and sources of data

The secondary data sources for the Sindhu Bikash Bank project encompass:

6
 Annual financial reports published by Sindhu Bikash Bank Limited.
 Information gathered from the official website of Sindhu Bikash Bank Limited.
 Reports and data obtained from Merolagani website.
 Various relevant information sourced from the Nepal Stock Exchange.

7.Limitations of study

Limitations serve to delineate the study’s boundaries, often arising from unavoidable
circumstances. The major limitations of this study are mentioned below:

The limitations of this study on Sindhu Bikash Bank include:

 The research is confined to the analysis of annual reports spanning three fiscal years,
specifically from FY 2077/78 to FY 2079/80.
 Primarily reliant on secondary sources, particularly the official website of Sindhu
Bikash Bank, which may limit the depth of data available for analysis.
 Encountered challenges in coordinating with the bank, which may impact the
accessibility of certain information.
 Constraints on time limited the depth of information collected, and insufficient data
availability posed challenges in the analysis.
 Difficulty in reaching top-level managers of Sindhu Bikash Bank for additional
insights.
 The study is exclusively focused on Sindhu Bikash Bank Limited, which restricts its
scope to a single financial institution.

8.Organization of Study

The structure of this report is divided into three key chapters:

i. Chapter One - Introduction:
 Background of the study
 Banking scenario in Nepal
 Profile of the organization
 Statement of the problem
 Objectives of the study
 Significance of the study
 Research questions
 Theoretical framework
 Limitations of the study
ii. Chapter Two - Results and Analysis:
 Data presentation and analysis of results and findings
 Systematic presentation of data collection
 In-depth analysis of project work results and findings

7
iii. Chapter Three - Summary and Conclusions:
 Evaluation and interpretation of obtained results
 Presentation of key suggestions and recommendations to relevant stakeholders
 Inclusion of a table of contents, list of tables and figures at the beginning
 Abbreviations and bibliography attached at the end of the report
This organized framework aims to facilitate a clear progression of the study, from its
inception and data analysis to a comprehensive evaluation and recommendations.

8
 Chapter Two
RESULTS AND FINDINGS

This section serves as the core of the study, presenting the collected data in a structured
manner using tables, graphs, equations, and other relevant means as elucidated in the
preceding chapters. The analysis of the data is conducted employing the methodologies
detailed earlier. This chapter encapsulates the essence of the study, providing a
comprehensive analysis and unveiling the significant findings derived from the collected
data. Through the systematic presentation and thorough analysis, this section aims to offer
valuable insights into the financial ratios and overall performance of the subject, shedding
light on pertinent trends and patterns.

9
 References

Brief Information: Retreived from the website of Sindhu Bikash Bank

Sourced from its official website and Investopedia (www.investopedia.com)
"Bank Management & Financial Services" by Peter S. Rose and Sylvia C. Hudgins
"Commercial Bank Financial Management" by Joseph F. Sinkey
"Bank Management" by Timothy W. Koch and S. Scott MacDonald
"Financial Institutions Management: A Risk Management Approach" by Anthony Saunders
and Marcia Millon Cornett
"Financial Institutions, Markets, and Money" by David S. Kidwell, David W. Blackwell,
David A. Whidbee, and Richard W. Sias

10