8/13/2019 Sabin Csh Management Thesis Final http://slidepdf.com/reader/full/sabin-csh-management-thesis-final 1/84 CHAPTER - I INTRODUCTION 1.1 Background of the Stud Cash is the life-blood of every organization. In the absence of it, no organization can run effectively and smoothly. Cash management leads the organization towards the efficiency and success. “Corporate must adopt such a policy that makes optimum cash management possible for improving the efficiency of cash management.Effective method of collection and disbursement should be adopted. “he term cash management has a meaning according to the purpose for which it is used and persons with varying branches of knowledge, it implies various meanings. Economists consider cash, as the means to satisfy human want, the lawyer views cash as the legal tender money issued by a determinate authority. !owever, our concern of the meaning of cash is to look from the viewpoint of balance sheet cash is an asset constituting the most li"uid item among all the assets. Cash as the most li"uid asset is of vital importance to daily operation of business #irm. Cash is both the beginning and end of the working capital cycle i.e cash, inventories, receivable and cash. Cash is like the blood stream in the human body that gives vitality and strength to business enterprises. he steady and healthy circulation of cash is needed throughout the entire business operation is the basis of business solvency. “Cash is the money, which the firm can disburse immediately without any restriction. he term cash includes coins, currency and che"ues held by the firm and balance in its bank accounts. $ometimes cash items, such as marketable securities are also included in cash%. &
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he aim of cash management is to maintain ade"uate control over cash position to
keep the firm sufficiently li"uid and to use e'cess cash in some profitable way.
Cash management is one of the main areas of (orking capital management. he cash
is the most li"uid assets so it should never be underestimated. It should be managed
well. he cash management involves formulation of policies and programmes for cash
receipt and cash payment. Cash management leads organization towards efficiency and
success.
Cash management is a broad term that refers to the collection, concentration, and
disbursement of cash. It encompasses a company)s level of li"uidity, its management
of cash balance and its short- term investment strategies. Cash management is
particularly important for new and growing businesses.
1.1.1 Or!g!n of Bank !n Ne"a#
he history of banking in *epal can be traced to &+ .. when e/arath dda was
established by the government to provide credit facilities to general public. hese
unorganized institutions although "uite underdeveloped could still mobilize funds from
wide range of different sources. lthough the e/arath dda was established, it was to
facilitate the growing trades with ibet and India. hus a need for the establishment of
a modern bank had become essential to promote the trade of the nation. In the year
&012 “reaty of peace and #riendship% were concluded between the 3overnment of
4ritain and 3overnment of *epal. s per the treaty, *epal could carry on import trade
free of duty via India. In other word, it meant that *epal was going to diversify its
foreign trade and for that the country needed a modern bank. 4ut it wasn5t till &026
.. that the 7dyog 8arishad 9industrial evelopment 4oard: was set up with the
following ob/ectives;-
o promote and protect the trade, commerce, industries and manufacturers of *epal,
and to consider and discuss "uestions connected with or affecting such trade,commerce, industries and manufacturers, to register and incorporate /oint stock
companies in conformity with *epal Companies ct and also to e'amine and
supervise their workings and to assists and advise 3overnment of *epal in economic
and financial matters.
hus, the “7dyog 8arishad% helped in opening new avenues for the advent of banking,
industry and commerce in *epal and thus helped to enhance the economic status of the
country. year after its formation, the 7dyog 8arishad formulated the company act
and the “*epal 4ank ct% in &02 .. which established the *epal 4ank <td with the
technical cooperation of the Imperial 4ank of India, as the first commercial bank of
*epal.
4efore &0=6 “$ardar >ulukikhana dda% 9local treasury of the government: issued
currency notes and the foreign e'change reserves of *epal were maintained by
?eserve 4ank of India. uring that period the Indian currency along with *epalese
currency was circulating in the economy. hus to manage the circulation of nationalcurrency and to maintain e'change rate stability, there was an urgent need for the
establishment of a Central 4ank. In &0=6, the *epal ?astriya 4ank ct was formulated
and *epal ?astra bank was established as central bank on pril 16, &0=6. It took over
the functions of >ulukikhana dda “government reasury% and started issuing
currency in &0=0@ and also thus relieved the various >al ddas 9?evenue Affices: of
their work. hus it helped the government to perform treasury functions and stabilize
the e'change rate. he *?4 focused mainly on eliminating dual currency system
prevalent in *epalese market. he *?4 tried to decrease the circulation of the Indian
currency, replacing it with the *epalese currency in various transactions of trade and
commerce. he initiation of the *epalese currency ct, &0=+ and the opening of the
bank5s branches in various part of the country were the ma/or steps undertaken by the
central bank in this respect. here were other government banking institutions.
?astriya 4ani/ya 4ank 9*ational Commercial 4ank:, a state-owned commercial bank,
was established in &066. In the same year, the <and ?eforms $aving Corporation was
established to deal with finances related to land reforms. here were two other
specialized financial institutions. *epal Industrial evelopment Corporation 9*IC:, a
state-owned development finance organization head"uarter in Bathmandu, was
established in &0=0 with 7nited $tates assistance to offer financial and technical
assistance to private industry. he co-operative 4ank, which becomes the gricultural
evelopment 4ank in &06, was the main source of financing for small agribusiness
and cooperative. lmost = percent of the bank was state-owned@ 1& percent was
owned by the *epal ?astra 4ank, and = percent by cooperative and private individuals.
1.1.$ Co%%erc!a# Bank !n Ne"a#
he history of banking dates to the si'teenth century. !owever in *epal formal
banking system was only introduced only in &00 Bartik 2Dth was the establishment of
*epal bank limited 9*4<:, which was regarded as pioneer institution in modern
banking system and served as a role financial institution of the country for nearly two
decades prior to establishment of this bank, the banking need of people were fulfilled
to certain e'tent only by organized financial institution the “e/artha dda%.
!owever the service it offered were not sufficient. ctually, the formation of high
committee board “7dhog 8arisad% was indeed a landmark in opening of new avenue in
the field of banking industries and commerce. ccordingly, *4< was established on
*ovember &02 under *epal bank act as /oint venture between government and
private and overcoming its limitations. It regulates currency achieving stable e'change
rate and mobilized capital for economic development and for simulation of trade
industry and banking sector. *epal ?astra 4ank 9*?4: comes into e'istence in pril16th &0=6 as a country5s central bank. fter this *?4 diverted its attention toward
development of banking system by formulating relevant policies procedure in this
commotion commercial bank act &062 was formulated, credit control regulation was
too formulated. !ence, further shouldering the banking service. he ?astriya 4ani/ya
4ank 9?44: was established in &066 under ?44 ct &06 with fully government
owned commercial bank.
*?4 91DD+: stated “he function of the banks can be classified into Class , Class 4,
and Class C and Class . Class 5 includes 21 licensed Commercial 4anks that can
banking authorities. #or further information on central banks and investment banking,
see the relevant articles.
$.$.$ Conce"t of Co%%erc!a# Bank
he commercial banks, in the modern world play an important role in accelerating the
development of an economy. he role of the commercial banks is significant not only
in mobilizing savings but also in making investment for the development of the
different sectors of an economy. heir role is also important in reducing poverty,
raising employment opportunities and minimizing disparity in the income, wealth and
opportunities between richer and poorer section of society. he commercials banks are
therefore, called the engines of economic growth in modern time. $imilarly the nations
in which the commercial banks are less developed their economics are also less
developed. he development of commercial banks has thus, become synonymous with
the development of the countries.
In *epal, Commercial banks are the heart of the financial system. hey hold the
deposits of many persons, government establishment and business units. hey make
fund available through their lending and investing activities to borrowers,
individual business firms and services from the producers to customers and the
financial activities of the government. hese facts show that the commercial
banking system of the nations is important for the functioning of the economy.
Evaluation of financial performance is a study of overall financial position of any
organization. It is closely related to the decision making. In the modern conte't, itgives vital support for the investment decisions, financing decisions and dividend
decisions. #inancial performance analysis is undergone with the help of periodically
made financial statements of the firm.
$.$.& O)*ect!+e(
he main ob/ectives of commercial banks in *epal are;
• o bring about banking consciousness among the general public.
• o deal with the growing financial transaction of the national economy.
earning asset and the firm will have to forego profits. low level of cash balances, on
the other hand, may mean failure to meet the payment schedule. he aim of cash
management, therefore, should be to have an optimal amount of cash balances. 9Bhan,
>.J and Fain, 8.B, #inancial >anagement, &0+6; 662-66:
$.$.9 I%"ortance of Ca(h 7anage%ent
Cash is the most li"uid asset for the operations of business firm. Cash5 is both the
beginning and the end of the working capital cycle-cash, inventories, receivable andcash@ its effective management is the key determinant of efficient working capital
management. Cash is like the blood stream in the human body gives vitality and
strength to a business enterprise. he steady and healthy circulation of cash throughout
the entire business solvency%. ccording to F.>. Beynes it is cash, which keeps a
business going. !ence, every enterprise has to hold necessary cash for its e'istence. In
a business firm ultimately, a transaction results in either an inflow or an outflow of
cash. In an efficient managed business, static cash balance situation generally does not
e'ist. de"uate supply of cash is necessary to meet the re"uirement of the business. Its
shortage may stop the business operations and may generate a firm into a state of
technical insolvency and even of li"uidation.
Efficient and optimal cash flow management is important to all firms. “Cash is a non
earning asset in the sense that although it is needed to pay for labor and raw materials
to buy fi'ed assets, to pay ta'es, to serve debt, to pay dividends and so on. Cash
management is to reduce cash holdings to the minimum necessary level to conduct
business% 9(eston and Copeland, &0+&;1+:.4usiness analysts report that poor
management is the ma/or reason why most businesses fail. It would probably be more
accurate to say that business failure is due to poor cash management. #or this, financial
manager should take a look at the cash flow process to find out. herefore, we need to
perform a cash flow analysis on a regular basis, and use cash flow forecasting so you
can take the steps necessary to head off cash flow problems.
Cash can perform a number of functions as it makes payment possible. Its serves to
meet emergencies. !owever, if cash is kept idle it contributes directly nothing to the
earning of corporations. s such corporation must adopt such a policy that makes
optimum cash management possible. he financial manager of the corporation should
try to minimize the corporations5 holding of cash while still efficiency of cash
maintaining enough to ensure payment of obligation. #or improving the efficiency of
cash management, effective method of collection and disbursement should be adopted@
some methods for efficiency of cash management are briefly described below.
• S"eed Ca(h Co##ect!on of u(ea)#e ca(h
firm can conserve cash and reduce its re"uirement for cash balance if it can speed-up
its cash collection. ?educing the lag for gap between the times a customer pays his bill
can accelerate cash collection and the time the che"ue is collected and funds become
available for use. (ithin this time gap, the delay is cause by the mailing time. he
amount of che"ues sent by customers but not yet collected are called deposit float. he
greater the deposit floats, the longer the time taken. here are mainly two techni"ues,
which can be used to save mailing and processing time which is concentration
banking, lock bo' system.
• Concentrat!on Bank!ng
Concentration banking is a system of operating through number of collection centers,instead of a single collection center centralized at the firm head office. o this system,
the firm will have a large number of bank accounts operated in the area the firm its
branches. ll branches may not have the collection centers. he collection centers will
be re"uired to collect che"ues from customers and deposit them in their local bank
accounts. he collection center will transfer funds above some pre-determined
minimum to a control generally at the firm5s head office, each day. connection bank
is one where the firm has a ma/or bank account usually the disbursement.
cash budget should be prepared for determining cash re"uirement. If cash flows show
e'treme fluctuation, cash budget for longer interval may be prepared of cash flows are
relatively stable.
• Ad*u(ted net !nco%e %ethod
his method is also called the sources and uses approach. wo ob/ectives if he
ad/usted net income approaches are to pro/ect the company5s need for cash at some
future date and to show whether the company can generate this money internally or
not, how much will give to either borrow or rise in the capital market. It is based on
8erforma financial statement. In preparing the ad/usted net income forecast items such
as net income, depreciation, ta'es, dividend etc. can easily be determined from the
company5s annual operating budget.
• ong Ter% Ca(h 'oreca(t!ng
<ong erm Cash #orecasting are prepares to give an idle of the company5s financial
re"uirement of disbursement of distant future. Ance a company has developed long
term cash forecast, it can be used to evaluate the impact of say new product
development on the firm financial condition three, five or more years in future. he
ma/or uses of the long term cash forecasts are company5s future financial needs,
especially for it working capital re"uirement, to evaluate proposed capital pro/ects and
it help to improve corporate planning. <ong term cash forecasting not only reflects
more accurately the impact of any recent ac"uisitions but also foreshadows financing problems.
$.$.1$ Deter%!n!ng the O"t!%u% Ca(h Ba#ance
#inancial manager responsibilities are to maintain a sound li"uidity position of the
firm. $o that dues may be settled in time. he firms need cash not only to purchase raw
materials and pay wages but also for payment of dividend, interest, ta'es and countless
other purpose. he te't of li"uidity is really the availability of cash to meet the firmobligations when they become due. hus the cash balance is maintained for transaction
he >iller-Arr model is in fact an attempt to make the 4aumol model more realistic as
regards the pattern of cash flows. s against the assumption of uniform and certain
levels of cash balances randomly fluctuate between an upper bound 9h: and a lower
bound 9o:. (hen the cash balances hit the upper bound 9h:, the firm has too much cash
and should buy enough marketable securities to bring the cash balances back to the
optimal bound 9z:. (hen the cash balances hit zero, the financial manager must returnthem to the optimum bound 9z: by selling converting securities in to cash. ccording
to the >iller-Arr model, as in 4aumol >odel, the optimal cash balance 9z: can be
e'pressed symbolically as
Q K 292b1:LiN<MMMMMMMMM9ii:
hus, as in 4aumol model, there are economies of scale in cash management and the
two basic costs of conversion and the lost interest that have to be minimized. >iller-
Arr model also specifies the optimum upper boundary 9h: as three times the optimal
cash balance level such that
7pper limit 9h:K 2Q-1<MMMMM.9iii:
verage Cash 4alance K 9hNQ:L2
#urther, the financial manager could consider the use of less li"uid potentially more
profitable securities as investments for the cash balances in e'cess of cash 9>iller and
positive co-efficient while the sale of those securities would incurred conversion costs
and have a negative co-efficient. very important feature of this model is that it
allows the financial managers to generate cash management with production and other
aspects of the firm.
Ca(h 7anage%ent 7ode#
In this model, it is assumed that the firm on average is growing and is a net user of
cash. >arketable securities represents a buffer stock between episodes of e'ternal
financing which is drawn as re"uired periodically ordering costs are represented by
clerical and transaction costs of making transfer between the investment portfolio and
the cash account; he holding cost is the interest foregone a cash balance held.
ssuming that e'penditure occurred evenly over time and that cash replenishment
come in lump sums at periodic intervals. he optimal size of the cash transfer is
formulated as follows;
(here,
CK the optimal size of the cash balance.
K the total cash usage for the period of time involved.
bKthe most of the transaction in the purchase or sale of marketable securities.
iKthe applicable interest rate on marketable securities.
$.$.1 7ot!+e( for ho#d!ng Ca(h
he firm holds cash for various motives, they are;
• Tran(act!on 7ot!+e(
he principle motive for holding cash is to conduct day to day operations. cash balance associated with routine payments and collections. <ike payments of purchases,
Cash flow simply refers to the flow of cash into and out of a business over a period oftime. (atching the cash inflows and outflows is one of the ma/or management tasks of
an owner. he outflow of cash is measured by those che"ues of transaction that will
write every month to pay salaries, suppliers, and creditors. he inflows are the cash,
which receive from customers, lenders and investors. 8ositive cash flow means the
cash coming in% to the business is more than the cash going “out% of the business@ the
company has a positive cash flow. positive cash flow is very good and the only
worry here is what to do with the e'cess cash. *egative cash flow means the cash
going “out% of the business is more than the cash coming “in% to the business@ the
company has a negative cash flow. negative cash flow can be caused by a number of
reasons. #or e'ample; too much or obsolete inventory or poor collections of accounts
receivable can be the cause of short of cash. If the company can5t borrow additional
cash at this point, the company may be in serious trouble.
cash flow statement is typically divided into three components. hese are stated
business and enables firms to budget the cash needs of the business over a period of
time. he ability to predict and plan cash outlays means that firms won5t be forces to
resort to une'pected borrowing to meet your cash needs. he lack of li"uidity can be a
killer-even for profitable business. <ack of profits won5t kill a business nearly as
"uickly as the lack of cash to pay your trade creditors. ?emember, non-cash e'penses
such as depreciation can make your profit look negative, while your cash flow is
positive. nd you could also be showing a profit but have negative cash flow. hat5s
why it is essential that we understand how to use a cash flow statement, and use it on
regular basis. 8reparing a cash flow pro/ection is a something like preparing budget
and balancing checkbook at the same time. 7nlike the income statement, a cash flow
statement deals only with actual cash transactions. epreciation, a non cash
transaction, does not appear on a cash flow statement. <oan payments 9both principal
and interest: will appear on your cash flow statement since they re"uire the outlay of
cash.
Cash is generated primarily by sales. In most of the business not all sales are cashsales. Even if firm5s have a retail business and a large percentage of sales are cash it is
likely that firm offer credit 9charge accounts, term payments, lay-a-way, and trade
credit: to customers. hus, we need to have a means of estimating when those credit
sales will turn into cash-in-hand. Cash flow pro/ection should be prepared for short-
term 9weekly, monthly:, and long-term 9annual, 2-= years: planning purposes. hey are
used for deficient purposes and thus are generally prepared differently.
$.$.19 Ca(h '#o6 State%ent >C'S?
he Cash #low $tatement attempts to analyze the transactions of the firm in terms of
cash i.e. the transactions generating cash and using cash. he focus in the cash flow
statement is on cash rather than on working capital. $o, the C#$ provides a summary
of sources of cash and uses of cash in the firm. he sources of cash may be the cash
profits earned but the firm, issue of capital for cash, issue of other securities for cash,
borrowings, sale of assets or investments etc. the uses of cash may be purchase of
assets, investment, and redemption of debenture or preference share, repayment of
loan, payment of ta', dividend distribution etc. he e'cess of sources cash over the
uses of cash would be the increase in cash during the year and vice-a-versa. hus, the
C#$ summarizes the cash inflows and outflows.
$.& Re+!e6 of Book( and Art!c#e(=@ourna#(
In this section an attempt has been made to review some book on financial
management, which deals with the management of cash.
he well known professor (eston and 4righam have given some theoretical insightinto the cash management after their various studies on it. he bond conceptual
findings of their studies provide sound knowledge and guidance for the future studies
in the field of management. hey e'plain in the beginning, the motives for holding
cash specific advantage of ade"uate cash, synchronization of cash flows, e'pending
collection and che"ue clearing, using float, cost of cash management determining the
minimum cash balance, compensating balances overdraft system cash management,
management of account receivable credit policy, evaluating changes in credit policy.
>5e(ton @. 'red and Br!gha% Eugene 7anager!a# '!nance. 190?.
#rom the book entitled financial management5 written by >.J. Bhan and 8.B. Fain,
cash management is one of key areas of working capital management5. part from the
fact that it is the mot li"uid current assets, cash is the common denominated to which
all current assets, can be reduced because the other ma/or li"uid assets i.e., receivables
and inventory get eventually converted in cash. his underlines the significance of
cash management. >7.. han and P.. @a!n 192/?.
#or the cash management, a well Rknown Indian professor I. >. 8andey has described
some conceptual ingredients, which are based on his various research studies. (e can
learn lesson from it and helpful for this study indeed. !e has described various e'cept
of cash management which are as follows@ fact of cash management, motives for
holding cash, cash forecasting and budgeting, managing the cash flows, counting
disbursement, determinant of the optimum cash balance.
(e also received some theoretical concept on the component of cash management
from Gan !orne books. !e has categorized the various component of cash
management. hese are the functions of cash management@ managing collection,
transferring funds, concentration banking, lock-bo' system and other procedures,
control of cash disbursements, payroll and dividend disbursements, zero balance
account, electronic fund transfer, balancing cash and marketable securities, model for
determining optimal cash.
4a/racharya 9&00D: in his doctoral thesis, “Cash management practices in Nepalese
enterprises%, with reference to *epalese public enterprises from the year &0 to &0+
conducted research in the area of cash management on@ forecasting and planning, cash
management strategies using different models and techni"ues. he ma/or findingsdrawn that he concluded cash management practices in *epal are operated in a
traditional manner more serious aspect of cash management has been the absence of
any formalized system of cash planning and cash budgeting in many enterprises.
Foshi 91DD1:, entitled “ A study on Financial Performance of Commercials Banks%,
concluded that the li"uidity position of commercial banks is satisfactory. <ocal
commercial banks have found the higher debt e"uity ratio than other /oint venture
banks. <oans and advances have been the main form of the investment. sset
utilization for earning purposes is two-third of total assets. he main source of income
for these banks is the interest from loans and advances.
(.F 4aumol, at his article “The Transaction Demand for cash: An inventory theoretic
Approach on Suarterly /ournals of economic 9 Gol. <PG, *ov. &0=1: identifies cash
management as analogues to inventory maintenance and demonstrate that the model of
economic order "uantities that is applicable to inventory management is perfectlyapplicable in cash management too. !e has presented model in views of minimizing
the opportunity cost of holding cash and ma'imizing the return on the available funds,
the cash balance should be maintained at a minimum level and the funds not re"uired
from immediate use be invested in the marketable securities.
$imilarly, >.! >iller and Arr. ., in their article “A !odel of the Demand for money
in firms on "uarterly /ournals of economics, 9Gol <PJ, ug &006: have developed a
model known as >iller-Arr >odel, that takes into account the realistic pattern of cash
?esearch methodology can be defined as systematic process that is adopted by the
research in studying problem with certain ob/ectives. ?esearch is effort of search new
fact, knowledge and principle in scientific ways. o generate knowledge, investigation
or en"uiry in the phenomenon of the e'plored or une'plored area necessitated the
research work. he research re"uires different methodologies, tools, techni"ues, etc.
he main purpose of this chapter is to focus on different research method and
conditions, which are used while conducting this study. Every study needs a systematic
methodology to show the better results of the research. his chapter contains research
design, source of data, population and e'amples, method of data collection.
&.1 Re(earch De(!gn
?esearch design is a plan that shows how researchers intend to fulfill the goal of
purposed study. he plan mean now researcher investigator collect the data structure in
term controlling the data in term of money and time.T he plan mean now researcher
investigators collect the data structure in term controlling the data in term of money
and time. (e can say that the research design is specific action of methods and
procedures for ac"uiring the information needed. It is the plan, structure and strategy
of investigation conceived so as to obtain answer to research "uestions and to control@variances. It is the overall operational pattern of framework of the pro/ects that
4eturn on ,hareholder;s e2uity7 Net profit After Ta9
32uity capital
• Intere(t Earned to Tota# A((et Rat!o
.nterest earned to Total Assets 7 .nterest earned
Total Assets
• Return on Tota# De"o(!t Rat!o
Net Profit to Total Deposit 7 Net profit
Total Deposit
&..$ Stat!(t!ca# Too#(
$tatistical tools help to find out the trends of financial position of the bank. It alsoanalyzes the relationship between variables and helps banks to make appropriate
investment policy regarding to profit ma'imization and deposit collection, fund
utilization through providing loan advances or investment on other companies.
?anges of statistical tools are also used to analyze the collected data and to achieve the
ob/ectives of the study. $imple analytical tool such as Barl 8earson5s coefficient of
correlation is adopted which are as follows;
&..$.1 Trend ana#(!(
rend analysis is a very useful and commonly applied tool to forecast the future event
in "uantitative term on the basis of the tendencies in the dependent variable in the past
period. $traight line trend implies that irrespective of the seasonal, cyclic and irregular
fluctuation the trend value increases or decreases by absolute amount per unit of time.
he linear trend values form a series in arithmetic progression.
verage like other mean, mode and medium gives us the idea of concentration of the
items around the central part of distribution. 4ut average do not gives clear picture about
the distribution because two distributions with same average may differ in the scatter ness
of the items from the central value. o remove this drawback, dispersion is used.ispersion is defined as the measure of variation of the item from the central value.
mong various measure of dispersion, standard deviation is widely used. $tandard
deviation is absolute measure of dispersion, which is defined as the positive s"uare root
of the mean of the s"uare of deviation taken from the arithmetic means, if P&, P1,
P2--------Pn are the given observation, then standard deviation denoted by is given
by@
, *K number of observation in series P
K $um of observation in series P
K $um of $"uared observation in series P
$tandard deviation is the absolute measure of dispersion. he relative measure of
dispersion based on the standard deviation is known as the coefficient of standard
deviation
&..$. Coeff!c!ent of ,ar!at!on >C.,.?
Coefficient of variation is the relative measure of dispersion, comparable across
distribution, which is defined as the ratio, of the standard deviation the mean e'press in
percent 9?ichard ?ubin, &00, pg &&:. It is used in such problem where we want to
compare the variation which is greater and is said to be more variable or conversely less
satisfactory li"uidity positions is one of the distinguishing characteristics of a sound
bank. s a critical factor of evaluation, li"uidity is the ability of a bank to satisfy the
credit needs of the community, to meet demands for deposit, withdrawals, pay
maturing obligations on time, and to convert non-cash assets into )cash) to satisfy
immediate needs without loss to bank and conse"uent impact in the long-term
profitability. <i"uidity ratios such as cash and bank balance to current assets ratio,
loans and advances to current assets ratio, fi'ed deposit to total deposit ratio, saving
deposit to total deposit ratio, and investment in government securities to current
assets ratio attempts to figure out the li"uidity position of the banks under study.
.$.1.1 Current Rat!o
he current ratio one of the most commonly cited financial ratio, measures the firm5s
ability to meet its short term obligations. Current liabilities includes the sum of
borrowings, current and call deposit liability, 4ills payables, proposed dividend andother liabilities. Current assets include the cash balance, balance with *?4, money at
call and short notice, loans, advances and bills purchase and other assets. It is
he cash and bank balance to total deposit ratio reveals that the ability of banks to
cover its short term deposits. he ratio decreases in the 1D6=L66 year and again
increases rapidly in ne't two year i.e. #J 1D66L6 and #J 1D6L6+ which implies the
bank5s have sufficient cash but has maintain balances with increase in total deposit.
he average of the ratio and standard deviation are D.D0 and D.D& respectively.
#ig no; &&
.$.1. Ca(h and Bank Ba#ance to '!Ged De"o(!t Rat!o
his ratio measures the ability of the banks to meet its immediate obligation. he ratiois computed by dividing the Cash and bank to fi'ed deposit, it is e'press
Cash and Bank 0alance to Total Deposit 4atio7 Cash 8 Bank 0alance
he ratio helps to analyze whether the outsider5s fund have been properly utilized. he
above table reveals that the ratio of the bank is in declining trend in first three years.
his implies the ratio of funds mobilization has been decreased despite of increase in
total deposit of the bank. In the last year i.e. #J 1D6+L60, the ratio has decreased to
D.0D which indicates the deposit mobilized in the form of loan and advances are lower
in comparison to total deposit. he table shows that average of D.=+ of total deposithas been disbursed as loan and advances and standard deviation is D.&=&.
#ig no; &=
.$.& Prof!ta)!#!t Rat!o;
8rofit is the difference between total revenue and total e'penses over a period of time.
It is an important factor that determines the firm5s e'pansion and diversification.
re"uired level of profit is necessary for the firm5s growth and survives in the
competitive environment. 8rofitability ratios have been employed to measure the
rend analysis, present or future analysis, is utilized to see the movement of upward or
downward by the help of given numerical values of some specified period of time.
hat time period may of five years, ten years etc. !ere, trend analysis of investmentand net profit, deposit, loan advance of the banks are done. he forecast is made for
the ne't five years. hese are based on the following assumptions;
• he main assumption is that other things are remaining the same.
• he forecast will be true only when a limitation of least s"uare method is
carried out.
• he bank will run is present position.
• he economy will remains in the present stage.
.$..1 Ana#(!( of Trend ,a#ue of Tota# In+e(t%ent and Net Prof!t
7nder this topic, an attempt has been made to analyze total investment and net profit
of *epal $4I 4ank <td for five years i.e. #J 1D6L6= to 1D6+L60 and forecast is made
summary of the study is presented in this chapter outlining the study5s introduction,
8urpose, ob/ectives, and methodology. he findings of the study are also presented in a
$ummarized form and recommendations are made where possible.
.1 Su%%ar
he present study has been carried out to e'amine various aspects of cash management
techni"ues, practices and policies used by the bank. In present commercial banks are
now growing and there are 21 commercial banks in *epal. !owever the study covers
only one bank i.e. *epal $4I 4ank ltd. he period covers five years from 1D6L6= to
1D6+L60. he study focuses on the cash management adopted by the *epal $4I 4ank.
It attempts to analyze the cash management of *epal $4I 4ank for the last five yearsfrom 1D6L6= to 1D6+L60. 4anking sector contributes significantly to the economic
development of the country. hough banking sector has well recognized the
importance of proper cash management, banks are still facing the problem of cash
management. $o, the ob/ectives of this study are to have true insights into its cash
management and to search for appropriate cash management techni"ues for the banks
in *epal. n attempt has been made in this study to provide a possible suggestive
framework for the better cash management of *epal $4I 4ank and to make sound
strategy in future for cash management system.
he #inancial statement, 4alance $heet and profit <oss aLc are the basic instrument
of an ccounting system to communicate financial information to users. 4alance
$heet shows the financial condition of the state of affairs of the firm at a particular
point of time while the profit <oss aLc shows the profitability of the firm by giving
details about revenues and e'penses for accounting period. he financial statements
serve as a means to the various stakeholders of the firm to analyze the
organization financial strengths, weakness, and performance. here are various
ways to conduct a financial performance study. Ane of them is the financial ratio
analysis. financial ratio is a relationship between two financial variables. It helps to
ascertain the financial condition of a firm. ?atio analysis is a process of identifying
the financial strengths and weaknesses of the firm. 4anks play a vital role in the
economy of most of the countries in the world. hey are the 4ackbone of a country5s
financial system.
In order to fulfill the partial re"uirement for the egree of >asters in 4usiness
dministration, a study titled “Cash management of 4ank in *epal 9*epal $4I 4ank.
<td.:T was undertaken. he study seeks to assess the financial performance of the
banks with the help of ratio analysis as well as other relevant analysis for the period
starting from 1D6L6= to 1D6+L60. s the study is analytical-cum-descriptive in
nature, research is based on the historical data of the banks available in the annual
reports of the banks. he annual reports were collected from the respective banks aswell as the internet , books, periodicals, /ournals@ articles on the related sub/ect
were e'tensively reviewed in the library "uotations from various authors on the
related topic have been placed throughout the chapters. ?eviews of the previously
undertaken research studies have also been made in order to highlight the difference
and significance of this study.
#inancial as well as statistical tools have been used to determine the financial
performance of the bank. (hile ratio analysis is used to assess the li"uidity,
profitability position of the banks for which statistical tools such as@ mean,
standard deviation, coefficient of variation, have been used to determine the e'tent of
variability and similarity between the ratios of the banks. he findings of the study
have been presented in tables and graphs. nalysis and interpretation of the findings