A STUDY ON INVESTMENT ANALYSIS OF SURMA SAIPAL SAVING AND

CREDIT CO-OPERATIVES LIMITED

DHANGADHI, KAILALI

A Project Work Report

Submitted By
Prativa Bohara
BBS 4th Year
T.U. Exam Roll No.:- ……………………
T.U.Regd. No.:- 7-2-22-1533-2019
Group- Finance

Submitted to
The Faculty of Management
Patan Multiple Campus
Lalitpur, Nepal

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS).
Lalitpur
2080
 DECLARATION

I hereby declare that the project work entitled "A STUDY ON INVESTMENT
ANALYSIS OF SURMA SAIPAL SAVING AND CREDIT CO-OPERATIVES
LIMITED SUBMITTED for the faculty of management, Tribhuvan University,
Lalitpur is an original peace of the work under the supervision of
……………………… Faculty member PATAN MULTIPLE CAMPUS, LALITPUR,
and is submitted in partial fulfillment of the requirements for the award of the degree
if Bachelor of Business Studies (BBS). The project work report has not been
submitted to any other University or institution for the award of any degree or
diploma.

……………………
Prativa Bohara
Date:…………………

i
 SUPERVISOR RECOMMENDATION

The project work report entitled A STUDY ON INVESTMENT ANALYSIS OF

SURMA SAIPAL SAVING AND CREDIT CO-OPERATIVES LIMITED submitted
by PRATIVA BOHARA of PATAN MULTIPLE CAMPUS, LALITPUR, is
prepared under my supervision as per the procedure and format requirements laid by
the faculty of management. Tribhuvan University, as Partial fulfillment of the
requirement for the award of the degree of Bachelor of Business Studies (BBS). I
therefore recommend the project work report for evaluation.

Mr. …………………………..
Patan Multiple Campus
Date:……………………..

ii
 ENDORSEMENT

We hereby endorse the project work report A STUDY ON INVESTMENT

ANALYSIS OF SURMA SAIPAL SAVING AND CREDIT CO-OPERATIVES
LIMITED submitted by PRATIVA BOHARA of PATAN MULTIPLE CAMPUS,
LALITPUR. In partial fulfillment of the requirement for award of Bachelor of
Business Studies (BBS) for external evaluation.

Signature: Signature:
Mr. …………………. Dr. Laxman Singh Kunwar
Chairman Management Research Committee Campus Chief
Date: 2080 Date: 2080

iii
 ACKNOWLEDGEMENT

This report entitled "A CASE STUDY ON INTEREST RATE OF UNIQUE NEPAL
MICRO FINANCE COMPANY DHANGADHI, KAILALI" has been prepared in
partial fulfillment for the degree of Bachelor of Business Studies (BBS) under the
course designed by the Faculty of Management, T.U. This study is based on the
prescribed research format involving the use of financial statements and deposits in
the banking sector.
At the time of preparing this study, I consulted with various personalities. So, I would
like to extend my sincere thanks to all whose works and ideas helped me in
conducting the study. Sincerely, I would like to pay my sincere gratitude to my thesis
advisor Prof. ……………………... of PATAN MULTIPLR CAMPUS, LALITPUR
who guided through research work providing valuable suggestions, supports and
supervision.

Finally, I would like to offer my profound gratitude to my family members, my

friend, colleagues, well-wishers for their encouragement and support during the entire
period of my study.

Researcher
Prativa Bohara
Patan Multiple Campus
Lalitpur

iv
 TABLE OF CONTENTS

DECLARATION............................................................................................................i

SUPERVISOR RECOMMENDATION.......................................................................ii

ENDORSEMENT.........................................................................................................iii

ACKNOWLEDGEMENT............................................................................................iv

List of Table..................................................................................................................vi

List of Figure................................................................................................................vii

Abbreviation...............................................................................................................viii

Chapter I: Introduction...................................................................................................1

1.1 Background the Study..........................................................................................1

1.2 Brief Profile of the Organization..........................................................................2

1.3 Statement of the Problem.....................................................................................4

1.4 Objectives of the Study........................................................................................5

1.5 Rational of the Study............................................................................................5

1.6 Review of Literature.............................................................................................6

1.7 Research Methodology.........................................................................................7

1.7.1 Research Design............................................................................................7

1.7.2 Population and Sample..................................................................................8

1.7.3 Sources of Data.............................................................................................8

1.7.4 Data Processing Procedures..........................................................................8

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 1.7.5 Data Analysis Method...................................................................................9

1.8 Limitations of study.............................................................................................9

1.9 Report Structure.................................................................................................10

CHAPTER II: RESULT AND ANALYSIS................................................................11

2.1 Data Presentation................................................................................................11

Chapter III: SUMMARY and conclusion....................................................................21

3.1 Summary............................................................................................................21

3.2 Conclusion..........................................................................................................23

Bibliography.................................................................................................................24

vi
 LIST OF TABLE

Table 1: Current ratio (times).......................................................................................11

Table 2: Operating profit Margin to Interest Earned Ratio..........................................12

Table 3: Return on Assets (ROA)................................................................................14

Table 4: Net profit margin ratio...................................................................................15

Table 5: Fixed Assets turnover ratio............................................................................16

Table 6: Capital adequacy ratio....................................................................................17

vii
 LIST OF FIGURE

Figure 1: Operating profit margin to Interest Earned...................................................13

Figure 2: Net Profit Margin Ratio................................................................................16

Figure 3: Capital Adequacy Ratio (%).........................................................................18

viii
 ABBREVIATION

BBS - Bachelor Business Studies

Fig - Figure Number
No. - Number
NIM - Net interest Margin
ROA - Return on assets
PM - Profit Margin
SCL - Sudurpaschim Co-operative Limited

ix
 CHAPTER I: INTRODUCTION

1.1 Background the Study

The co-operative movement was started in the 19th century in a factory of Germany
where 25 workers worked. There, they used to spend their all the salary to factory
canteens, before they commenced their co-operative. These canteens were conducted
by factory owners. They were able to save nothing from their income, so they
gathered and decided to run a canteen of their own. They collected funds and started
the canteen for themselves. Their own canteen became helpful to save their income on
the one side and on the other side they got pure and hygienic things in fair price from
their ownership. This practice was later became developed popular as co-operative
society and spread all over Europe and Asia.

Co-operative is an organization which operates its activities in equally basis. The co-
operative is established and managed to solve the problems of distribution of goods of
daily necessity agricultural inputs to facilitate improved family system and an
exploitation of intermediaries. A co-operative society is a business organization which
has two entities. Its prime objective is to serve the members to its best ability and
responsibility. It cannot go beyond the co-operative values and principle. At the
sometime profit is also necessary for its existence, growth and expansion. Co-
operative organizations have to classify twin objectives i.e. social as well as profit.

With the development of human civilization the sense of co-operative grew into the
world. The human being splinted into have and have not or in other words exploiter
and exploited. The socialists thought that co-operative movement is one of the best
way of eradicating such social evils and uplifting the rural as well as the urban poor.
The word 'Co-operation' is derived from the Italian word "Co-operari" which means
to work together literal meaning of co-operating is mutual help among people. Its
origin is the result of the socio-economic exploitation of users, landlords, and
milliners etc. Co-operative organization has distinct characteristics in comparison to
other organization due to its own co-operative development as well as its success. Co-
operative helps to distribute wealth and profit equally to all members. It minimizes

1
exploitation from money lenders, landlords and traders, removes middlemen and
discourages black marketing and artificial scarcity. Association 1995 describes co-
operative as "A co-operative is an autonomous association of persons united
voluntarily for the fulfillment of their common economic and social needs and
aspiration through a jointly owned and democratically controlled enterprise."

The Rochadale Society of Equitable Pioneers, founded in 1844, is usually considered

the first successful co-operative enterprises, used as a model for modern co-
operatives, following the Rochdale principles. A group of 28 weavers and other
artisans in Rochdale, England set up the society to open their own store selling food
items they could not otherwise afford. Within 10 years there were 1000 co-operative
societies in the United Kingdom. After its establishment, such organizations were
developed in Italy, France and Japan in 1850 A.D.

F.W. Raiffeison established an organization named "Grand union of rural co-

operative society in Germany. Co-operative movement was started in 1866 in
Denmark. In 1891 "Credit union national Extension Bureau" was established in the
United States of America with the result of the developments of co-operatives,
International co-operative Alliances where established in 1895 A.D. in England. In
Asia, co-operative was initiated in India in 1904, Srilanka in 1906, Taiwan in 1910,
Philippines in 1915, and Thailand in 1916 and in Nepal 1953.

1.2 Brief Profile of the Organization

Surma Saipal Saving and Credit Co-operatives Limited is the first co-operative to
operate the ing transaction of our country. It is located in the Far-western
development region of Nepal in Dhangadhi, Kailali. Surma Saipal Saving and Credit
Co-operative Limitedwas established on 15th Shwin 2056, after the formulation of
co-operative act 2048 and rule 2049. Nowadays various co-operative ing
organizations were induced but due to the bad performance for the welfare of the
societies, some of them have already been closer. But Surma Saipal Saving and
Credit Co-operative Limitedlimited is run of good performance. It helps to set up
separate training department and conduct extensive training program.

2
Co-operative studies play a significant role in the structural transformation of the
concerned area economy and state economy and its study assumes greater
significance now a days. Co-operative development can be formed from lower level.
Co-operative has been accepted all over the works as a putting them in productive use
for the benefit of the poor sections of the society.

Asset management ratios are used to measure the effectiveness of a firm in utilizes
the available asset to generate revenue. Fixed assets turnover ratio is increasing trend
in first two years and then it is increasing. Total assets have nearly same nature like
fixed assets turnover ratios. Similarly, loan and advances to total deposit ratio
measures the mobilizing capacity of the firm which is colleting from deposits.
Utilization of colleted deposits is in increasing trend during the study period. It is
maximum in the financial year 2077/078. In conclusion work performances of overall
asset management is going in right direction in the study period.

Trend percentages of loan and advances are in increasing trend during the study
period. From this it can be clearly said that the management has been able to disburse
the loan successfully. Similarly trend percentages of the loan collection are increasing
in trend except slight decrease in the financial year 2075/076. From the analysis of the
loan collection trend it is clearly shown that the management is able to collect its
disbursed loan.

The co-operative concept in the form of guthi, parma, Dhikuri, Dharmabhakari etc.
has been used from a very beginning in Nepalese societies. Characteristics of this
historical social institution are almost resembled with primary form of co-operatives
for the institutional development of such societies then government aimed to adopt
co-operatives system as a means for economics, social and cultural development of
people as well as an appropriate and effective tool for rural development. Then the
government established the department of co-operative under the ministry of planning
development and agriculture in 1953 AD. The modern co-operative movement
initiated from Rapti valley, Chitwan district as part of flood relief and resettlement
program. At the first time 13 credit co-operatives societies were established in
2013BS which were provisionally registered under the executive order of the
government which got legal recognition after the enactment of co-operative societies
act 2016 BS. The first co-operative societies act was revised several times and it was

3
replaced by the Sajha societies act in 2014 BS. After the restoration in multiparty
democracy the sajha societies act was replaced again by the co-operative act 1992.
The department of cooperative has provided the authority for registration and
regulation of co-operative societies under the act.

The interim constitution of Nepal 2063 has considered co-operative sector as one of
the pillars for national development several types of co-operatives societies are
operated in country are saving and credit, multipurpose, dairy, communication etc.
including production financial and service. Nepal has initiated its co-operative
movement after 1950 AD. Policy and program launched by the government have
emphasized the important of co-operative to maintain peace in the society by means
of self employment and to expedite the development work.

1.3 Statement of the Problem

Need and objectives are derived to solve the problem. Every organization and
institution wants to increase their profit. This research on Capital Structure of Surma
Saipal Saving and Credit Co-operatives Limited primarily focuses on the following
statements of the problem.

 What is the empirical relationship between total investment deposit and loan
& advance?

 What are the profitability and risk position, liquidity position and assets
management efficiency of Surma Saipal Saving and Credit Co-operatives
Limited?

4
1.4 Objectives of the Study

The financial institutions play a vital role in the economic development of the
country. Financial management is a crucial factor of any organization. No
organization can run smoothly without proper finance. The basis objective of this
study is to analysis the financial performance of Surma Saipal Saving and Credit Co-
operatives Limited. The specified objectives are as follows:

 To evaluate and analyze the empirical relationship between total investment

deposit and loan & advance.

 To evaluate the profitability and risk position, liquidity position and assets
management efficiency of Surma Saipal Saving and Credit Co-operatives
Limited

1.5 Rational of the Study

Finance is a life blood of any organization. Without proper management of finance no

business organization can run smoothly. Financial management is major decision
involvement in financing decision. Investment decision is broadly concerned with the
assets mix or composition of the assets of the firm focus of financial performance
analysis is a process of evaluating relationship between component parts of financial
statements to obtain a better under standing of the firm position and performance.

 This research can make a great way to stockholders or stockholders to identify

liquidity, profitability, capital structure of the co-operative.

 This study will help and feedback to the concerned organization to maximize
their revenue and minimize their expenses.

 It may help such organization which has same working criteria.

 Research study may also be beneficial for the general readers.

 It may be useful as references of review for relevant researcher.

5
1.6 Review of Literature

Concept of review of literature is reviewing research studies or other relevant

prepositions in the related area of the study so that all the past studies their
conclusions and efficiencies may be known and further research can be conducted,
furthermore, an extensive or even exhaustive process of such review may offer vital
links with the various trends and phases in the research in one's area of specialization,
familiarizing which the characteristics percepts, concepts and interpretation with the
special terminology with the rational for understanding one's proposed investigation.
This chapter highlights the literature available relating to a present study with
conceptual review of related studies. The researcher had reviewed books, journals,
articles, related regulation and acts and annual report of sampled co-operation.
Review of literature provides a foundation of knowledge for under taking the result
more clearly and standard.

Pradhan (2010) has presented a short glimpses on investment in different sectors its
problem and prospects through his articles, "Deposit mobilization, its problem and
prospects". He quoted that deposits is the life-blood of any financial institutions, be it
commercial , financial company, co-operative or non-government organization.
According to him, "In consideration of twenty-two commercial s.

Singh (2013) in her thesis "A study of financial performance of Rato Guras co-
operative Ltd., Nepalgunj to evaluate liquidity, assets management and profitability
position of Rato Guras co-operative Ltd. She also emphasizes the significance of the
deposit in co-operative. She describes in her thesis that the main source of co-
operatives different sector. She finds out the different ratio for the conclusion of this
study and co-operative.

Ojha (2014) on his unpublished thesis "Analysis of financial performance of Sana

Kishan Multipurpose co-operative Ltd. Butwal. To point at the profitability trend of
SKMPC.To test the financial strength and weakness of the co-operative. To study the
relation between interest earned with interest expenses, fixed assets, total assets profit.

6
1.7 Research Methodology

The prime objects of the present study is to evaluate and examine the financial
strengths and weakness of Surma Saipal Saving and Credit Co-operatives Limited
providing suggestive framework for its improvement; methodology in research
method used to test the hypothesis and analysis as well as interprets the data
processed.

According to Karlinger "Research methodology means how the research objective

will be reached and how the problems encountered in the research will be tackled".
This chapter has discussed about the conceptual background of the study and builds a
concrete methodology for research study a practical one. Appropriate research
methodology has to be followed to achieve desired objective. The research
methodology adopted for the present study has been outline in this chapter which
deals with research design, sources of data, tools and technique of analysis of data and
variables of the data.

1.7.1 Research Design

The research design is the strategy of conducting research. The main function of
research design is to explain how one will find answers to one's research problems. A
plan of study or blue print for study is called a research design.

Research design is an arrangement of condition for collections and analysis of data in

manner that aims to combine relevance to the research purpose with economy in
procedure. It is a plan for the collection and analysis of data. It presents the series of
guide posts to enable the researcher to progress in the right directions in order to
achieve the goal. Research design is the most important aspect of any research work.
Basically there are two purpose of research design which are 1) To provide answers to
research question 2) To control variance. It signifies the structure and strategy used in
an investigation.

7
1.7.2 Population and Sample

The word population or study population refers not only to people but also to all
items or things that have been chosen for the study. The term population or universe
for research means all the major of any well defined class of people events or objects.
This study related to financial performance of Surma Saipal Saving and Credit Co-
operatives Limited, Dhangadhi. At present there appeared co-operatives in operation
are 9205 from which 3862 were saving and loan co-operatives and among then 34
Co-operatives take the approved of Nepal Ratra .

By sample, we mean position of the population chosen for the study. A sample is the
representatives of the total population in as many factors as possible. A part is
selected from the population and examination is called a sample.

1.7.3 Sources of Data

In the courses of study basically secondary data have been used i.e. financial
statements and annual report and other official records of Surma Saipal Saving and
Credit Co-operatives Limited besides, the study also incorporates the views, opinions
and clarification received.

1.7.4 Data Processing Procedures

Data processing procedures means converting the collected data into required
homogeneous nature to fulfill the research objectives. By doing so, the data are
managed more meaningful and understandable to readers. The data which are
processed and refined highlighted, liabilities, assets, profit and loss during the study
period in analyzable form. The information obtained from the secondary data will be
presented in an appropriate tabulated form and will be analyzed.

8
1.7.5 Data Analysis Method

The analysis of data is done according to pattern of data available. To obtain answer
to research questions to exhibits the true financial performance analysis of co-
operative Dhangadhi, the data obtained from the financial accounts, the records and
the interview .Balance sheet profit and loss account and income statement of the
companies have been used for the purpose of analysis. Tools of analysis utilized in
the present study include.

1.8 Limitations of study

None of the study can go beyond the boundary while collecting, analyzing and
interpretation of data due to the sufficient material in the field of co-operative sectors.
Limitations of the present study are as follows:

 The research work done is limited to the financial performance of Surma

Saipal Saving and Credit Co-operative Limited on the basis of secondary data
provided by the co-operative.

 In the course of study only five years data are used.

 Basically financial tools are used to analyze and evaluate the financial
performance of Surma Saipal Saving and Credit Co-operative Limited. Some
statistical tools are also applied for analysis the data.

 Evaluation made over the may not be base for evaluation for other
organization.

9
1.9 Report Structure

This report has been classified into three sections.

Report Structure

Preliminary Section Main Section Subsidiary Section

Title Page Introduction Reference

Declaration Review Literature Appendices
Supervisor’s Research Methodology
Recommendation Presentation and
Endorsement Analysis of Data
Acknowledgement Summary, Conclusions
and Recommendation
Table of Contents
List of Tables
List of Figure
Abbreviations

There are three chapters in this study. Which are introduction, review of literature,
research methodology, data presentation & analysis and summary and conclusion.

Chapter I: Introduction:- The first chapter includes various aspect of present study
like background of study, introduction of research topic, focus of the study, statement
of the problem, objective of the study, significance of the study, limitations of the
study, Cauterization, Review of Literature and Research Methodology which consists
of research design, population & sample and data collection procedure as well as
different analytical tools used in this study.

Chapter II: Data Presentation and Analysis:-The two chapter incorporates the main
body of the study. Data presentation & analysis has done in this chapter. This chapter
has highlighted the objective wise data presentation, analysis & interpretation. Major
findings have been also presented in this chapter.

Chapter III: Summary and Conclusion Finally, in the third chapter a summary,
conclusion has been presented.

10
 CHAPTER II: RESULT AND ANALYSIS
In previous chapters, the researcher has highlighted overall development and situation
of Surma Saipal Saving and Credit Co-operative Limited, Dhangadhi. In addition, the
relevant literature related to this study has been reviewed and the research
methodology has been discussed. To constitute the significant part of the study this
chapter is related with analysis of the financial performance of Surma Saipal Saving
and Credit Co-operatives Limited, Dhangadhi with the help of different financial and
statistical tools.

2.1 Data Presentation

Current ratio measures short term solvency power of the company. It is most widely
used and accepted of analyzing the solvency position. This ratio is mostly used to
calculate or carry out short term solvency because of its merits of showing whether
the claims made by short term creditors can be covered with short term assets that are
expected to be converted into cash within a year.. In short, the current ratio measures
the short term solvency of the company as well as it shows the relationship between
current assets and current liabilities. It is known that single ratio in itself doesn't
favorable or unfavorable condition of the company. As a conventional rule, a CR of 2
is to 1 or more is considered satisfactory which may vary as per the nature of business
however this rule may not be applicable for this study since this study is related to co-
operative institutions. The current ratio of Surma Saipal Saving and Credit Co-
operative Limited is presented in table No. 1

Table 1: Current ratio (times)

Financial Year Currents assets Current liabilities Ratio=CA/CL

(Rs.) (Rs.) (times)
2074/075 123063003.9 35584428.40 3.45
2075/076 144872557.3 43088689.72 3.36
2076/077 152250723.1 54197776.15 2.8
2077/078 193009281.9 69136944.10 2.79

Source:- Annual Reports

11
The table no. 1 shows the capacity of the co-operative to meet its current liabilities.
Generally, a current ratio 2:1 is considered ideal for a concern. The current rations for
co-operative for the financial year 2074/075 to 2077/078 are 3.45, 3.36, 2.8 and 2.79
respectively and the average current ratio for the co-operative is 2k:1 these are lower
than the theoretical norms. Current ratios of the co-operative for the study period are
in decreasing trend. The range of current ratio in Surma Saipal Saving and Credit Co-
operative Limited Dhangadhi spans from 2.79 to 3.45 times with an average of 2:1
which is almost equal with the average. To some extent Surma Saipal Saving and
Credit Co-operative Limited is capable of meeting its current liabilities by current
assets. This study is based on financial performance of Surma Saipal Saving and
Credit Co-operative Limited. So the inventories are less important in , which is a
service oriented business/ institution. Therefore, only current ratio has been used for
data analysis.

Operating profit margin to interest earned Ratio

Operating profit margin measures the efficiency and operation of the organization.
Operating profit is the profit which comes after deducting the amount of operating
expenses from total income. The operating expenses are the sum of interest expenses,
management expenses, depreciation and other expenses relating to the operation of
the . Similarly, the total income comprises interest earned on loan and advances
dividend from investment (on share) and miscellaneous receipts. Hence, operating
profit margin is not the actual realized profit of the . It is calculated dividing operating
profit by interest earned which is considered as revenue. A high operating profit
margin is a sign of better management as it implies that the relatively lower operating
expenditure incurred during the period and vice versa.

Table 2: Operating profit Margin to Interest Earned Ratio

Financial Year Operating Profit (Rs.) Interest Earned (Rs.) Ratio=2/3 ( %)

2074/075 8305445.69 39042147.66 21.27
2075/076 10195613.9 55363550.66 18.41
2076/077 22200368.44 76502122.15 29.01
2077/078 39929027.8 101744892.6 39.24

Source:- Annual Reports

12
According to table 2, operating profit to interest earned ratio decreased 21.27 percent
to 18.41 percent in the fiscal year 2074/075 to 2075/076 and it is seemed in
decreasing trend upto the fiscal year 2077/078 and reached to 39.24 percent from
18.41 percent. Management must concentrate towards increasing the profitability. It is
higher because of better management. In the financial year 2076/077 the ratio
increased to 29.01 percent but in the year 2077/078 it in decreased by 39.24 percent.
The average operating profit margin ratio is 18.41 percent and actual yearly ratios are
much more fluctuated from the average operating ratio. This trend has been presented
in figure 1 also.

Figure 1: Operating profit margin to Interest Earned

Source:- Annual Reports

Return on Assets (ROA)

Return on assets (ROA) is one of the significant tools for measuring the profitability
of all financial resources utilized by the organization/institution. This ratio is
calculated to reveal the overall operating efficiency of an organization. It is measured
in terms relationship between net profit and total assets. While calculating return on
assets, the researcher has used total assets. Higher ratio of return on total assets

13
indicates satisfactory utilization of fund invested and vice-versa. The return on assets
of SCL has been presented in table 4.3

Return on assets (ROA) =

NPAT = Net profit after tax

TA = Total Assets

Table 3: Return on Assets (ROA)

Financial Year NPAT (Rs.) TA (Rs.) Ratio=2/3 ( %)

2074/075 59272073.06 465562337.34 1.27

2075/076 7414991.93 597080717.80 1.24

2076/077 16145722.50 736081312.13 2.19

2077/078 29039293.01 966154308.93 3.35

Source:- Annual Reports

The table 3 clearly indicates the return on assets ratio of the co-operative which was
fluctuating over the study period. Total assets of the seem in increasing trend.
Similarly Net profit after tax (NPAT) has been increasing except in the financial year
2075/076 from the base year by Rs. 59272073.06 to Rs. 7414991.93. In the terms of
percentage, the ROA is 1.27 percent in the financial year 2074/075 and decreased by
1.24 percent in 2075/076. How ever, it increased in the next year and reached to 2.19
percent then it again started to incecrease and reached to 3.35 percent in financial year
2077/078.

Lower return on Assets indicates the lower efficiency in utilizing its resources. The
return on assets has been decreasing over the study period. The management of the
co-operative is to be cautioned in this regard.

14
Net Profit Margin Ratio

Net profit margin ratio measures the overall profitability of the organization by
establishing relationship between net profit and sales where sales indicate interest
earned. The relation between net profit and interest earned indicates management's
ability to operative the business with sufficient success, not only to recover the cost of
operating firm and cost of borrowed funds but also to leave a margin of reasonable
compensation to the owners for providing their capital at risk. It is calculated by
dividing net profit after tax by sales or interest earned.

Net profit Margin =

This ratio reveals margin of compensation left to the owners for providing their
capital after all expenses have been net. A high net profit Margin ratio indicates the
effective and efficient operation of the organization such as increase in interest earned
decrease in operating cost and met the demand of investors i.e. reasonable profit.

Neat profit margin ratio of co-operative is calculated by dividing net profit after tax
by interest earned which is shown below.

Table 4: Net profit margin ratio

Financial Year NPAT (Rs.) Interest Earned (Rs.) Ratio=2/3 ( %)

2074/075 59272073.06 39042147.66 15.18

2075/076 7414991.93 55363550.66 13.39

2076/077 16145722.50 76502122.15 21.10

2077/078 29039293.01 101744892.6 28.54

Source:- Annual Reports

From above calculations in the table 4, net profit margin ratio is identified net profit
ratios to be 15.18, 13.39, 21.10 and 28.54 percentage respectively in different
financial years. The ratio started from 21.10 percent and reached up to 28.54 percent
which is highest ratio and favorable also. The ratio was 15.18 percent in the fiscal
year 2074/075 and decreased to 13.39 percent in 2075/076 but increased in 2076/077.

15
Similarly, in the financial year 2077/078 the net profit margin again started to
increase 28.54 percent respectively. The pattern of net profit margin has been
presented in figure 4.2.

Figure 2: Net Profit Margin Ratio

Source:- Annual Reports

Fixed Assets Turnover Ratio

Fixed assets turn over ratio helps to evaluate financial performance of the co-
operative . This ratio measures how effectively the fixed assets are utilized to generate
the total interest earned. The relationship between fixed assets and the interest earned-
higher ratios show that the assets are utilized more effectively and lower ratios is an
indication of inefficient assets management. Fixed assets turnover ratio of Surma
Saipal Saving and Credit Co-operative Limited has been calculated below and
presented in table 4.8

Fixed assets turnover ratio =

Table 5: Fixed Assets turnover ratio

Financial Year Interest Earned (Rs.) Fixed Assets (Rs.) Ratio (times)
2074/075 39042147.66 13471816.71 2.89
2075/076 55363550.66 14330655.18 3.86
2076/077 76502122.15 19177254.06 3.98
2077/078 101744892.6 19773669.78 5.14

Source:- Annual Reports

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Table 5 clearly expresses the fixed assets turnover ratio (FATR) of SCL. As per the
above table, the ratio was 2.89 times in the base year 2074/075 and this ratio has been
increasing for succeeding years but the management is not able to utilize its fixed
assets to generate sufficient revenue for the organization. Therefore the management
should concentrate to utilize its assets to create sufficient revenue.

Capital adequacy ratio

To measure the strength of the capital structure adequacy of the capital, the capital
adequacy ratio is used. This ratio is important to determine the capital adequacy
because the co-operative under the study is sector or service organization. A high or
low capital adequacy ratio is undesirable in terms of lower return and lowered
solvency respectively. By using following formula the capital adequacy ratio is
computed. The capital adequacy ratio of different financial year has been presented in
figure 6 also.

Capital adequacy =

Where,

Capital fund = General reserve, paid capital, undistributed profit etc.

Total deposit = Fixed deposit and saving deposit

Table 6: Capital adequacy ratio

Financial Year Capital Fund (Rs.) Total deposit (Rs.) Ratio ( %)

2074/075 26712907.62 400014722.66 6.67

2075/076 37597811.88 511438489.39 7.35

2076/077 67436281.72 605778011.27 11.13

2077/078 83079918.04 698589166.41 11.89

Source:- Annual Reports

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 Figure 3: Capital Adequacy Ratio (%)

Source:- Annual Reports

The ratios of the co-operative have been increasing trend over the study period. In the
initial year 2074/075 & 2075/076 the ratio are 6.67 and 7.35 percent respectively.
However there has been slight increase in capital adequacy ratio in 2077/078. The
capital adequacy ratios are 11.13 percent and 11.89 percent in the financial year
2077/078 respectively. The higher and lower capital adequacy is unfavorable in terms
of lower returns and lower solvency. However, an appropriate capital adequacy is
controversial matter. In general, it can be concluded that capital adequacy of SCL is
appropriate.

2.2 Result Analysis

A clear financial picture of Surma Saipal Saving and Credit Co-operative Limited can
be viewed from the above presentation. Based on the findings and the conclusion,
some suggestions and recommendations have been put forward from improving the
weakness and efficiency and better performance of co-operatives.

Co-operative has to compete with commercial s, finance companies and other

institution. It should simplify depositing process for providing incentives for
attracting new fixed deposits and set a more convenient minimum balance

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requirement to open an account. To improve liquidity position of SCL, It should
mange current assets and current liabilities at the desired level. The co-operative
should consider more seriously about strengthening its liquidity position.

The prime objective of the is to utilize of its collected deposit. The should operate its
new branches in rural areas rather than urban areas for more deposit collection and
utilization of the same as well as to increase its transactions and to provide financial
services and facilities to more customers and members. The co-operative has high
cash and balance to deposits ratio that means high refunding capacity of collected
deposits. But cash and balance cannot produce more profits for the organization. So
the co-operative has to consider more seriously about the high investment in more
productive sectors like government securities bond, treasury bills etc. The
profitability ratio of the SCL is not in a satisfactory level. Profitability of the is in
fluctuating and in decreasing trend. In order to improve its profitability it should must
reduce its operating expenses, proper utilization of its available resources, effective
mobilization of owner's equity in productive sectors so that it can earn more for the
existence and growth.

The co-operative should concentrate more in utilizing its available assets and generate
more revenues from it. Similarly it needs to pay efforts in utilizing its collected
deposits in extending loans and advances from which it can earn extra income for
the . The return on investment can be maximized through optimal investment
portfolio management, which enables the management of SCL to enhance its
financial position.

2.3 Findings

 In terms of extending loans and advances to its customers, the is not properly
disbursed its fund in more productive sectors. For the effective utilization, the
should utilize different schemes to extend loan as well as apply new
techniques and schemes in collection of extending loans.

 The management of the was not success to utilize capital fund on generating
more return on equity by bearing less risk. Therefore the management should

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 concentrate towards proper utilization of owner's fund in generating favorable
return by bearing less risk on it.

 The co-operative should properly invest its idle balance of cash in different
sectors which is kept on vault and balance.

 There should be established good management information system for

achieving the objectives set by the organization and to provide all financial
information for the effective managerial decision which will be beneficial for
the co-operative.

 The management should try to maintain a good relationship between the

managerial staff, workers, members of the board of directors so that more
services can be taken by the less cost as well as co-operative organization
should develop co-operation and co-ordination among the co-operatives,
concerned departments and general public also.

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 CHAPTER III: SUMMARY AND CONCLUSION

The study is concentrated on the various aspects of the financial performance with
special references to the selected organization Surma Saipal Saving and Credit Co-
operative Limited Dhangadhi. It covers the period of five years from 2074/075 to
2077/078 On the basis of previous analysis of this study; the chapter under heading of
"Summary, conclusion and recommendations" expresses the main finding and
recommendation to make it possible for improving the financial performance of the
sampled co-operative, Surma Saipal Saving and Credit Co-operative Limited. This
chapter is divided into the following three sub-chapters.

3.1 Summary

Nepal is a land locked developing country with agricultural based economy and about
80 percent of the population resides in rural areas are very poor .Now the
question ,how majority of the people who have very low income and low living
standard can be stepped in such a circumstances is arise. To remove all the ills and
sickness in the economy, the co-operation is the fair and reliable answer. Co-operative
origin is the result of socio-economic exploitation of users, landlords and mill owners
etc. It is an organization which operates its activities in equality basis. To eliminate
poverty obtain socio-economic development of rural masses, develop co-operatives
and co-ordination among co-operatives, provide sufficient opportunity of
employment and to establish social and economic justice within the country are the
objectives of co-operative organization which are mentioned on co-operative act
2048. For the socio-economic upliftment of the country co-operative movement
considered as best way.

Likewise, co-operative is a most significant vehicle for mobilizing the scattered

saving and putting them in productive use for the benefit of the poorer sections of the
society. It can also be taken as a means of getting rid off from the exploitation of
landlords, money lenders and speculations. The role of co-operative organization can
be regarded as a most significant for socio-economic betterment of the majority of

21
people and their social and economic justice. In terms of socio-economic
development of the country co-operative is a key variable.

For the purpose of the study the necessary data for analyzing financial performance of
sampled organization and other related variable have been collected from secondary
source and presented in. The available literatures on financial performance analysis
are reviewed and appropriate research methodology is also described. Then all the
data are tabulated and analyzed by applying various important financial as well as
statistical tools and techniques. To conduct the study by pinpointing the major
findings, this chapter attempt has been made and gives some suggestions for the
future course of action.

The study has highlighted on the liquidity position, profitability position, assets
management, dividend pattern, risk and return pattern and cash flow pattern of the co-
operative and some formulated hypothesis as well as some other financial indicators.
To accomplish these objectives of the study, different financial variables and
statistical tools like mean, standard deviation, coefficient of variation and student's 't'
test has been used for the meaningful interpretation of the data to find out the true
financial picture of the co-operative.

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3.2 Conclusion

In conclusion it can be said that the financial performance is the most important part
of any business of service oriented organization. Proper use of the available finance is
the key for success. Success of the organization depends upon the rational and proper
utilization of available funds. Current ratios of the co-operative for the study period
2074/075 to 2077/078 are very high as compared to the industry average of 2:1.
Liquidity position is increasing during the study period. Similarly, cash and balance
ratios also show weak position over the study period.

 Profitability measures the organizations effectiveness in terms of achieves

efficiency and generates profit.
 Profitability ratios over the study period are in decreasing trend. From the
analysis of the profitability it is clearly reveals that the management of the is
ineffective and inefficient to generate sufficient profit.
 Asset management ratios are used to measure the effectiveness of a firm in
utilizes the available asset to generate revenue.
 Fixed assets turnover ratio is increasing trend in first two years and then it is
increasing.
 Total assets have nearly same nature like fixed assets turnover ratios.
Similarly, loan and advances to total deposit ratio measures the mobilizing
capacity of the firm which is colleting from deposits.
 Utilization of collected deposits is in increasing trend during the study period.
It is maximum in the financial year 2077/078. In conclusion work
performances of overall asset management is going in right direction in the
study period.
 Trend percentages of loan and advances are in increasing trend during the
study period.
 From this it can be clearly said that the management has been able to disburse
the loan successfully. Similarly trend percentages of the loan collection are
increasing in trend except slight decrease in the financial year 2075/076. From
the analysis of the loan collection trend it is clearly shown that the
management is able to collect its disbursed loan.

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Brigham Eugene, Gapenski, Luis and ehrhadi, (1995). FInacial management” Replica

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Joshi P.R. (2001). Research Methodology. Buddha Academic Publishers and

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Khan, M.Y. and P.K. Jain (1996). Financial Management. Tata Mc Graw Hill

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Singh.T. (2013) . A Study of financial performance of Rato Gurass co- operative Ltd.

An unpublished thesis submitted to Kailali Multiple Campus, Dhangadhi,

Kailali.

Ojha.T. (2014).Analysis of financial performance” of Sana Krishna Multipurpose

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Campus, Dhangadhi, Kailali.

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