Chapter I: Introduction1
Chapter I: Introduction1
Chapter I: Introduction1
Recommendation
Report of Research Committee
Approval Sheet
Acknowledgements
Table of Content
List of Table
List of Figures
List of Abbreviations
Chapter I: Introduction1
1.1 Background of the study
1.2 Focus of the study
1.3 Statements of the Problems
1.4 Objectives of the study
1.5 Rationale of the study
1.6 Limitation of the study
1.7 Organization of the Study
Chapter II: Literature Review
2.1 Conceptual Framework
2.2 Review of Related Studies
2.3 Research Gap
Chapter III: Research Methodology
3.1 The population and sample
3.2 Period Covered
3.3 Nature and source of Data Collection
3.4 Data collection procedures
3.5 Research Methodology
3.6 Research Variables
3.7 Financial Tools
3.8 Accounting Tools
3.9 Statistical Tools
Chapter IV: Data Presentation and Analysis
4.1 Analysis of Income
4.2 Analysis of source of expense
4.3 Cost Volume Profit Analysis
4.4 Break-even Point (BEP)
4.5 Margin of Safety (MOS)
4.6 Profitability analysis of MBL
4.7 Correlation Analysis
4.8 Trend Analysis
4.9 Major findings of study
Chapter V: Summary and Conclusion
5.1 Summary
5.2 Conclusion
5.3 Recommendations
BIBLOGRAPHY
APPENDIX
LIST OF TABLES
Table 4.1: Sector wise Income from interest
Table 4.2: Sector wise Income form Commission and Discount
Table 4.3: Other Operating Income
Table 4.4: Non-Operating Income
Table 4.5: Interest Expense
Table 4.6: Personnel Expenses
Table 4.7: Other Operating Expenses
Table 4.8: Net Profit and Operating Profit
Table 4.9: Fixed cost and Variable cost
Table 4.10: Variable cost ratio
Table 4.11: Contribution Margin
Table 4.12: Contribution margin ratio analysis
Table 4.13: BEP Income
Table 4.14: BEP ratio
Table 4.15: Margin of safety
Table 4.16: Net Profit Margin Ratio
Table 4.17: Return on total assets ratio
Table 4.18: Return on Equity ratio
Table 4.19: Operating Efficiency Ratio
Table 4.20: Relationship between Total cost and profit
Table 4.21: Relationship between Income and Profit
Table 4.22: Trend Value of Income
Table 4.23: Trend value of Net profit
Table 4.23: Trend line of total cost
LIST OF FIGURES
Figure 4.1: Total Interest Income
Figure 4.2: Income from Commission and discount
Figure 4.3: Other Operating Income
Figure 4.4: Non-Operating Income
Figure 4.5: Interest Expense
Figure 4.6: Personnel Expenses
Figure 4.7: Admin. Expenses
Figure 4.8: Operating Profit and Net Profit
Figure 4.9: Fixed cost and Variable cost
Figure 4.10: Variable cost Ratio
Figure 4.11: Contribution Margin
Figure 4.12: Contribution Margin Ratio Analysis
Figure 4.13: BEP Income
Figure 4.14: BEP Ratio
Figure 4.15: Margin of safety
Figure 4.16: Net profit Margin Ratio
Figure 4.17:Return on total assets ratio
Figure 4.18: Return on Equity
Figure 4.19: Operating Efficiency Ratio
Figure 4.20: Trend Line of Income
Figure 4.21: Trend Line of Net Profit
Figure 4.22: Trendline of Total cost
4.1 SCENARIO OF MBL LTD.
Machhapuchchhre Bank Limited was registered in 1998 as the first regional commercial bank from the
western region of Nepal and started its banking operations from Pokhara since year 2000.
The Bank facilitates its customers' need by delivering the best of services in combination with the latest
state of the art technologies and prudent international practices. The bank provides modern banking
facilities such as Any Branch Banking, Internet Banking, Mobile Banking, Safe Deposit Locker facilities,
Utility Bill payment (Telephone & Mobile), ATM (VISA Debit Cards) to its valued customers. Besides
these, the Bank is providing 365 Days Banking and Evening Counter services to the customers through
many of its offices.
The Bank has been promoted by highly renowned Non-Residential Nepalese, prominent businessman and
industrialists with a vision and dedication to provide the best financial products and services in the most
efficient and professional manner.
2075/076 112,995.13
2074/07 23,513.93
84,332.62 89,481.19
54,042.94 79.19 10.86
30,289.6
5 8
2076/077 126,526.69 28,720.80 97,805.89 77.30
2075/07 112,995.13 72,693.34 40,301.7 33.05
2077/078
6 127,528.59 36,732.73 90,795.86
9 71.20
2.1 Introduction
In this chapter the research has presented the commercial framework about the commercial Bank its
activities, banking practices worldwide and within the country. The legal and regulatory framework and
profit planning and its applicability in a commercial Banking activity. This connection, the researchers has
reviewed various literatures in the form of books written newspapers journal browsing materials from the
concerned websites, previous dissemination in the relevant subject matters etc.
A Bank is an institution, which deals in money receiving it on deposit from customer, honoring customers
drawing against such deposit on demand, collecting cheques and lending or investing surplus deposits
units they are required for repayment. Generally, and institution established by law with deals with money
and credit is called Bank it is obvious that is common sense an institution involved in monetary transaction
is called money. A Bank simply carries out the work of exchanging money providing loan accepting
deposit and transferring the money.
The word Bank is derived from the Italian words Banka which means counter tables are bench used by
medieval money exchanges. Oxford dictionary defines Bank as on establishment for the custody of money
the Bank operates in the modern and competitive business environment. It is an account of this reasons
that different economists have offered different definitions, such as.
“A Bank is an institution whose debts (Bank deposits) are widely accepted in settlement of their people’s
debts to each other's.” According R.S. Sayers.
Commercial Bank Act. 2031 B.S.- Nepal has defined commercial Bank as “an organization which
exchanges money deposits money, accept money, grants loans and performs commercial Banking
functions and which is not a Bank meant for co-operatives agriculture industries or for such specific
purpose”.
This act has also focus on the functions of commercial Bank which defining the commercial Banks which
provides short term debts necessary for the trade and commerce. They take deposit to provide short term
loans in different forms. They purchase and discount bills for exchange, promissory notes, and exchange
foreign currency. They discharge various functions on the behalf of their customer and in exchange, they
are paid for their services.
Generally commercial Bank finance short tern needs for trade and industry, they provide working capital
to trade and industry and even to agriculture. The commercial Bank of developing country finance small
and cottage industries under priority sectors investment scheme. The main purpose of this scheme is to
uplift the backward sectors of the economy.
Commercial Banks are controlled and regulated by the control Bank of the nation, in Nepal, Nepal Rastra
Bank as a central Bank and regulate all the commercial Banks in the country.
From the various definitions made and opinion produced regarding commercial Banking, we can conclude
that a commercial Bank is set up to collect scattered funds and employ them to productive sector of
economy.
The word Bank is derived from the Italian word banco which means a bench or which the merchant of
Italy put on different types of currencies to show that they transect their business. In French language,
people used to call it Banque and Englishmen did Bank. Some writers are of the opinion that the word
Bank came from the German word banc meaning joint stock fund [Vanish 1993]. In the native from
Banking is as old as the authentic history and origins of the modern commercial Banking is transferable in
ancient times. In ancient, Greece around 2000 B.S., the famous temple of Ephesus, Delphy and Olampia
were used as depositories for people surplus fund and these temples were the centre for money lending
transactions. The priest of these temples acted as financial agents until public confidence was destroys by
the spread of disbelief in the religion. Later, however, for a few countries, Banking is an organized system
of money lending recorded because of religious belief that the charging of interest was immortal.
However, the Banking as we known today, made its first beginning around the middle of 12th century in
Italy. The Bank of Venice founded in 1157 A.D. was the first public Banking institution following this
14th century, the Bank of Barcelona and the Bank of Genoa were established in 1401A.D and 1407A.D
respectively (vanish 1996).
In England, start of Banking can be accounted for as back as the reign of Edward Those days, the loyal
exchanger used to exchange the various coins into British money and used to supply foreign money to the
British men going out of the country. The Bankers of Lombardy were famous in medieval Europe as the
credit planting the seed of modern Banking in England goes to them when they settled in London in the
locality now famous as the Lombard Street.
The goldsmith can be considered as the initial Banker in England as they used to keep strong rooms with
watchmen employed. People entrusted their cash to them. The goldsmiths used to issue daily signed
receipt of the deposit with the undertaking to return the money on demand charging some fee for
safekeeping. These undertaking helped in growing a further confidence of the public. Therefore, the
money was kept with them for become profitable business to them. Therefore, they started offering
interest on deposits to attract more funds. In the course of time, independent banking concerned were set
up. The Bank of England was established in 1694 under a special royal’s charter, further in 1833
legislative sanction was granted for establishment of joint stock Bank in London which served as a big
impetus to the developments of joint stock Banking (vanish 1996). These Banks take the initiative of
extending current account facilities and introduced the facilities of withdrawals through cheques.
In India, the ancient Hindu scriptures refer to the money lending activities in the Vedic period. During the
Ramayana and Mahabharata eras, Banking has become a full- fledged business activity and during the
Smriti period (after the Vedic period) the business of Banking was carried on by the member of Vaish
community. Manu, the great lawgiver of the time specks of the earning of interest as the business of
Vishyas. the Bankers, in the Smriti period performed most of those function with the back in modern times
performs such as the accepting of deposits, granting loans, acting as the treasure granting loans to the state
and issuing and managing the currency of the country (vanish 1996).
Due to the lack of post historical records on Banking it is quite impossible to give a correct chorological
history of development of Bank in Nepal. However, the history of development Banking and currency in
Nepal dates to the fifth century i.e., in the Lichhavi period when the first coin is minted. It is known the
history of Banking in Nepal in the form of money lending was started during the reign of Ganakama Dev
towards 8th century in 723 A.D. Gunakama Dev borrowed money to rebuilt Katmandu. it showed that was
also transaction of money in the form of lending from the times of Gunakama Dev. Toward the end of
14th century, Jayasthiti Malla, the ruler of Kantipur classified the people in 64 classes according to their
occupation. The categories of the people who worked as money lender, Tankadhari invested in his money
to the needy people charging some percentage as interest.
Development of Banking and currencies in Nepal become more consistent after the Gorkha conquest in
1768 B.S. in 1846 B.S, the first Rana prime minister, shree Jung Bahadur brought the diplomatic relation
of Nepal with the western world especial with Britain. One of his younger brothers Ranodip Singh got
interested in problem. Terajat Adda was established in 1980. It used to lend the public money on security
of gold silver and other precious metals.
Nepal Bank limited, the first commercial Bank of Nepal was established in 1937 A.D. (30th kartik, 1994
B.S.) as a semi government organization which solved to the great extent, the problem of commercial
Banking in Nepal. It replaced Tejarath Adda. In this way, Nepalese Banking history has begun
systematically. At this time, this Bank had Rs 10 million authorized capital and Rs 0.82 million paid up
capital. Private shareholders have majority ownership of this Bank. Government had very significant
amount of share till 1951 A.D. HMG/Nepal held control over the Bank management by increasing its
share up to 51% of the total share capital in 1952. Nepal Rastra Bank was established in 1956 A.D. under
the Nepal Rastra Bank Act 1955. It marked another milestone in the history of the Banking development
in Nepal. Rastriya Banijya Bank was established on July 23, 1966 A.D under a special charter Act,
Rastriya Banijya Bank Act 1965. It was set up public sectors with Rs 10 million authorized capital and 2.5
million paid up capital.
In the beginning, function of commercial Bank was limited to accepting and giving loans. However, at the
present, these include wide range of worldwide activities. In the early of 1980, B.S. when the government
of Nepal permitted their joint venture like Nepal Arab Bank Ltd, Nepal Grinlays Bank Ltd, Nepal
Indosues Bank Ltd, the government of commercial Bank was increased rapidly. After the restoration of
democracy in 1990, the elected government adopted liberal and market oriented economic policy. As a
result, more and more commercial Bank were opened in foreign joint venture and private sectors in Nepal
which has contributed a lot to bring the commercial Banking of present-day position, Machhapuchhre
Bank has established in the year 2057 B.S.
Commercial Bank is directly related with the people, institutions. The commercial Bank is an important
Bank. Its activities very attractive for people. Although, these Banks are truly inspired the objective of
gaining profit, these commercial Banks are established to accelerate common people’s economic welfare
to make available loan to the agriculture, industry, and commerce and to provide the Banking service to
public and the state.
Traditionally, the primary activities of a Bank are essentially depositing and making loans and advances.
Commercial Banks are found to be having been defining by their activities.
As per the Commercial Banking Act 2031, a Bank is a commercial established under Act and Banking
transaction are the activities of accepting deposit from the others for the purpose of lending or investing,
repayable on demand or after some stipulated time by means of generally accepted procedure (commercial
Bank act 2031). In the book, Banking law of practice written by Gulshan & Gulshan, has quoted H.P
Sheldon’s opinion as “the function of receiving money from his customers and repaying it by honoring
their cheques as and when required, is the function. Above all function which distinguish a Banking
business from any other kinds of business.
Similarly, the same book has also quoted Sir John Paget’s saying as ‘no person or body or corporate or
otherwise cannot be a Banker who doesn’t (1) take deposit account, (ii) take current account, (iii) issue
and pay cheques drawn on himself and (iv) collect cheques for his customer (Gulshan & Gulshan 1994).
From above points, it is cleared that a commercial Bank’s primary activities are twofold viz. one, that of
accepting deposit from public, which is the major source of the resources of the Bank and another making
loans and investment which is basically creating income yielding assets of the Bank for the fulfillment of
its commercial objectives. The functions of commercial Bank are as follows. commercial Bank perform a
variety of functions which, can be divided as (I) accepting deposit (ii) advancing loans (iii) credit creation
(iv) financing foreign trade (v) agency services and (vi) miscellaneous services.
This is the oldest function of Bank and the Banker used to charge a commission for keeping the money in
its custody when Banking was developing as an institution. Now a day, a Bank accepts three kinds of
deposit from its customers. The first is saving deposits on which the Bank pays interest relatively at low
rate to the deposits who are usually small savers. Depositors can draw their money by cheques up to a
limited amount during a week or a year. Businessmen keep their deposit in current account. They can
withdraw any amount standing to their credit in current deposit by cheques without notice. The Bank
doesn’t pay interest on such accounts but instead levies service charges to its customers. Currents accounts
are known as demand deposit. A Bank accepts fixed or time deposit. Saver who doesn’t need money for
stipulated period from 6 months to longer period ranging up to 10 years or more encouraged to keep it in
fixed deposits. The rate of interest increases with the length of the time of the fixed deposit. But there is
always the maximum limit of the interest rate on fixed deposit.
I. Cash credit: The Bank advances loans to businessmen against certain specified securities. The amount
of the loan is credited to the current amount of the borrower. In case of a new customer, a loan account for
the sum is opened. The borrower can withdraw money through cheques according to his requirements but
pays interest on the full amount.
ii. Call loans: there are very short loans advanced to the bill broker for not more than fifteen days. They
are advanced against first class bill or securities. Such loans can be recalled at a very short notice. In
normal times they can also renewal.
iii. Overdraft: A Bank often permits a businessman to draw cheques for a sum greater than the balance
lying in this current account. Bank provides the overdraft facilities up to a specific amount to the
businessman. But Bank charges interest only on the overdrawn amount.
iv. Discounting Bills of exchange: if a creditor holding a bill of exchange wants money immediately, the
Bank provides him the money by discounting the bill of exchange. It deposits the amount of bill in the
current account of the bill holder after deducting its rate of interest for the period of the loan which is not
more than 90 days. When the bill of exchange mature, the Bank gets its payments from the Banker of the
debtor who accepted the bill.
Credit creation is one of the most important functions of the commercial Bank. Like other financial
institutions, they aim at earning profits. For this purpose, they accept deposits and advance loan by
keeping small cash in reverse for day-to-day transactions. When a Bank advances a loan, it opens an
account in the name of the customers and does not pay him in cash but allows him to draw money by
cheques according to his needs. By granting a loan, the Bank creates credit or deposit.
A commercial Bank finance foreign trade of its customer by accepting foreign bills of exchange and
collecting them from foreign Banks. It also transacts other foreign exchange business busing and selling of
foreign currency.
Besides the above noted services, the commercial Bank performs several other services. It acts the
custodian of the valuables of its customers by providing those lockers where they can keep their jeweler
and valuable documents. It issues various forms of credit instrument s, such as cheque, drafts, and travels
cheques etc. which facilitate transactions. The Bank also issues letters of credit and acts as a referee to
clients. It underwrites share and debentures of companies and helps in the collection of funds from the
public. More ever, it provides statistics on money market and business trends of economy.
Commercial Banks play an important role in directly the affairs of the economy in various ways. So
Commercial Banks are major financial institutions, which occupy quite importance place in the farm work
of every economy because they provide capital for the development of industry, trade and business and
other resources sectors by investing the saving collected as deposits. In this way they contribute to the
economic growth of nation. Besides this, Commercial Banks render numerous services to their customer in
view of facilitating their economic and social life all economic activities of each country are greatly
influenced by the commercial banking business of that country. Thus, Commercial Banks have become
heart of financial system.
Commercial Banks brings into being the most important ingredient of the money supply demand deposits,
through the creation of credit in the firm of loan and investment (H.D. Crosse, P.110, cited in Pradhan,
1980). Commercial Banks also provides the flexibility and mobility to the customer because the payment
can be mostly speedy and efficient by carried out. Through their advances, Banks also help the creation of
income out of which further saving by the community and further growth potentials emerge for the good
of the economy. Ina planned economy Banks make the entire planned productive process possible by
providing funds to the public sectors, joint sectors, or private sectors for any types of organization. All
employment income distribution and other objectives of the plan as per as possible subsumed into the
productive plan which Banks's finance (vaish 1996).
The role of V in economy is obviously prime requisite in the formulation of Banks policy. A key factor in
the development in the country is the mobilization of domestic resources and their investments for
productive use to various sectors. To make it more effective Commercial Banks formulate sound
investment policies, which eventually contribute to the economic growth of a country. The sound policies
help Commercial Banks maximize quality and quantity of investment and there by achieve the own
objective of profit maximization and social welfare. Therefore, most of the economic activities particularly
of organized sectors are Bank based. In a Nutshell it can be said that the growth of the economy is tied up
with growth of the Commercial Banks in the economy.
Any business firm is established to make profit; profit is the primary measure of success of any institution.
Generating profit requires a good deal of managerial capability and talent. Usually, profits do not just
happen. Profits are managed. Before making an approach to the managerial process of profit-planning, it is
worthy of being familiar with the terms profit planning and control.
2.3.1.1 Profit
Profit is the primary objective of any I. Profit means different things to different people; profit is a reward
for any organization. In simple sense profit is a surplus over the expenditure for any kind of business firm.
Every organization has its own business firm. Every organization has its own objectives. To achieve such
objectives, business organization should run smoothly and to successfully run these business organization
need some profit. Without profit no organization can run for a long period. Although in modern days many
alternatives' objectives of firm has been citied. Nobody has been able to completely wipeout the profit
maximizing objective and objective of earning reasonable rate of profit. Profits are main test of individual
firm’s performance.
Profit is the primary measure of success of business enterprise. It is the main test of business enterprise. It
is the main test of business enterprise performance. Simply stating, profit is the excess of income over cost
of production. But the profit is very controversial, and these are several different interpretations about this.
An economist will say that profit is the rewarded for entrepreneurship for risk taking. A labor leader might
say that it is a measure of low efficiently labor has produced and that is provides a base for negotiating a
wage increase. An investor will view it is a gauge of the return of his/her money. An internal revenue
agent might regard it as the base for determining income taxes. The accountant will define it simply as the
excess of a firm’s revenue over the expenses of producing revenue in each fiscal period.
It could be noted that profit is residual income after the payment of the contracted rewards to other factor
of production.
According to accounting concept profit is the residual of sales revenue minus accounting cost of doing
business. Profit in the accounting sense tends to become a long-term objective, which measures not only
the success of a product but also the development of the market for it. But the economic concept of profit
is different from accounting to economist. Profit is business profit minus the limit cost [equity or other
owner provided inputs used by the firm].
From the above definition we can conclude that profit is an essential need for any business organization. It
is a backbone for any organization. It also helps organization to stand freely and sustain for a long period.
Profit measures a success of any business and if the business is in profit, it can easily acquire the type of
loan and capital to expand its business. So, profit is the very important aspects for any business
organization.
“Planning is the first essence of management and all other functions are performed within the framework
of planning. Planning means deciding in advance what is to be done in future. Planning starts from
forecasting and predetermination of future events. Planning is the whole concept of any business
organization with proper and effective planning. No firm can accomplish its predetermined goals and
objectives. Hence it is the life blood of any organization which helps them to run efficiently in competitive
environment. Planning is a techniques were by the use pattern of resources is carried out” (Agrawal,
2000:24).
“The planning processes both short and long term is the most crucial component of the whole system. It is
both foundation and the bond for the other elements because it is through the planning process that we
determine what we are going to do, how we are going to do it and who is going to do it. It operates as the
brain center of an organization and like the brain it both reason and communicate” (Welsch, et al.,
2001:73).
Planning is the conscious recognition of the futurity of present decision (Drucker, 1989:87).
“Planning is the feed forward process to reduce uncertainty about the future. The planning process is based
on the conviction that management can plan its activities and condition that state of the enterprise that
determines its density” (Pandey, 1991:325).
Planning could be taken as the tools of achieving organizational goals efficiently and effectively from the
selection of various alternatives with in a acceptable time frame. The essence of planning is:
• To accomplish goals
• To reduce uncertainty
• To provide direction by determining the course of action in advance.
Planning is determined course of action for achieving organizational goals or objectives effectively
and efficiently at a fluid environment with a certain timeframe through the selection of various
alternatives. On the other hand it holds accountability and responsibility about result to individual. A full
appreciation of the firm task requires distinguishing among three types of company's activities which
we call strategic planning, management control and operational control. The strategic planning isa
important function of top management. Planning requires the management to setting a future state
toward which effort will be directed i.e., objective, assessing the organization's resources, i.e., what the
organization is going to work with, assessing the current and future environment with which the
organization must connected to achieve its goals and lately determine how and when to allocate resource
accomplish the objective. Planning on the other hand is selecting objective and determining a course of
action including allocation of resources in order to achieve those objectives in a specific time period.
Planning states what, when, and how things will be accomplished. An adequate planning is necessary for
control of operations.
“A profit planning and control program can be one of the more effective communication networks in an
enterprise. Communication for effective planning and control requires that both the executive and the
subordinate have the same understanding of responsibilities, ensure a degree of understanding not
otherwise understanding of responsibilities, and ensure a degree of understanding not otherwise possible.
Full and open reporting in performing reports that, fouls on assigned responsibilities likewise enhance
the degree of communication essential to sound management” (Welsch, et al., 2001:215).
“Profit Planning is a comprehensive statement of intentions expressed in financial terms for the operation
of both short and long period. It is a plan of the firm's expectation and is used as a basis for measuring the
actual performance of managers and their units. A profit plan has an immense value in management; it
helps in planning and coordinating if used appropriately, but not a replacement for management. Profit
planning is a comprehensive and coordinated plan expressed in financial terms for the operations and
resource of an enterprise for some specific period in the future" (Fremgen, 1976: 12).
“Profit Planning is an example of short range planning. This planning focuses on improving the profit
especially from a particular product over a relatively short period of time. Therefore as used here, it is not
the same as corporate planning of a cost rendition program” (Terry, 1968:245).
Profit Planning involves streamlining activities in order to get employees profit minded and to secure
maximum benefit from minimum effort and expenditure. Best results seem to be obtained by assigning a
profit planner to investigate all the footers affecting the profit obtained from a single product; the planner
is given the right to prove the economics, the organization. The mode of operations, the pricing, the
marketing or any fact of making and selling the product that in his judgment affects profit accruing from
that product.
“Corporate planning was started in united states in 1950 at the first time in the world. Now a day it is
expanse rapidly in one form or another in the several companies in all over the world.”
“Corporate planning as the systematic process of setting corporate objectives and making the strategic
decisions and developing the plans necessary to achieve these objectives.”
Corporate planning thus is action oriented and not concerned with more plans since, corporate planning is
action oriented and not concerned with more pans. Since, Corporate planning is also concerned without a
forecasting whose purpose is to anticipate the future based on factors. From the forecast one knows what
one must aim to achieve. That is, he formulates the objectives and then determines the means, which must
be orchestrated to achieve the objective Corporate planning therefore seems to be the technique for action
how for ensuring the goal.
Corporate planning embraces the long and short term covers one geographic area with which the business
is concerned. It covers whole planning systematically process in sequential logical manners.
1. Before drawing up a plan, which is designed to do something, decide what you want it to do.
2. It these days of rapid change it is necessary to look ahead as for as possible to anticipate these
changes.
4. Take full accounts of the company is environment before drawing up any plan.
Corporate planning is done for the company on a continuous basis for making present entrepreneurial risk
for taking decisions systematically and probable outcome and effects organizing systematically the efforts
and resources needed to carry out these decisions and measuring the results of these decisions against the
expectations through organized systematic feedback.
Management process. There are three most relevant aspects of the PPC. They are:
a. To state the firm’s expectation (goals) is clear formal terms to avoid confusion and to
facilitate their attainability.
b. To communicate expectation to all concerned with the management of the firms so that they
are understood, supported, and implemented.
c. To provide a detailed plan of action for reducing uncertainty and for the proper direction of
individual and group efforts to achieve goals.
d. To coordinate the activities and efforts in such a way that the use of resources is maximized.
e. To provide a means of measuring and controlling the performance of individuals and units and
to supply information based on which the necessary correlative action can be taken.
1. To state the firm's expectations (goals) in clearly formal to avoid confusion and facilitates their
attainability.
2. To communicate expectations to all concerned with management of the firms so they are
understood by supporters and implemented.
3. To prepare detailed plan of action for reducing uncertainly and top direct individual and
group efforts to achieve goals.
4. To coordinate the activities and efforts in such a way that the use of resources is maximum.
5. To provide a guide for management decision in adjusting plan and objectives as uncontrollable
conditions change.
2.5 Fundamental Distinction of Profit Planning.
The concept of budgeting was originally established with the function of an account. As its origin the
function of budgeting was assigned to the accountant. But is modern days budgeting is given much more
importance and is regarded as a way of management and in move important sense regarded as basic
techniques of decision making and is given the name “profit planning and control program”
A will established and a well understood profit planning and control concept lends an organization to
ultimate success. But a failure to grasp this concept leads to chaos for a business.
According to the Welsch, the fundamental concept of the PPC includes underlying activities or task that
must be generally carried out to attain maximum usefulness from PPC. These fundamental have never
been fuller codified. An outline of the fundamental concept usually identified with PPC is given below.
1. A management process that includes that includes planning, organization, staffing, leading
and controlling.
6. A continuous feed forward, feedback follow-up and re-planning through defined communication
channels (both ward and upward)
2.7. Budgeting
A budget is comprehensive and coordinate plan expressed in financial. Terms for the operations and
resource of an enterprise for some specific period in the future.
“A budget is the plan of the firms’ expectations in the future. As started previously, planning involves the
control and manipulation of relevant variables controllable and reduces the impact of uncertainty. It makes
management active to include the environment in the interest of the enterprise. A budget expressed. The
plan informal terms and helps to realize the firm’s expectation. It is a comprehensive plan. In the sense
that all activities and operation are considered when it is prepared as a whole budget are indeed prepared
in various segment of the total budget the master budget.”
“Budget planning is one of the methods used for preplanning and coordinating the activities of an
enterprise. the budget is a technique for comparing various alternatives in terms of results and costs it
forces a consideration of all competing claim as to the directions in which the offers of an. Organization
should be applied. Budgeting is the heart of the curt of business decisions. it resolves objectives and
compares of reaching them budgeting aims at coordinating these conflating requires, in such a way that the
best overall result is obtain in the light of the circumstances that are anticipated for a forward period and
after an analysis of the probable results of all the alternative courses of action that are seen to be opened.
Budgeting as a tool of planning is closely related to the broader system of planning in an organization
planning involves the specification of the basic objective that the organization will purse and fundamental
polices that will guide it.
“In operational terms it involves the step of setting objective specifying goals formulating straggling and
expressing budget. A budget is a comprehensive and coordinated plan expressed in financial terms for the
operation and resources of an enterprise for some specified in the future.
A budget is predating mine statement of management policy during a given period which provided a
started for completion with the result ached.
A firm without financial goals may find it, difficult to make proper decisions. A firm with specific goals in
the form of a budget makes many decisions a head of time. Budget helps a firm to control its costs by
setting guidelines for spending money for in needed items because they know at all cost will be compared
to the budget, if cost exceeds the budgeted costs, an explanation will be required. Frequently exceeding the
budget may even be grounds for dismissal. A budget helps to motivate employees to do a good job this is
particularly true, when employment help in setting up the budget the complete budget for a farm is often
called the master budget. The master budget consists of many functional budgets. These budgets include a
sales budget, production budget a purchase budget an expense budget, equipment purchase budget and a
cash budget one all these budgets are completed. The master for the entire form is prepared.
The nature of budget control is such that all the various estimable. It is, consequently, very necessary for
arrangements to be made to ensure that they are appeared in a logical sequence, and it is unwise to
commerce the operation of a budget system before these arrangements are made and before a
comprehensive procedure, has been established to govern the preparation and use of various estimates.
In summary, the budget involves the statements of plans the coordination. Of these plans in well balanced
programs and the constant watching act actual operations to ensure that they are kept in line with the
predetermined plans in this way limits are set on expenditure, standards of performance are established
and forwarded thinking is made an essential part of business management, care must be taken however not
to fall into the error of regarding the budget as an end it is a means to a land. It is not a method as business
management, but an aid to clear thinking and its fundamental object is to enable considered intention to be
substituted for opportunity in management.
The main purpose of budget is to ensure that planned profit of the enterprise, so it considered as a tool for
planning and controlling the profits one of the primary objectives of an annual budget is to measure the
profit expectations for next financial year with due regarded to all the circumstances. Favorable and
unfavorable that cans in fluency the trading prospects.
Different authors hold different view about the purpose of budget, but they are alike same. There is four
main purpose of budget and any or all may be reflected in any one budget first explain set out the
proposals and decisions of those running the organizations. Second a forecast of the result expected third
and authorization, the instruments whereby supreme governing body sanctions. The raising the revenue or
increasing the expenditure and finally a yardstick of what expenditure or rev ensues ought to be it the
organizations are working effectively.”
6) Only the exceptions are reported to the management so that corrective action can be taken to
achieve the objectives laid down by management the purpose of budgeting. The context of an
annual budget is to project as accurately as possible the sale incomes expenditure and profit for the
ensuring. This is the principal objects and all anther requirements of budgeting stem from it.
“Forecasts are in dispensable in planning. Forecasts are statement of expected future conditions, definite
statements of what will happen are patently impossible expectations depending upon the assumptions
made if the assumptions are plan sable the forecast has a Better chance of being useful forecasting
assumptions and techniques very with the king for planning needed”.
“The forecasting aims at reducing the area of uncertainly that surrounds management decisions making
with respect to cost, capital investment and so forth in many respects the future tends to like the past.
These goods things since without same element of continuing between past, present and future there would
be little possibility of successful participant”.
Forecasting an attempt to find the most problem. Course of events or at best range of probabilities.
Forecasting is plying vital role in planning.
F.D. Newbury rightly says, “There can be no intelligent or effecting planning for a business enterprise
without the primary stamps of pre-casting”
“A forecasting system must establish mutual relationship among forecasts made by deferent management
areas. There is a high degree of enter depends among the forecast of various divisions or departments
which cannot be ignored if forecasting is to be useful for example error in sale projections can trigger a
series of reactions affecting budget forecast operating expenses cash flows. Investment level pricing etc.
Similarly, budgeting errors in projecting the amount of money available to each division will affect
project, developments hiring of personal and adverting expenditures.
This, in turn, will influence if not determine the level of sales operating costs and cash flowers. Clearly
there is a strong enter-dependence among the different forecasting areas in organizations.
The distinction between forecast ions and planning is not an easy one forecasting is our best thinking
about what will happen to us in future. Forecasting we define situations and recognize problem and
opportunities planning we develop our objective in practical detail, and we correspond develop schemes of
actions to achieve these objectives.
“A forecasting is a prediction of future events, condition or situation whereas plan includes a programmer
of intended of future actions and desired results forecasting predicts the future even in such a way that the
planning process can be performed more accurately. “A forecast is not a plan rather it is a statement
qualified assessment of future coordination about a particular subject (e.g., sale revenue based) based on
one or more explicit assumptions. A forecast should always state the assumptions upon which it is based.
A forecast should be view as only one input into the development of a sales plan. The management of
company may accept. modify by or reject –the forecast on contrast sales plan incorporate management
decision that are based on forecast other input and management judgments about such related items as
sales volume prices sales efforts productions and financing. Another reasons for identifying sales
forecasting as only one step in sales planning is that sales forecasts are conditional”.
Finally, we can say that forecasting is very necessary items for good plan, but it is not as accurate as plan,
but it is attainment of future aspects functions many be three types, they are as follows.
Short-term Planning is that plan which covers one year time. The management as a substantial part of long
range and short-range plan uses it.
“The short-term plan is synonymous with the classical budgetary period of one year. The s is made after a
freeze is taken on the consideration of possible. Alternative course of action such courses are outline for
the medium range plan which doesn’t concern implementation its aim is weeding out a plethora of
possibilities which are for the most part long on promised and short feasible results.”
The short-term forecasting is a predication extending a maximum of two years into the future while it is
difficult to desire examples that fit every situation some generalization can be made to indicate the
application of short-term forecasting. A business firm can be adjusted more smoothly to an indicated
higher or lower volume of sales if plans can be set out reasonably well in advance. The s forecast is useful
in making internal estimated of company operations Internal estimates of forecasting made by the
accounting department in the large enterprises can be integrated with up-to-date predications of s course of
general business projections covering inventory positions manufacturing expanses, selling and
administrative expenses grass margin net earnings and the cash position of be enterprise then reflect the
most comprehensive internal and external data sales. Forecasting adds in more effective scheduling of
goods in process and inventory requirement. Here's forecasting provides might more rationally ordered
information and sounder base for decision- making.
“The intermediate rage forecasting covers from three to five years. This is one of the least development
areas of predication. Because Forecast does not have advantage of surveys of consumer and business
intention nor can be extra plate l trends nor he is a particularly good position to rank the importance of
qualitative factors. The surveys of business and consumer spending intentions are of vital assistance in the
development of short run predictions similarly the extrapolation of l historical trend. If subjected to
adequate qualitative materials that can be employed in intermediate range. Forecasting is limited an
appraisal of the three to give year outlook may be especially valuable in formulating capital expenditure
program and related financial plan. Forecasting and product development. The forecasting is formed to
rely very heavily upon his judgment. he must isolate from the mass of material facing him these elements
in situation that have most significance in shaping the course of economic events in the half decade lying
ahead and this may be difficult indeed. Intermediate forecast must consider the problems of cyclical
fluctuation if they are to be meaning full”
“Two or three years generally not exceed this period m planning usually includes a time span of above
three-year one valuable purpose. For using is to establish interim objective between l goals and for use in
the development of annual program and budgets. In these case target with specific results be developed
more details is involved than l plan but less than for s plan while resource.
Long term planning five to ten years varying with the enterprise, sometimes extended to ten years. l
planning is one of the most difficult time spans involved in planning as many problems in s planning can
be traced to the absence of clear sense of direction and the practices which comprehensive l plan
provides.”
“Basically, it is more important for broad and long living enterprises. Long range planning is closely
concerned with the concept of the corporation as long living institutions”.
“The purpose of l projection is to give a rough picture of prospects; a picture that has some empirical
foundation sought is reasonable statement of the most probable outcome of an explicit combination of
assumption sometimes these assumptions are varied to yield a range of possible results. Typically,
Aggregate projections have been set in a gross Nation product framework once an appraisal has been made
of the growth potential of aggregate economy consideration may be given first to the magnitude of future
industry sales and second to the size of the company sales by product development and diversifications,
indicate the most desirable channels of distribution and point up personnel needs and the specialties must
require. Finally, a long-range forecast may indicate the volume of investment necessary in plant and
equipment.
“The planning process should involve periodic, consistent and in –depth re- planning so that all aspects of
operations are carefully re-examined and re-evaluated. This prevents budget planning approach that
involves only justification increase over the prior period. The concept of re-evaluation and the necessity to
justify all aspects of the plans periodically. Finds its strongest support in what has been called” Zero-base
budgeting”. Following table provide an overview of a typical profit planning process.”
The variable identification phase of the profit planning process focuses on (a) Identifying (b) Evaluating
the effect of the internal variables identification also involves separate consideration of variables that are
non-controllable and those that are controllable this means that management planning must focus on hot to
manipulate the controllable variables. more ever there must be managerial. Planning of now to work with
the no controllable variables. That is for both kinds of variables now can management take advantage of
potential unfavorable impact on the enterprise. Analysis and evaluation of the environmental variables
must be continuing concern of management.
The statement of broad objectives should express the mission, vision and ethical character of the
enterprise, its purpose is to provide enterprise identify, continuity of purpose and definition.
(a) To define the purpose of the company (to state exactly why the company is in business)
(d) To set a guide for managers so that the decisions they make will reflect the interest of the
business with fieriness and justice to these concerned.
The statement of the broad objectives should represent the foundation or building block upon which to
develop and positively reined force pride in the company by management, other employees, owners'
customers, and other enterprises that have commercial contact with it. I should be designed for wide
dissemination and should be believable which means that in the long run the company’s action must be
harmony with the statement.
“The purpose of the “goal phase” of the profit planning process is to bring the statement of broad
objectives into sharper focus and to move from the realm of general information. It provides both narrative
and quantitative goal that are definite and measurable. Such goals should be categorized as specific and
common.
These broad, but specific, goals must be developed for the strategic long-range plans and tactical short-
range plans. This statement of specific enterprise goals should define such operational goals, as expansion
or construction of product and service lines, geographic areas, share of a market by major product service
lines, growth trends, production goals, profit margin return to investment and cash flow.
“Enterprise's strategies are the basic trust, way and tactics that will be used to attain planned objectives and
goals. A particular strategy may be short term or long-term.
The purpose of developing and disseminating enterprise strategies is to find the best alternatives for
attaining the planned broad objectives and specific goals strategies focus on now therefore, they outline a
plan of action for the enterprise.
Although strategy formulation is continual concern to executive management better managed companies
have found that periodic reassessment of the strategies is essential variables and their probable future
impact on the enterprise.
“The executive planning instruction issued by top management, communication the planning foundation
that is necessary for the participation of all levels of the management in the development of the strategic
and tactical profit plans for the upcoming budget year. Executive leadership in fundamental in developing
and articulating this planning foundation, the formulation of relevant strategies consequently at this point
planning process, the foundation has been established to articulate the broad and the specific objectives of
the enterprise and the strategies that facilitate their attainment.
“The strategic long-range plans are usually developed concurrently. It is possible (and not infrequent) that
executive management or chief financial executive will develop the strategic and tactical profit plans. This
approach is seldom advisable because it defines full participation in the planning process by middle
manager. Lack of participation can cause unfavorable behavioral effects. The manager of each
responsibility Centre will immediately initiate activities within his/her responsibility Centre to develop a
strategic long range profit plan (say five years) and in harmony with the five years plan a tactical short
range profit plan (say one year)’’the underlying causes. The identification of cause in primarily a
responsibility of line management’’.
Analysis to determine the underlining causes of both favorable and unfavorable performance variance
should be given immediate priority. In the case of unfavorable performance variances, after identifying the
basic causes as opposed to the results and alternative for corrective action must be selected. Then the
corrective action must be implemented in the cause of favorable performance variances the underlying
cause should also be identified. Finally, there should be a special “follow-up of the prior follow-up
action”. This step should be designed to (1) determine the effectiveness of prior corrective action and (2)
provide a basis for improving future planning and control procedures.
2.10.1 Importance
2. It requires adequate and sound organization structure that is, there must be definite
assignment of responsibility for each function of the enterprise.
3. It compels al the remembers of management, from the top to down, to participate in the
establishment of goals and plans.
4. It compels departmental manager to make plans on harmony with the plans of other
departments and the entire enterprise.
5. It requires that management put down in the figures what is necessary for satisfactory
performance.
7. It compels management to plan for the most economical use of the labor material and capital.
8. It instills at all level of management the habit of timely, careful, and adequate consideration of
the relevant factors before reaching important decisions.
9. It reduces cast by increasing the spam of control because fewer supervisors are needed.
10. It frees executives from many days-to-days internal problems through predetermined policies
and clear-cut authority relationship. Thus, it provides more executive time for planning and creative
thanking.
12. organizations, especially among lower levels of management, relative to basic policies and
enterprise objective.
15. It forces management to give adequate attention to the effect of general business conditions.
17. It aids in obtaining Bank credit, Banks commonly require a projection of future operations and
cash flows to support large loans.
18. It checks progress or lack of progress towards the objectives of the enterprises.
2.10.2 Limitation
1. It is not realistic to write out and distribute our goals, policies, and guidelines and all the
supervisors.
3. Our management has not interested in all the estimate and schedules. Our strictly in formal;
system is better and works well.
4. Budgeting places too great a demand on management time, especially to revise budget
constantly. Too much paperwork is required.
“Development of profit plan includes the preparation of various functional budgets, analysis of variance
and presentation of projected income statement and balance sheet. To management of with the
participation on lower management involves in the development of profit plan. Developing profit plan
beings with preparation of master budget are outlined as follows”:
Developing a realistic sales plan involves consideration of humorous policies and related alternatives and
final choices by executive management among many possible courses of action. We will consider too
pervasive sales planning problems.
“PCV strategy is a vital part of sales planning. In a competitive market, price and sales volume are
mutually interdependent. Because sale volume and prize are so closely tied together, a complicated
problem is posed for the management almost every company. Thus, two related basic relationship
involving the sales plan must be considered (1) Estimation of the demanded curve, that is the extent to
which sales volume varies at different offering praises and (2) the unit cost curve, which varies with the
level of the productive output. This PCV relationship has significant impact on the managerial strategy
that should be adopted.”
b. Product-line consideration
Both the strategic and tactical sales plans must include tentative decision about new product –line to be
introduced old product line to be dropped, innovations and product mix.
“A comprehensive profit planning program should incorporate approaches applicant to each problem area.
A profit-planning program cannot resolve special personal problems, but it directs careful consideration to
them and aids in planning them in perspective. Effective planning of long term and short-term labor coast
will benefit both the company and its employees. Planning labor costs involve major and complex problem
areas: 1.) personal needs 2.) recruitment 3.) training 4.) job description and evaluation 5.) performance
measurements 6.) union negotiation and 7.) wage and salary administration.
Labor generally is classified as direct or indirect labor sets include the ways paid to employee who work
directly on specific productive output. As with direct material costs. Labor cost that can be directly traced
to specific production are defined as direct. Direct materials and direct labor costs are frequently referred
to collectively as the prime cost of product. In direct labor involves all other labor costs such as
supervisory salaries and wages paid to tool markers, repair personnel, storekeepers, and custodians.
The direct labor budget includes the planned direct labor requirement necessary to produce the types and
quantities of outputs planned in the production budget. When the production budget is completed and
planned unto of each product to be produced is budgeted then labor budget will be prepared by
multiplying the estimated labor hours per units and unit to be produced for each product to determine the
direct labor hours to be planned.
“The approach used to develop the direct labor budget depends primarily on the 1.) Methods of wage
payment 2.) type of production process involved 3.) availability of standard labor or times and 4.)
adequacy of the cost according record relating to direct labor costs.”
Basically, there are three approaches to develop the direct labor budget.
a) Estimate the standard direct labor hours required for each unit of each product then estimates
the average wage rates by department, cost Centre, of operation. Multiple the standard time per unit of
product by the average hourly wage rate, giving the direct labor cost per unit of output for the
department, cost center or operation, multiply the unit direct labor cost by product.
b) Estimate rate of the direct labors cost to some measure of output that can be planned
realistically.
c) Develop personal tables by enumerating personal requirements (including costs) for direct
labor in each responsibility Centre. Four approaches commonly used in planning standard labor times;
they are following:
2) Standard costs
The profit planning in the context of particularly commercial banks seems to be new subject of study for
research and analysis so far this researcher could find very few studies.
Which is made on this field is not fully focusing the budget used as follows for profit planning whatever
the research in profit planning have been made are also not in depth and detailed. An attempt is made here
to review some of the research. Which has been submitted in profit planning in context of Nepal.
1. Miss Abha devi Subedi has conducted a research on the topic profit planning I commercial bank. She
was done a case study of Rastriya Banijya Bank Limited. Miss Subedi has tried to present the
effectiveness of profit planning system of commercial banks. Miss Subedi also tried to compare the
income and expenditure as well as burden to the bank. The study covers five years period from 1993/94 to
1997/98. Data were taken from primary and secondary sources. Study is focused on secondary data. The
main objective the study was to examine the effectiveness profit planning system in the commercial banks
and other objectives are as follows: -
a. Examine the profit with tired and regression of regression method with deposits.
b. Examine the loan of advance with trend of regression method with deposits.
She has pointed out various finds and recommendation a few than are as follows: -
Finding:
a) The rate of explanation of branches of RBB was increased after introduction of priority sectors
program in 2031 but the growth could not be a desired concentration of the branches is more in urban
areas in rural areas.
c) Most of the investment made against the security of land, gold, and silver.
d) The analysis of the position of deposit in NRB shows that the deposits which are raised by the
bank is not properly utilized.
e) Bank has not been managed in true professional approach but managed in bureaucratic approach
to sustain with political environment rather that commercial environment.
f) Bank does not make proper annual report of balance sheet profit of loss A/C and other related
documents due to pressure of government.
Recommendation:
1. Performance of every branch is needed to be evaluated and those having performances below
satisfactory level should be closed.
2. The interest rate on the deposit may be reduced to reduce the same in the credit.
3. Personal influence and interference by high-ranking official should stop in order to improve
the condition of the bank.
4. RBB needs trained personal for providing adequate banking facilities and good evaluation of the
project to whom the banking giving loan.
5. The RBB should introduce new technique in banking system such as computer system.
6. Many deposits are idle in the bank; bank need a clear-cut policy to utilize it found.
7. As the current ratio is very far for the standard it should have necessary measure.
2. Miss Uma Devi Karki has been conducted in the research on comparative profit planning of
commercial bank. She has conducted the research study in five-year period 050/051 to 054/055.
The basis objective of the study is to high light the current practices of profit plan and its effectiveness in
commercial bank and other specific objectives are as follows.
a. To analyze the major functional and financial plans for emulated and implemented in both
banks.
b. To sketch the main problems of developing and implementing profit planning system in both
banks. To examine the outcome of those planning in term of achievement.
c. To print out possible suggestions and recommendations of both banks with the earns to profit
planning system comparatively
Finding:
b) NO proper profit planning strategy seems to be developed although HBL is operating at profit
but RBB is running with heavy cumulative loss.
c) There is no detailed publicity of their utilization of much effectiveness expect interest rate and
annual final account report.
d) RBB is unable to control idle expenses and its profit is negative or highly fluctuation.
e) Government seems less conscious in the present situation of RBB.
Recommendation
1) It is recommended for these banks to chalk out target rate of return every year and based on
which the bank should plan of profit by linking its activities with income generation programs
whether fund based or non-fund based.
2) Accounting system should be systematic so that proper strategy can be applied specially in case
of RBB, and auditing of accounts should do in time.
5) RBB should focus on constant return because it has always negative earning on capital.
6) Local expert should be involved more in top level of management of RBB so that they can run
the bank easily future.
SHARE OWNERSHIP
S. no. Shareholder's Name Amount Percentage
Table No. 2
Year Amount Amt. (in 00,000's) % (Change)
2077/078 11,155,483,067 111554 -2%
2076/077 11,352,889,497 113528 12%
2075/076 10,177,522,844 101775 102%
2074/075 5,026,556,648 50265 -2%
2073/074 5,118,027,561 51180 -
Chart No. 1
Financial
120000
100000
80000
Income
60000
40000
20000
0
2073/74 2074/75 2075/76 2076/77 2077/788
Financial Year
Total financial income of the bank from the last 5 years if seen to be positively
moving upwards. The above graph of the total financial income or total revenue show
the positive trend of the total revenue. The bank recorded total revenue or total
financial income of Rs. 11,155,483,067 than Rs. 11,352,889,497 in the previous year
2076/077 which is almost decreased by 2% due to pandemic.
Table No. 3
Year Amount Amt. (in 000's) % (Change)
2077/078
1,607,473,174.00
16,074.00 26.3%
2076/077
1,265,150,663.00 12,651.00 -33.2%
2075/076
1,697,088,243.00 16,970.00 34.4%
2074/075
1,249,688,316.00 12,496.00 -4.1%
2073/074 -
1,302,483,429.00 13,024.00
Chart Title
18,000.00
16,000.00
14,000.00
12,000.00
10,000.00
Amount
8,000.00
6,000.00
4,000.00
2,000.00
-
2073/074 2074/075 2075/076 2076/077 2077/078
The table and chart shows that Net Profit is in increasing trend. In fiscal year 2077/078, net profit of
MBL is Rs. 1,607,473,174.00 which is increased by 26.3% than the FY 2076/077 of amount Rs.
1,265,150,663.00 which is almost decreased by 33.2%.
EXPENDITURE OF MBL
MBL's interest expenses are playing major role in expenses. The bank is
generating expenditure from different sources. Interest is major source in addition,
employee's expenses and operating expenses, staff bonus, providing for losses and
income tax. Six years period analysis of total expenditure of MBL from FY 2073/074
to 2065/066 is as follows:
Table No. 4
Expenditure/Year FY- 2077/078 FY- 2076/077 FY- 2075/076 FY- 2074/075 FY- 2073/074
Total Interest 6,803,990,080 7,490,990,381 6,627,767,028 5,026,556,648 2,791,035,277
Exp. (Financial Exp.)
Chart No. 3
Chart Title
8,000,000,000
7,000,000,000
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
0
2077/78 2076/77 2075/76 2074/75 2073/74
Above table shows total interest expenses includes interest on saving, interest on loan
and borrowing, is in increasing trend from first to last year. In fiscal year 2073/074
bank had to bear interest expenses to Rs. 2,791,035,277. In FY 2077/078, it is
reached to Rs. 6,803,990,080. It is cleared that interest expenses, personnel expenses
& operating expenses are the major expenses and other loan loss provision, staff
bonus are the minor expenses. Personnel expenses is in increasing trend in all year. In
FY 2073/074 it is Rs. 495,321,753 and increased by year in FY 2077/078 it is reached
to Rs. 1,769,507,572. Operating expenses is second major expenses of the bank and
it is also in increasing situation. In FY 2073/074 the amount of operating expenses if
Rs. 472,474,573 and in FY 2077/078 is also Rs. 890,785,804. Overall analysis of
expenses it indicates that in FY 2077/078 all expenses was increased than previous
year.
Interest Expenses (Financial Expenses) of MBL
Table No. 5
Chart No. 4
Chart Title
80000
70000
60000
50000
40000
30000
20000
10000
0
2073/74 2074/75 2075/76 2076/77 2077/78
MBL's financial expenses is one of the major expenses to be met. Above table and
chart show that interest expenses on deposits, loans & borrowing is in increasing
trend. In FY 2073/074 it is of Rs. 2,791,035,277 and in next year it is increased to Rs.
2,791,035,277 means expenses increased by 80% and volume of deposits, loan and
investment also increased suddenly in the bank. In FY 2075/076 interest expenses
reached to Rs. 6,627,767,028 and in FY 2076/077 it is reached to Rs. 7,490,990,381.
But in FY 2077/078, interest expenses are decreased by 9%.
By the above data presentation, we can say that deposits, loans, borrowings a nd
investment condition of the bank are strong year by year.
Chart No. 5
Chart Title
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
2073/74 2074/75 2075/76 2076/77 2077/78
Above table and chart shows that employee expenses of the bank is in increasing trend. In FY
2073/074 total employee expenditure is Rs. 495,321,753 only and in FY 2074/075 it is increased by
77% and reached Rs. 874,639,789. In FY 2075/076 total employee expenses is Rs.
1,230,381,075which is 41% with comparing previous. Then in FY 2076/077 it reached to Rs.
1,502,909,804. But in current year 2077/078 employee expenses of the bank is less increased by 18%
to Rs. 1,769,507,572 than previous year.
Operating expenses are also other major expenses of the bank. Following table
presented the data of the operating expenses of MBL for five years.
Table No. 7
Chart Title
1,000,000,000
900,000,000
800,000,000
700,000,000
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
0
2073/74 2074/75 2075/76 2076/77 2077/78
Above table and chart show that operating expenses of the bank is in increasing trend in first 5 year.
In FY 2073/074 total operating expenditure of the bank is Rs. 472,474,573and in FY 2074/075 it is
decreased by 11% and reached to Rs. 419,489,928. In FY 2075/076 it is became Rs. 723,550,216,
which is increased by 72%. In FY 2076/077 it is reached to Rs. 888,437,218 by 23% and similarly in
FY 2077/078 it is less increased than FY 2076/077.
Table No. 10
Profit
Total Total Cost
Year before tax
Revenue (TR) (TC)
(TC-TR)
2077/078 5,329,800,521 3,049,457,905 2,280,342,616
2076/077 4,481,153,331 2,620,130,196 1,861,023,135
2075/076 4,606,502,419 2,179,209,122 2,427,293,297
2074/075 3,202,400,483 1,398,711,571 1,803,688,912
2073/074 2,893,236,035 1,133,883,107 1,759,352,928
Chart No. 7
Chart Title
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
0
2073/074 2074/075 2075/076 2076/077 2077/078
Chart No. 7
Every bank had to separate certain amount as provision for loan loss in case bank
fails to recovery of loan. It is vital for every financial institution. The provision for
loan loss had decreased in FY 2061/062 and FY 2062/063 that shows the bank had
been able to invest in quite safe sector with higher chances of return back or
repayment. In FY 2065/066 the provision made was Rs. 2555 thousand only which
is maximum loan loss provision is in fluctuation condition. Above table and chat
cleared that the loan loss provision is in fluctuation by year to year.
EXPENDITURE OF STAFF BONUS
Year Amount Amt. (in 000's) % (Change)
2077/078 253,371,402 253,371.40 22.53
2076/077 206,780,348 206,780.35 (23.33)
2075/076 269,699,255 269,699.26 34.11
2074/075 201,103,315 201,103.32 8.10
2073/074 186,035,021 186,035.02 0
Chart no 8
Staff Bonus
300,000.00
250,000.00
200,000.00
150,000.00
100,000.00
50,000.00
0.00
2073/074 2074/075 2075/076 2076/077 2077/078
Staff Bonus
The main objectives of this study are to appraise MBL., the application of comprehensive
profit planning system and specific aims are given below:
To identify the profit planning process adopted by MBL.
To analyze the trend of Revenue and Expenditure.
To evaluate variance between target and actual performance.
To recommend steps to be taken to improve the profit planning process.
Generally, two types of profit plans are prepared, the first being long-range profit plan
and second being short-range. The accounting or fiscal year of MBL beings from 16 th
July to 15th July (1st Shrawan to 30 Ashadh) of the following year.
To analyze the financial trend and estimate the possible future trend of MBL study has
covered a period of years from FY 2073/074 to 2077/078. Two years represents the
technique, process and other procedures of preparing the budgets. Various functional
budget of FY 2073/074 to 2077/078 is the base of preparing related variances between
budgets and actual that is analyzed in detail. An effort has been made to point out the
reasons behind the deviation between budget and actual results. Some recommendation
has been pointed out.
CORRELATION ANALYSIS BETWEEN LOAN PORTFOLIO AND INTEREST
INCOME
Correlation coefficient shows the significance relationship between two variables within
certain time period. The formula for the calculation of Karl Person's correlation
coefficient (r)
xy is:
r= 2 2
x y
Table No. 11
NN
405691.44 45605
=
=
5
5
= 81,138(approx.) = 9121(approx.)
Now,
x.y
3940931018.011
r= = 0.9917
2
x y
2 35584702849.49X443784815.49
Where,
The correlation coefficient of the variance as loan portfolio and interest income is 0.9917
which shows that is positive relation in loan portfolio and interest income.
Now,
Now,
Calculation of Probable Error (P.E.):
1 r 2
P. E. = 0.6745
N
2
0.67451 0.9917
=
5
0.67451 0.98346889
=
5
0.67451 0.98346889
= 2.236
= 0.00498
Probable Error is not greater than correlation coefficient hence we can say that
there is positive relation between Loan Portfolio & Interest Income.
PROFIT PLANNING AND CONTROL OF MACHHAPUCHHERE BANK
LIMITED
Submitted
By
MAYA JOSHI
Nepal Commerce Campus
Roll. No:
T.U. Registration No.:
Kathmandu, Nepal
May, 2022
Certification of Authorship
I certify that the work in this dissertation has not previously been submitted for a degree nor
has it been submitted as part of requirements for a degree except as fully acknowledged
within the text.
I also certify that the dissertation has been written by me. Any help that I have received in my
research work and the preparation of the dissertation itself has been acknowledged. In
addition, I certify that all information sources and literature used are indicated in the
reference section of the dissertation.
Maya Joshi
Ref
RECOMMENDATION
Submitted by:
Maya Joshi
Entitled
Has been prepared as approved by this department in the prescribed format of the faculty of
management. This dissertation is forwarded for examination.
Ms. Maya has defended research proposal entitled Profit Planning and Control of
Machhapuchhere Bank Limited successfully. The research committee das registered the
dissertation for further progress. It is recommended to carry out the work as per suggestion
and guidance of Dr. ……………and submitted the dissertation for evaluation and Viva- Voce
examination.