FINANCIAL PERFORMANCE ANALYSIS OF MAHALAXMI

DEVELOPMENT BANK LIMITED

A Project Work Report

Submitted By:
Sristy Yadav
TU Regd No: 7-2-306-118-2019
Symbol No: 703060061

Rupandehi Campus

Submitted To:
Office of the Dean
Faculty of Management
Tribhuvan University

Kathmandu

In partial fulfillment of the Requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Bhairahawa, Rupandehi,
July, 2024
1 Background of the Study

Financial stability of a firm is associated with its ability to generate profit, increase
the value of invested capital and at the same time repay its short- and long-term
liabilities.
Assessment of financial performance is primarily based on various methods of
financial analysis. Financial analysis is structural and logical way to present and
analyze overall financial information of a financial institution. Performance
evaluation is the important approach for enterprises to give incentive and restraint to
their operators and it is an important channel for enterprise stakeholders to get the
performance information (Sun, 2011). The performance evaluation of a commercial
bank is usually related to how well the bank can use its assets, shareholders’ equities
and liabilities, revenues and manage expenses. In the practice of financial analysis,
financial ratios are mainly used for their simplicity and additional information value.
Financial ratios are the most popular and most widely used methods of financial
analysis also because they can be used as input data of more complex mathematical
models. Van Horne & WachowiczJr (2005) stated that,” To evaluate a firm’s
financial condition and performance, the financial analyst needs to perform “check-
ups” on various aspects of a firm’s financial health. A tool frequently used during
these check-ups is a financial ratio, or index, which relates two pieces of financial
data by dividing one quantity by the other”.

One can employ financial ratios to determine a firm’s liquidity, profitability, solvency, and
adequacy used financial ratios to show the financial position and performance analysis of
Bank. To assess the results and to predict future financial development of a firm it is
necessary to connect data from financial analysis and other information that the firm itself
presents mainly in its annual report. Annual reports also present company’s managerial
priorities. To calculate this, quantitative data from bank’s financial statement and other
sources is sought. (Pandey, 2004) James pointed out that financial ratios are used by
bankers, creditors; shareholders and accountants to evaluate data presented to an entity
financial statement. Depending on the results of the evaluations, bankers and creditors
may choose to extend or retract financing and potential shareholders may adjust the level of
commitment in a company.
2. Profile of Mahalaxmi Development Bank

Mahalaxmi Development Bank Limited has been in operation in Nepal since 1987
when it was initially registered as a joint-venture operation. Today, the Bank is an
integral part of Mahalaxmi Development Group having an ownership of 70.21% in
the company with 29.79% shares owned by the Nepalese public. The Bank enjoys the
status of the only international bank currently operating in Nepal.IT is a leading
international banking group with a 160-year history in some of the world’s most
dynamic markets. Its heritage and values are expressed in its brand promise, Here for
good. Bank says “Our operations reflect our Purpose”, which is to drive commerce
and prosperity through unique diversity. MDBL is present in 60 markets and serve
clients in a further 85.
The banks’ businesses serve four client segments in four regions- Europe &
Americas, Africa and Middle East, Asia & South Asia, Greater China & North Asia.
Mahalaxmi Development PLC is listed on the London and Hong Kong Stock
Exchanges as well as the Bombay and National Stock Exchanges in India. With 15
points of representation, 26 ATMs across the country and more than 531 local staff,
Mahalaxmi Development Bank Limited is serving its clients and customers through
an extensive domestic network. In addition, the global network of Mahalaxmi
Development Group enables the Bank to provide truly international banking services
in Nepal.

3. Statement of Problem
Financial statement analysis can be a very useful tool for understanding a firm’s
performance and conditions. However, there are certain problems and issues
encountered in such analysis which call for care, circumspection and judgement.
In Nepal, the profitability rate, operating expenses and dividend distribution rate
among the shareholders have been found different in the financial performance of the
bank in different periods of time. The problem of the study will ultimately find out
the reasons about difference in financial performance. A comparative analysis of
financial performance of the bank over different time periods would be highly
beneficial for pointing out its strength and weakness. Although commercial banks are
considered efficient, but how far are they efficient? This question does emerge in
banking sector. At present we have twenty-seven commercial banks. In spite of rapid
growth, some indicators show performance is not much encouraging towards the
ervice coverage. In such a situation, this study tries to analyze the present
performance of banks, which would give the answers to following queries:

a) What is the comparative liquidity, profitability and activity ratio of the bank
over different time periods?

b) Is the trend of different ratios of the bank satisfactory over different time periods?

4. Objectives
Report writing is very significant to students as it helps to broaden their mind by
studying directly without another proper guide. The case of the study is related with
the financial performance of Mahalaxmi Development Bank Limited. The analysis
will be helpful to know the financial strength of the bank. It is hoped that the study
will help to improve the performance of the bank in future. Lastly, it becomes the
most suitable literature for future study.

5. Rationale of the Study

The financial performance of a banking institution is a critical indicator of its stability,

efficiency, and ability to contribute to the overall economic development of a country.
In the context of Nepal’s evolving banking sector, development banks play a
significant role in mobilizing savings and providing credit to underserved regions and
sectors. Mahalaxmi Development Bank Limited, being one of the prominent
development banks in Nepal, has shown noticeable growth and expansion in recent
years. However, assessing whether this growth aligns with sound financial
performance is essential for stakeholders, including investors, depositors, regulators,
and management.

This study aims to conduct a comprehensive financial performance analysis of

Mahalaxmi Development Bank Limited using key financial indicators such as
profitability ratios, liquidity ratios, efficiency ratios, and capital adequacy. Through
such analysis, the study will evaluate the bank’s financial health, operational
efficiency, and long-term sustainability. The rationale behind this study is to provide a
clear understanding of the bank’s financial position, uncover potential areas for
improvement, and contribute to more informed decision-making for stakeholders.
Additionally, the findings of this study can serve as a reference for comparative
analysis with other development banks in Nepal and help guide strategic planning and
policy formulation in the banking sector.

6. Review of Literature
Ahuja (1998), “Financial Performance analysis is a study or relationship among the
various financial factor in business a disclosed by a single set of statement and a
study of the trend of these fact as shown in a series of statements. By establishing a
strategic relationship between the item of a balance sheet and income statements and
other operative data, the financial analysis unveils the meaning and signification of
such items.” Pandey (1997) has defined as “The finance statement provides a
summarized view of the financial operation of the firm. Therefore, something can be
learnt about a firm and careful examination of the financial statements as invaluable
documents or performance reports. Thus, the analysis of financial statement is an
important aid to financial analysis or ratio analysis which is a main tool of financial
statement analysis.
According to Metcalf and Tatar (1996), “Financial Performance analysis is a process
of evaluating the relationship between components parts of a financial statement to
obtain a better understanding of a firm’s position and performance.” Khan and Jain
have defined that (1990) “The ratio analysis is defined as the systematic use of ratio
to interpret the financial performance so that the strength and weakness of firm as
well as its historical performance and current financial condition can be determined.”

In the word of Horne (1994) “Financial ratio can be derived from the balance sheet
and the income statement. They must be analyzed on a comparative basis. Ratio may
also be judged in comparison with those of similar firms in the same line of business
and when appropriate, with an industry average and we can look to future progress in
this regard.”
A comparative study of financial performance is a basic process, which provides
information on profitability, liquidity position, earning capacity, efficiency in
operation, sources and use of capital, financial achievement and status of the
companies. This information will help to determine the extent of efficiency and
effectiveness of the company in respect of deploying financial resources in the
profitable manner.
Brigham and Houston (2004) views that financial profitability lies in a firm’s ability
to generate revenues in excess of its costs: for either long or short term. In the long
run, a firm should be able to maintain the value of invested capital and able to yield a
profit, which exceed the opportunity cost of cost of capital meaning that the yield
generated by the firm should exceed the opportunity cost of capital.Elumilade et al.
(2006) described investment decision as one of the most significant decision Areas
that affect the future profitability either because it might result in an increase in
revenue or because it can cause an increase in efficiency and reduction in costs.
A tool used by individuals to conduct a quantitative analysis of information in a
company’s financial statements. Ratios are calculated from current year numbers and
are then compared to previous years, other companies, the industry, or even the
economy to judge the performance of the company. Ratio analysis is predominately
used by proponents of fundamental analysis (Investopedia)
7 Research Methods
1.7.1 Research Design

Research design is the task of defining the research problem. In other words, "A
research design is the arrangement of conditions, for collection and analysis of data in
a manner that aims to combine relevance to the research purpose with economy in
procedure. In fact, the research design is the conceptual structure within which the
research is conduct. General objective of this research is to examine and evaluate the
financial performance of joint venture bank especially that of Mahalaxmi
Development Bank. In order to achieve this objective, descriptive research design has
been followed. Also, the research is based on historical research design (used of
historical data for analysis).

1.7.2 Population and Sample

The population for this study comprises of 27 commercial banks currently operating
in the country. The sample consists of one judgmentally selected bank- Mahalaxmi
Development Bank Limited. This unit represents 3.70% of the total population.

1.7.3 Sources of Data

The present study is based on secondary data. The necessary data is obtained from
published Annual report containing Statement Of financial position, Statement of
Comprehensive Income and other related statements of the bank. Likewise, other
relevant information’s are also obtained from various sources such as various
publications, business magazines, journals and newspaper. According to the need and
objectives, secondary data are compiled, processed and tabulated in time series. In
order to judge the reliability of data provided by the bank and other sources they were
complied with the annual reports of the bank. The data used in this study is mainly
based on the annual reports of Mahalaxmi Development Bank Limited.

1.7.4 Data Collection Strategy

The study is based on secondary data from annual financial report of MDBL.It relies
on both published and unpublished report that relate to this study. The conclusion is
based on financial statement of MDBL.

1.7.5 Tools of Data Analysis

Data Analysis tools are those, that are used for the analysis and interpretation of
financial data. These tools are fruitful in exploring the strengths and weaknesses of
the financial policies and strategies. In the study various financial tools have been
used, which are as follows.

8. Data Presentation and Analysis

The report mainly focuses firm with its profitability, liquidity, turnover, capital
exposure and PE ratio. These are important tools used to measure financial
performance of an entity. In the Report, Profitability ratios are used to determine
efficiency and performance. Profitability ratio are two types: margins and return.
Only relevant return type is used in our report. It shows overall efficiency of firm in
generating returns for its shareholders. It provides stakeholder a measure to judge a
company’s ability to make profits and be considered a worthy investment. Liquidity
ratio is used to measure ability of bank to meet its short-term obligations. However,
Higher ratio indicates idle fund with the bank and inefficiency of its utilization. It
hurts profitability and financial performance of the bank. Turnover ratio is used as an
indicator of the efficiency with which the bank is using its assets to generate revenue.
The higher turnover ratio, the more efficient the bank is at generating revenue from
its assets. Conversely, if the bank has a low turnover ratio, it indicates it is not
efficiently using its assets to generate revenue. Capital adequacy is measured in order
to see legal compliance with unified directives issued by NRB. More is the capital
adequacy ratio; more is the buffer provided to depositors and creditor from risk
exposure.PE ratio is used in order to analyze whether the bank is expected to perform
well in future or not. It shows expectations of the investors in the market toward the
bank. High PE ratio indicates high expectations and hence high growth potential.
Low PE ratio may indicate low market expectations or sometimes.it is the case of
undervaluation if measured in relative terms with peer companies.
9. REFERENCE

Bhole, L., & Mahakud, J. (2009). Financial Institutions and Markets (5th edition).
New Delhi, India: Tata McGraw Hill.

Fabozzi, F., & Modigliani, F. (2013). Foundation of Financial Market and

Institutions (4th edition). New Delhi, India: Pearson New International.

Van Horne, J.C. (2000). Financial Management Policy (11th edition). New Delhi:
Patience-Hall of India Private Limited.

Adhikari, D. R & Pandey, D.L. (2012). Business research methods. Bhairahawa:

AsmitaBooks Publishers.

Horne, V. J. C., & Wachowicz, J.M. (2005). Financial statement analysis (11th
edition).

Khan, M.Y. and Jain P.K. (1997). Management Accountancy, New Delhi: Mc
Graw- Hill Publishing company Ltd

Pandey, I. M. (2004). Financial statement analysis (9th edition). New Delhi,

India: Vikas Publishing House Pvt Limited.

Weston, J. F., & Brigham, Eugene F. (1972). Managerial Finance, New York, Holt
Saunders, International Editions.

Saunders, A., & Cornett, M.M. (2019). Financial Markets and Institutions (7th
edition). New York, USA: McGraw Hill.

Websites:

https://www.sc.com/np/ www.nrb.org.np
https://www.simplilearn.com/financial-performance-rar21-article
https://www.investopedia.com