Bikram Shah: September 2017

CHAPTER I: INTRODUCTION

Background

We are going to study about the profitability position of a co-operative. In our starting, we are going to defining the concept of profitability and the co-operative about which we are going to discussing.

A cooperative (Also known as the co-operative, co-op, or coop) is an autonomous association of people united voluntarily to meet their common economic, social, and cultural needs and inspiration through jointly owned and democratically controlled business. In other words, a co-operative is a legal entity owned and democratically controlled by its members. Members often have also associated on with the enterprise as producers or consumers of its product or services. A co-operative is established mainly on the following principles:

i. The user ownership principle: Co -operative is owned by people who use it.

ii. The user control principle: Cooperative is controlled by people who use it.

iii. The user benefit principle: The benefit of a co-operative is proportionate distributed, among its members.

Similarly, an agriculture co-operative is a farmer's co-operative where, farmers pool their resources in certain area of activities. In other words, agriculture cooperative is an organization, owned by farmers for their own sake, specially, for development in their agro business.

Farmer co-operatives work to promote sustained livelihoods, rural employment, sustainable resource mobilization and use, empowerment and social reform. As all cooperatives in general, Farmers Cooperatives are voluntary member-based organizations that exist in every sector of the economy. The primary objective of all types of Co-operatives is to meet the economic and social needs of their members. This sets them apart from investor- owned businesses, which have the primary purpose of maximizing profits for shareholders.

Profitability is the ability of a business to earn a profit. A profit is what is left of the revenue a business generates after it pays all expenses directly related to the generation of the revenue, such as producing a product, and other expenses related to the conduct of the business activities. There are many different ways to analyze profitability. This report will focus on profitability ratios, which are a measure of the business' ability to generate revenue compared to the amount of expenses it incurs.

This report is concerned with an agriculture (farmer) co-operative, named, "Sana kishan kirsi Sahakari Santha Geta. Also called, "small farmers agriculture cooperative limited Get, kailali", located in Attariya municipality (Kailali district, Nepal). This is an agro based co-operative. So, this co-operative is facilitated under tax exempt organization. That is, the co-operative need not to pay tax, on its net income.

Statement of Problem

Simply, problem refers as the error in the process of something happening. We need to solve those appeared problems. For this, we have to try to find out the solution of that problem. So we need to make research on that.

Every research has conducted to find out the solution of any specific problems. The research problems are those which are regarded the question of the objective in a research. That is, the, problems in a report are always mentioned in question formed. Basically, they are in wh-question form such as started from why, how, who, which, whose, who etc.

It is important to measure and analysis the time to time financial statement of the organization, for realization about the financial strengths, financial weakness, financial growth etc. of any organization.

We are going to analysis the profitability position of a co-operative, Sanakishan Kirsi Sahakari Santha, during last five years. Therefore, we need to find out those variables which are related to the profitability of this co-operative. Those variables measure the accurate profitability of a co-operative. Those are; Net profit after tax (NAT), Earning before interest and tax (EBIT), Profit Margin (PM), Basic earnings power (BEP) and Return on assets (ROA) of the co-operative. So, our project work is undertaken to seek the answers of the followings questions:

i. What is the profit margin (PM) of Sanakisan kirsi Sahakari Sanstha, branch office Attariya, during the last five years?

ii. What is the average growth rate (GC) in profit of this institute since last five years?

iii. What is the Profit gaining power of this institute by utilizing its assets of last five year

Project Work Objectives

Simply, objective refers as the purpose of doing something. Here, the research is conducted to find out the solution of the given problems. So, we can say that, the research objective refers as the solution of the problem. Those things, which are to be finding for the solution of the given problems, are consider as the research objective.

Every research is conducted in certain specific objective. Each researcher has their own objective, goal, of conducting research.

The main, single objective of this project is to analysis of the profitability strengths, and growth rate of this institute during last five years. To make easy for understand, this broad objective is sub-divided in the following sub- objectives:

i. To determine the operating income (EBIT), Net profit after tax (EAT) and Profit Margin (PM) of this institute during last five years.

ii. To determine the growth in earning during last five years.

iii. To determine Basis Earnings Power (BEP) and Return on Assets (ROA) of the institute during last five years.

Rational (Significant)

The completeness of this report writing will have following significant:

The main significant of this report writing is that, the student of BBS will be competent to write any types of report in future. It provides practical knowledge for the student, in project report writing. Furthermore, the written report will show the gross earnings before tax, net earnings after tax and profit margin of this institute during last five years. Profit margin defined as the portion of net profit on gross profit. Similarly, it will provide information about the growth rate in earning from past five years of this institute. The calculated Return on Asset (ROA) and Basic Earning Power (BEP) will show the profit gaining power of this institute by utilizing its assets. Where, ROA is the ration of net profit after tax and total assets; and BEP is the ratio of gross profit and total assets. Before completing this repot, there will be given an appropriate suggestion. The given recommendation, suggestion in this report would be a guideline for the institute.

Report structure

Generally, an original report might be formatted on different style as their convenience. A reporter can choose a report format what he feels easy, clear and best to write and understandable. But we are making an academic report, to complete our BBS degree. So, we should make this report on the same format what is suggested by the University. Our academic report's structure is as follows:

Chapter I: Introduction

There is discussed about Followings points, in this chapter:

i. Background

ii. Statement of the problem

iii. Objectives of the study

iv. Rational (Significant)

v. Organization of the study

Chapter II: Literature Review

This chapter is related to the previous report, research, project or any things done related with this project topic. Following topics are included in this chapter:

i. Conceptual review

ii. Review of Previous Work

iii. Research gap

Chapter III: Research methods

Following topics are discussed in this chapter:

i. Type of research

ii. Research design

iii. Population and sampling

iv. Type of data

v. Data collection procedures

vi. Instrument to be used

vii. Data analysis method and Limitation of the study…

Chapter IV: Research Result and finding

This chapter is related to the presentation the result and finding of the project work. The gathered data are carefully studied and organized. The organized make easy in presentation of the project report.

Chapter V: Summary discussion and conclusion

This is the last chapter of the report. It includes the discussion about the found result from the project, about the conclusion and recommendation of this report.

CHAPTER II: LITERATURE REVIEW

Conceptual Review

The literature review is the activity of study or review the previous studies related to the concern topic. This report is concern about a co-operative that will state the profitability position of that co-operative during last five year. Following statements are generated by reviewing previous work about the co-operative. Before talking about the topic, profitability position analysis, first we will discuss about the co-operative.

History

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 these historical social institutions are almost resembled with primary form of co- operatives. For the institutional development of such societies, the then government aimed to adopt co-operative system as a means for economic social and cultural development of the people as well as an appropriate and effective tool for rural development. The then government established the Department of Co-operative under the Ministry of Planning, Development and Agriculture in 1953 A.D (2010 B.C). The modern cooperative movement initiated from Rapti Valley (Chitwan District) as a part of flood relief and resettlement program. At the first time 13 credit co-operative societies established in 2013B.S. were provisionally registered under the executive order of the then government which got legal recognition after the enactment of Cooperative Societies Act 2016B.S. (1959A.D.). The first Co-operative Societies Act was revised several times and it was replaced by the Sajha Societies Act in 2041B.S. (1984A.D.). After the restoration of multiparty democracy the Sajha Societies Act was replaced again by the Co- operative Act 1992. The Department of Co- operative has provided the authority for registration and regulations of co-operative societies/unions/federations under the Acts. The interim Constitution of Nepal, 2063 has considered Cooperative sector as one of the three pillars for national development. Several types of cooperatives societies operated in the country are Saving and Credit, Multipurpose, Dairy, Agriculture, Fruits and Vegetables, Bee Keeping, Tea, Coffee, Consumers, Energy, Communication etc. including production, financial and service. Nepal has initiated its cooperative movement after 1950 AD. Policy and programs launched by the government have emphasized the importance of Cooperative modality to maintain peace in the society by means of self employment and to expedite the development works. It is believed that some 3 million people are already affiliated so far in more than 20000 cooperatives and more than 50000 people are employed directly in Cooperative business.

Status of Cooperatives in Nepal

The restoration of democracy in 1990 and promulgation of a new Cooperative Act in 1992, there has been resurgence in the cooperative movement in Nepal. This is evidenced by the fact that the number of registered cooperatives has grown to 9362 ( Statistics on Nepalese Co-operative Societies & Unions, Government of Nepal, Ministry of Agriculture & Cooperatives, Department of Cooperatives, 2007, July 9) as of the record up to April 13, 2007, compared to 830 in 1990. With the increase in number, cooperatives have diversified their involvement in micro & medium level enterprises. Indeed cooperative sector is flourishing one of the largest private sector business enterprises in Nepal. One of the factors that have contributed to the rapid expansion in both the number and the enterprise coverage of cooperatives is the new policy and legal regime allowing grassroots based spontaneous initiatives of communities to organize themselves into cooperatives for doing business and serving the communities. This is in contrast to the government led and government directed cooperatives prior to 1990. There are presently nearly 9,362 primary cooperatives and these are federated into a number of subject-specific cooperative unions at the district level (72), district cooperative unions (49), central cooperative union (5), and 1 national cooperative bank. The National Cooperative Federation is the apex level representative body of all the cooperatives at the national level. Among the five central level cooperative unions, there is one each for dairy, coffee, fruits and vegetables, consumers, and savings and credit. Department of Co-operative has the following vision, mission, goals and objectives:

Vision

The long term vision is to develop cooperatives as one of the lead sector for economic development of the country.

Mission

The mission of the Cooperatives Department is to develop the values and principles based cooperatives in the country and the plan would be delineated for the fulfillment of long term vision.

Goal

Cooperatives will be developed as the foundation pillar of the economy for the economic growth, member saving deposits mobilization, operation of agriculture and micro-enterprises, and create awareness of the people on Cooperative concepts. Cooperatives will be developed as the medium to address the economic, social and cultural needs of people as a mechanism to contribute in community development and service delivery.

Objectives

a. To create conducive environment for the establishment of member base cooperative societies based on membership following cooperative principles and values to fulfill the needs of their members.

b. To collects small and scattered amounts of resources from the member at local level to create an economic force and to invest those resources for their own economic, social and cultural development.

c. To promote Co-operative system as a means of economic, social and cultural development of marginalized people living in the country. A Co-operative system will be developed as a means of transforming the traditional mode of agricultural and non-agricultural production into commercial production in rural level.

d. To motivate stakeholders to operate co- operative movement based on the cooperative rules, regulations and principles.

Cooperative Act, 1992

The preamble of the Cooperative Act, 1992 has quoted as “Whereas it is expedient to provide for the formation and operation of various type of cooperative societies and unions for the social and economic development of the country's farmers, workers, artisans, people possessing inadequate capital and low income groups, landless and unemployed people or social workers for the benefit of general consumers on the basis of mutual cooperation and cooperative principles.” The important provisions of the Cooperative Act, 1992 are includes; registration of cooperative societies/ unions, distribution of membership, operational procedures, appointment of registrar, authority of registrar, delegation of authority, mobilization of resources, integration and disintegration of cooperatives, system of information recording and auditing of accounts, rebates and incentives to co-operatives, dissolution and liquidation of cooperatives, regulations and penalties to defaulters etc. Some special features of the Act are simple registration procedures, legal and corporate personality, equality, elected board of directors, voluntary membership, autonomy, self regulatory mechanism, federal structure of cooperative movement, limited liability of members, wide scope of cooperative business etc.

Impacts of Cooperatives at agriculture sector in Nepal

Co- operatives have direct and indirect impacts on socio-economic development by promoting and supporting entrepreneurial development, creating productive employment, raising incomes and helping to reduce poverty while enhancing social inclusion, social protection and community-building. Whilst cooperatives directly benefit their members, they also offer positive externalities for the rest of society, and have a transformational impact on the economy. Some of the specific ways cooperatives contribute to development goals include: Agricultural cooperatives play an important role in food production and distribution and in supporting long-term food security. Agricultural cooperatives also promote the participation of women in economic production, which, in turn helps in food production and rural development: through cooperatives, women are able to unite in solidarity and provide a network of mutual support to overcome cultural restrictions to pursuing commercial or economic activities. For example, women-only cooperatives in South Asia facilitate economic independence and improve the social standing of women through their active participation in businesses and management. A survey in Nigeria indicated that compared to non- cooperative members, women engaged in cooperative activities were better off, both in terms of productivity and economic well-being. Financial cooperatives (credit unions, savings and credit cooperatives or cooperative banks) enable easy access to savings and credit at low-cost. They work by pooling limited capital: Members mandatory purchase of ownership shares in the cooperative and their deposit/savings accounts serve as the funding base to enable the cooperative to extend credit to members. Financial cooperatives are the largest providers of microfinance services to the poor. It is estimated that globally, financial cooperatives reach 78 million clients living below a poverty line of $2 per day. In South Asia, for example, 54.5 per cent of borrowers living below $2 per day were served by cooperatives, compared to 19 per cent served by other microfinance providers. Financial cooperatives thus play a central role in the achievement of an inclusive financial sector that encompasses the poor. Financial cooperatives contribute to poverty reduction in various ways. Access to credit to finance micro, small and medium enterprise generates employment and incomes. Low-cost savings facilities for the poor and small depositors help to reduce member 'vulnerabilities to shocks such as medical emergencies, and encourage future investments, including education and small business enterprises. Empirical research of the last decade has demonstrated that demand for savings services exists, even among the poorest. If formal means of savings are unavailable, poor people tend to use livestock, jewellery or other informal arrangements that typically have a low or negative interest rate. For people living in poverty, savings is critical to counterbalance the cyclicality of income. In Nepal, cooperatives are substantial providers of social and economic protection.

Although cooperatives, especially the self-promoted ones, had relatively great outreach, they had problems in reaching the ultra poor in their working areas. Their membership being voluntary, those who were aware and literate joined the programme and the poor were left behind. They had no special programme that emphasized motivating the poor to join them. Similarly, the existing products and services were not affordable for the poor community people.

Review of Previous Work

This topic provides the information about the conducted previous research on our topic," Profitability position of Sanakishan Sahakari santha, Geta". As our title, we have reviewed various literatures concerned about the profitability analysis of an organization and about written literatu8re about the Sanakishan co-operative. Our studied literatures related with our topic, are mentioned here:

Our first reviewed literature related with our topic is "Uses and Limitations of Profitability Ratio Analysis in Managerial Practice", Faculty of Economics, Matej Bel University Tajovského Street 10, 975 90 Banská Bystrica Slovak Republic on 5th International Conference on Management, Enterprise and Benchmarking June 1-2, 2007.

We are going to analysis the financial performance of a co-operative by using the ratio analysis method. So we should known this methods merits and demerits. And, this article provides us knowledge about the uses and limitations of this ratio analysis method.

Profitability Ratios

Profitability ratios reveal the company´s ability to earn a satisfactory profit and Return on investment. The ratios are an indicator of good financial health and how effectively, the company is managing its assets.

Uses and Limitations of Profitability Ratio Analysis

Ratio analysis is used by three main groups: (1) managers who employ ratios to help analyze, control, and thus improve the firm`s operations; (2) credit analysts, such as bank loan officers or credit managers, who analyze ratios to help ascertain a company`s ability to pay its debts; and (3) stock analysts, who are interested in a company` efficiency and growth prospects.

Thought ratio analysis can provide useful information concerning a company`s operations and financial condition, it has some limitations. Potential problems are listed below:

Many large firms operate a number of different activities in quite different industries, and in such cases it is difficult to develop a meaningful set of industry averages for comparative purposes. This tends to make ratio analysis more useful for small, narrowly-focused firms than for large, multidivisional firms.

Most firms want to be better than average (although half will be above and half below the median), so to attain average performance is not necessarily good. As a target for high-level performance, it is preferable to look at the industry leaders` ratios.

Inflation can badly distort firms` balance sheets - recorded values are often substantially different from‚ true values. Because this affects both depreciation charges and inventory costs, profits are also affected. Thus, a ratio analysis for one firm over time, or a comparative analysis of different firms, must be interpreted with care and judgement.

Seasonal factors can also distort ratio analysis. For example, the inventory turnover ratio for a food processor will be different if the balance sheet figure used for inventory is just before, or just after the close of the canning season. This problem can be minimized by using monthly averages for inventory when calculating ratios such as turnover.

Different operating and accounting practices can distort comparisons. For example, inventory valuation and depreciation methods can affect the financial statements and thus distort comparisons among firms that use different accounting procedures. Also, if one firm leases a substantial amount of its productive equipment, then its assets may be low relative to sales because leased assets often do not appear on the balance sheet. At same time, the lease liability may not be shown as a debt, so leasing can artificially improve both the debt and turnover ratios.

It is difficult to generalize about whether a particular ratio is‚ 'good' or ‚bad‘, For example, a high current ratio may indicate a strong liquidity position, which is good, but excessive cash is bad, because excess cash in the bank is nonearning asset. Similarly, a high fixed assets turnover ratio may indicate either a firm that uses assets efficiently or a firm that is undercapitalized and simply cannot afford to buy enough assets.

A firm may have some ratios which look‚ 'good' and others which look‚ 'bad', making it difficult to tell whether the company is in a strong or weak position. However, statistical procedures can be used to analyze the effects of a set of ratios. Many banks and other lending organizations use statistical procedures to analyze firms` financial ratios, and on the basis of their analyses, classify companies according to their probability of getting into financial distress. Profitability ratio analysis is useful, but analysts should be aware of these problems. Ratio analysis applied in a mechanical, unthinking manner is dangerous; however, used intelligently and with good judgement, it can provide useful insights into a firm`s operations

In conclusion, Profitability ratio analysis is widely used by managers, creditors and investors. Used with care and imagination, the technique can reveal much about a company and its operations. But there are a few things to take in mind about ratios. First, a ratio is just one number divided by another, so it is unreasonable to expect that the mechanical calculation of one ratio, or even several ratios, will automatically yield important insights into a firm. It is useful to think about ratios as in a detective story. One or even several ratios might be misleading, but when combined with other knowledge of a company´s management and economic circumstances, profitability ratio analysis can tell us very much.

Our second review of previously written article related with our topic is "A case study on the successful experience of the Small Farmer Agriculture Cooperative Limited, Khaireni Parsha, (Chitwan District)", by Learning Route on women’s empowerment, business development and sustainable natural resource management, Scaling-up programme for the rural poor in Nepal.

In this article, the writer has clearly defined about the Small farmer Agriculture co-operative Ltd. Parsha. This literature provides us information about the overall history, back ground, establishment and organizational structure and functioning of SFAC. Furthermore, also says relation of Small Farmer Agriculture Co-operative Ltd. (SFAC) with Nepal Agricultural Cooperative Central Federation Limited (NACCFL) etc.

The SFACL is affiliated to the Nepal agriculture co-operation central Federation Limited (NACCFL) and Small Farmers Development Bank (SFDB). NACCFL provides support in terms of capacity building, market access, networking and linkages with relevant agencies, and promotes lobby and advocacy with the government at national level. The SFFDB provides financial services.

This type of co-operative is formed by joining the group and group of people. And the groups are formulated by individual and individual. In a group, there exist 7 members and the formulated group joints the organization membership. Following chart shows the clear organizational structure of this farmer co-operative:

Above chart clearly shows organizational structure of Small Farmer Agriculture Co-operative Ltd. (SFACL).

With the help of Agriculture Development Bank Ltd., Sanakishan co-operation was established in 2053, as the name of "Sana kishan kirsi bikas aayojana malakheti". But later, in 2060 poush 22, it was registered as the name of "Sana kishan kirsi sahakari Santha ltd., Geta, in the division shakari office kanchanpur. Today, this co-operative has 715 numbers of group and 4329 numbers of members. Its working area is expanded to four VDC, located in kailali district namely; Urma VDC, Fulwari VDC, Beladevipur VDC and Geta VDC. In this report, we will discuss about the profitability condition of this small farms agriculture co-operation by using different methods.

Ashok Thapa, A BBS III project report (2064), "Analysis of Profitability and assets utilization of The Bank of Kathmandu Ltd. Branch Office, Dhangadhi"

This report was also an academic report like our project work. Means, The report was conducted to fulfillment the degree of bachelor level. In this report, the reporter Asok Thapa has defined about the bank, its history and its profitability position during last five years. This study was followings objectives:

Objectives

The writer was set his first objective to determine to determine operating income and net profit after tax of the bank during last five year. The next objective of that project was to determine profit margin and growth rate of the bank during last five year. Similarly, third objective of that project work was to determine return on assets of the bank during last five year. And fourth and final objective of that project was to determine assets turnover ratio of the bank during last five year.

To consider the report, The reporter has determined the Net Profit After tax (NAT), Earning before interest and tax (EBIT), Basic earning power (BEP), Return on assets (ROA) and their growth rate (GC) of the Bank of Kathmandu. Following conclusion and suggestions have been given in this report:

Conclusion

The given conclusion on this report was, the growth rate on net profit after tax of the bank is not so satisfactory because the study shows the lots of variation in growth rate. Next conclusion was, the growth rate on operating income is in decreasing order. Next one was, the growth rate in profit margin is also shows variation due to variation occurs in growth rate of net project after tax and decreasing order growth rate of operating income. The growth rate in ROA is in decreasing order but it shows positive behave in latest year of study. There is lots of variation in growth rate of net interest margin.

Recommendations

The given recommendations on that report were effectiveness and practical. He has given practical suggestion as there was appeared weak financial performance of the bank. Similarly suggestion related with others factors were given.

Similarly, we have reviewed others various previously worked out related with our topic. Some of them are mentioned here:

Soviet Shrestha, A BBS project report (2066), "A case study on effects of assets utilization on financial performance of Everest Bank"

Bhawani Prasad Joshi, A MBS project report (2063), "Analysis of profitability and financial performance of Nepal Standard Chartered Bank Limited, Bank of Kathmandu Limited"

These literatures provide us knowledge about the techniques of profitability analysis, its variables and conceptual relation of variables with profitability. This report helps us to draw a theoretical frame work among variables. That is mentioned as follows:

The profitability position of the organization is analysis by determining above mentioned factors and their annual growth rate. The profitability position of an organization is mainly depends on these five elements and their growth rate (GC). The determined EBIT, shows the before interest and tax paying profitability position of an organization. It is mainly depends on operating expenses of the organization. High operating income (EBIT) refers as the well profitability position of an organization. The Net profit after tax (NAT) also shows the profitability position of the co-operative. The NAT of a co-operative mainly depends on the interest expenses of the co-operative. Highest the Net profit after tax indicates good position of the co-operative profitability. The Profit Margin (PM) also helps to analysis the profitability position of the organization. There is positive relation between the profit margin and the profitability position of the company. Basic earning power (BEP) of the organization also helps to identify its profitability position. There is also positive relation between basic earning power (BEP) and profitability position of an organization. Return on assets (ROA) is another element that indicates the profitability position of the company. Higher the return on assets refers as the well position of profitability of an organization. There is positive relationship between above mentioned elements and the profitability position of the co-operative.

Research Gap

Research gap refers as the different between the previous research work and the work has to be done in future. In clear word, research gap is the gap between the previous research is conducted and the research that should be conducted.

The missed things in previous conducted research are known as the research gap. Furthermore, in dynamic environment the human problems are changes day by day. The previous conducted research doesn't work out to solve the current and future problems. Thus, he needs to conduct further research for the solution of current and future problem. That new solution of problem is known as the research gap. The research gap should be found out.

This report is about an agro based, small farmer's co-operative, and Sanakishan Kirsi Sahakari Geta. This co-operative annually publish its annual report book. But there in not clearly determined the co-operative financial statement. Following report gap can find out from that annual report:

i. The first thing is that, any types of academic annual reports or articles have not been prepared and published ever before from this SFACL co-operative branch. We are going to making the first report to analysis the profitability position of the co-operative by taking last five years as the sample.

ii. The previous researches are conducted by taking a broad topic, have not taken a specific one.

iii. The previous conducted research on the related topic are manly in qualitative based. They have concerned with subjective and descriptive phenomena.

iv. No calculation of separate Earnings before interest and tax (EBIT) on annual report of this co-operative.

CHAPTER III: RESEARCH METHODS

Types of Research

There are different types of research on different basic. Following are the mainly two types of research:

Quantitative research

A research which is conducted based on the measurement of quantitative form is known as the quantitative research. It is the systematic empirical investigation of observable phenomena via statistical, mathematical or computation techniques. The objective of this research is to develop mathematical models, theories and hypothesis pertaining to phenomena. In this research, the researcher uses different statistical tools for research such as mean, mode, ratios etc.

Qualitative research

A research which is concern with subjective and descriptive phenomena is known as the qualitative research. It deals qualitative information like feelings, behavior, attitude, personality, satisfaction etc. the finding of this research is expressed into explanation and rationalization form. The main objective of qualitative research is to get the depth knowledge and explain the issue in subjective form. It makes easier to understand to the general people. The methods commonly uses in this research are case study, ethnography, grounded theory etc.

As we are the student of finance management, we should collect data and prepare report in quantitative form. Thus, our research is mainly based on quantitative form. We are going to study and analysis about the profitability position of a co-operative. We need to collect real numerical data for it. So, we have collected some financial statement having numerical value. Thus, our research is based on quantitative data. That is, this research is a quantitative type of research.

Research Design

In this research, we have used developmental research design. This research design is mainly focus on development trend of variables. And we are going to study about the past and present profitability trend of this co-operative. So this design seems to be appropriate for our study.

Population and Sampling

Population refers the total units to be analysis or examined. The complete enumeration or count population units are known as the census. In census, the overall units of a study are studied personally.

Sampling is the process of selecting a portion of the universe with a view to draw conclusion about the universe under study. In sampling, we take some units from the total population the study about the overall population. It means, the taken sample represents the overall population in research.

In the following situation sampling is used instead of census:

ü When the population is very large to compare study scope.

ü When the population posses homogeneous characteristics

ü When the accurate 100% result is not needed.

ü When there is impossible to study the all population of units personally.

We are going to study and writing a report about the profitability position and growth rate of Sanakishan Kirsi Sahakari Geta. This co-operative was established in 2060, 14 years ago. The total years to be considered are 14 (2060 to 2074). But we are not taking all fourteen (14) years of establishment. But we are taking only last five years as sample for our study not the whole years. These taken sampled years will provide the overall profitability position of this co-operative, Sanakishan Kirsi Sahakari.

The sampling years are given below:

ü Fiscal year 2068 to 2069

ü Fiscal year 2069 to 2070

ü Fiscal year 2070 to 2071

ü Fiscal year 2071 to 20 72

ü Fiscal year 2072 to 2073

Type of Data

For a research data is necessary. There are mainly two types of data can be found for a research. They are:

Primary data

Primary data is that type of data which is obtained by going actually in the work floor and personally meeting the prospects and interviewing them

Secondary data

Secondary data are those data which are already been prepared or find out previously for the previous research purpose.

This report is mainly based on secondary data. As we are going to analysis the past-present profitability trend of this institute, the provided secondary data will provide us sufficient information about which we need. The data should be mainly collected on quantitative form. As so, we don’t need to collect the primary data. The collected financial statement (profit and loss account/ balance sheet) are taken from branch office Attariya, which are secondary data. On the basis of these secondary data, our report is established. Simultaneously, we have collected some primary data also, while conducting research.

Data Collection Procedures

The following tools have been used for collecting needed data in this report writing:

Interview: telephonic interview has used for collecting primary data for this report. We need to know about this co-operation branch Attariya. So, we used telephone to gather information about this co-operative. The chief executor of this branch, Nirpa Khadka, was helped us in interview. He has supported us by giving his valuable time for this report.

Through internet: www.google.com has also used for collect some information about this co-operative.

To collect secondary data, (financial statement), we have meet personally to the chief executor of this co-operative branch and have got the data.

Instruments

The instrument refers as the technique of the data presentation. The collected data for the study are not finding in clear, appropriate form. They are kept in rough form. We should make verification, organization and identification the related data from the related field. The identified data should be show clearly for the better effectiveness of a report. He data should keep in that way every people can easily understand the report objectives.

Different instruments can be used for more clarification on the report such as can use of diagram, can use of table, can use of diagram, can use of pie chart to make understandable everyone.

The main purpose of this report writing is to make clear and easy way to understand the last five years profitability position that represents the allover year's profitability position of this co-operative. So following instruments will be used in this report while presenting and analyzing the finding data:

a. Simple, clear and easily understandable table of financial statements.

The data presenting in the table is known as the tabulation. Tabulation is the process of summarizing raw data in a compact from in such a way as to facilitate comparisons and show the involved relation. There can be found different types of tabulation such as simple tabulation, complex tabulation etc. But we have used only simple tabulation instrument as it is simple to understand and preparation

b. Bar diagrams will be used to make easy for analysis.

Bar diagram lies under graphical representation of data. The graphical presentation of data also founded in different types such as time series graph, functional relationship graph, zone graph, etc.

But we have used single bar diagram for our simplicity in report.

Techniques (Methods) of Analysis

To make complete analysis this report, we have used different types of ratios. Following are the used profitability ratios to solve these given problems in this report:

i. Profit Margin ratio (PM):

Profit margin (PM) ratio is the ratio between Net Profit after tax (NAT) and total revenue of a co-operative. It can be illustrate as following formula:

Profit margin = Net profit after tax (NAT)/ total revenue

The high profit margin ration refers as the high profit on its total revenue, which is preferable.

ii. Basic Earning Power (BEP):

Basic Earning Power ratio shows the total assets utilization power of the co-operative. It is the ratio between Profit before interest and tax (EBIT) and total assets of the co-operatives. Following formula can be used to determine Basic Earning Power (BEP):

Basic Earning Power = Profit before tax (EBIT) / Total assets

More basic Earning Power (BEP) is more preferable because the more BEP indicates more efficiently and effectively utilization of total assets of the organization, which is good.

iii. Return on Assets (ROA):

Return on Assets (ROA) is the ratio between Net Profit after Tax (NAT) and total assets of a co-operative. Return on assets shows the net profit return on per unit of asset. Following formula is used to determine ROA in this report:

Return on Assets = Net profit after Tax / Total Assets

High Return on Assets (ROA) ratio is preferable because high ROA indicates good performance of the total assets.

iv. Growth Rate (GC):

We have also determined the profitability growth rate of this co-operative. Profitability growth rate refers as the incremental rate in the various forms of profit of the organization. We have determined growth rate in profit margin, growth rate in return on Assets (ROA) and growth rate in basic Earning Power (BEP). In growth is the excess amount in current year value than the previous year. And the percentage in growth i.e. growth rate, is the rate is the rate of excess amount on the previous year value. The growth rate is generally determined as follows:

Growth rate = New Year's value – old year's value / old year's value.

The higher the growth rate indicates the good performance of the company.

Limitation of the study

This report has some limitations. They are mentioned as follows:

i. We have taken only five years as a sample for the study of whole year profitability of that institute. The taken sample years would not give the actual profitability position of the co-operatives.

ii. We have used non-probability convenience method of sampling, which has some limitations.

iii. Data are only collected from the head office of this co-operative, that is located in Attariya municipality, not from others sub-office. So there create variation in the head office profitability position and sub-office profitability position.

iv. We could not found any previous report about this co-operative. Therefore, this report is first academic report, that have not enough literature review about its past profitability position (Before sampled years).

v. We are analysis its financial position on the basis of ratio analysis methods, which has already posses some limitations.

vi. Only profitability positions of this co-operative is concerned with bird eyes view, not others aspects such as current assets position, fixed assets position, current ratios, liquidity ratios etc.

vii. Secondary data are collected from the annual report of this co-operative. So this report has suffered from those all limitations that are associated in that report.

CHAPTER IV: RESEARCH RESULT AND FINDING

Presentation and Analysis of Data

This chapter provides the allover actual profitability result of the co-operative. This is the main part of this report writing. Here, we have discussed about the collected data, their value, their changing rate and analysis of those data to find out the solutions of given problems. In addition, we have also interpreted to the illustrated data for more elaboration.

At first, we have kept the collected data in an income statement form. That is given by below:

Particulars / Years	2068-2069	2069-2070	2070-2071	2071-2072	2072-2073
Total revenue Less: Operating Cost	3500926 2247655	8113212.82 3727618.95	13992039.40 5244292.03	18008214.67 9221191.82	35152220.48 12108495.22
Operating Profit (EBIT)	1253271	4385593.87	8747747.37	8787022.85	23043725.26
Interest exp.	848159	2095719.15	4662361.82	4142019.88	13536971.22
Tax paid	0	0	0	0	0
Profit after tax (NAT)	405112	2289874.72	4085385.55	4645002.97	9506754.04
Total assets	22356225	47806027.81	96372153.75	122114141.06	259658559.98

The above mentioned data, in table No. 4.1, are collected on the behalf of our topic. They are related to our topic, "analysis of profitability position of this co-operative". The presented data are separately discussed below clearly with tables and diagrams:

i. Earnings Before Interest and Tax (EBIT) and its Growth rate (GC)

Among the different objectives of our study, one was to determine the Earnings before interest and tax (EBIT) and its growth rate (GC) of the co-operatives. Earnings before interest and tax refer as the excess revenue amount over the all expenses except interest and tax paid. The following information about EBIT of last five years has obtained:

Table No., 4.2

Years	EBIT	Growth rate
2068-2069	1253271	-
2069-2070	4385593.87	249.93%
2070-2071	8747747.37	99.46%
2071-2072	8787022.85	0.449%
2072-2073	13536971.22	54.056%

Source: Table No. 4.1

The above table shows the Earning before interest and tax (EBIT) and its growth rate during last five years. The first column shows the last five sampled years. And second column shows the Earning before interest and tax (operating income). Similarly, last third column shows the EBIT growth rate on the basis of previous year. According to this table, the fiscal year 2068/69 was Rs.1253271 operating income. Similarly, in fiscal year 2069/70, 2070/71, 2071/72, 2072/73 was Rs. 4385593.87, Rs. 8747747.37, Rs. 8787022.85 and Rs. 13536971.22, operating respectively. The table shows, the fiscal year 2072 /73 was the highest operating income generating year and the fiscal year 2068/69 was the lowest operating income generating year.

To see the growth rate in EBIT during last year the fiscal year, 2069/70 seems that year having highest growth rate in EBIT (249.93%) and the fiscal year 2072/73 seems that year having lowest growth rate in EBIT (0.449%). In this fiscal year, the growth rate in EBIT was going down around the zero percent (0%).

The given table of EBIT during last five years of this co-operative can be illustrated by following diagram:

Figure No. 4.1

The above illustrated diagram shows the earnings before interest and tax earned is the co-operative during last five years. The horizontal side of this diagram shows the earning and vertical side shows the sampled fiscal years.

We can see the above table. And the growth rate in the annual EBIT during last five years is given by following line:

Figure No. 4.2

ii. Net profit after Tax (NAT) and its Growth Rate (GC)

The second objective of our study, included in first point, was to determine the Net profit after tax (NAT) and its growth rate. Our sampling last five years shows the following statement of the net profit after tax and its growth rate:

Table No. 4.3

Years	NAT	Growth rate
2068-2069	405112	-
2069-2070	2289874.72	465.24%
2070-2071	4085385.55	78.4%
2071-2072	4645002.97	13.7%
2072-2073	9506754.04	104.66%

Source: Table No. 4.1

By seeing the above table No. 4.3, we can clearly understand that the table shows the five sampled years, Net Profit after tax (NAT) and its growth rate in the first, second and third column, respectively. The fiscal year 2068/69 was earned Rs. 405112 net profit after tax (NAT) amount by this co-operative. Similarly, the fiscal year 2069/70, 2070/71, 2071/72 and 2072/73 was earned Rs. 2289874.72, Rs. 4085385.55, Rs.4645002.97 and Rs.9506754.04 Net profit after tax (NAT) by this co-operative, respectively. Thus, the fiscal year 2072/73 is seeing the highest NAT earning year. Whereas the fiscal year 2068/69 seeing the lowest NAT earning year.

Like this, if we see the third column, that is about Net profit after tax (NAT) annual growth rate, the fiscal year 2069/70 shows the highest growth rate in Net profit after tax (NAT) that was 465.24 percent and fiscal year 2071/72 shows the lowest growth rate in Net profit after tax (NAT) that was 13.7 percent.

The given net profit after tax (NAT) is also illustrated by following chart here:

Figure No.4.3

The annual growth rate in net profit after tax (NAT) during last five year is elaborated by following chart:

Figure No. 4.4

iii. Profit Margin (PM) and its Growth Rate (GC)

The third objective, pointed in first number is to determine the Profit margin (PM) and its growth rate of this co-operative. Profit margin is the ratio of Net Profit after Tax (NAT) to the total revenue. The following data has found about profit margin and its annual growth rate, from this co-operative, during last five years:

Table No. 4.4

Years	PM = NAT/Total Revenue	Growth rate
2068-2069	11.57%	-
2069-2070	28.22%	143.9%
2070-2071	29.2%	3.47%
2071-2072	25.8%	- 11.64%
2072-2073	27.04%	4.8%

Source: Table No. 4.1

The above table No. 4.4 shows the sampled five years, profit margin (that is determined as dividing to the net profit after tax (NAT) by total revenue of the year) and the annual growth rate in NAT during last five years, in first column, in second column and in third column, respectively.

The fiscal year 2068/69 was 11.57 percent profit margin. Similarly, there were 28.22 percent, 29.2 percent, 25.8 percent and 27.04 percent profit margin, in fiscal year 2069/70, 2070/71, 2071/72 and 2072/73, respectively. The highest NAT was generated in fiscal year 2070/71 that was 29.2 percent.

To talk about the annual growth rate in NAT during last five years; the fiscal year 2069/70 seems to have highest growth rate in NAT. that was 143.9 percent and the fiscal year 2071/72 was the lowest growth rate in NAT that is – 11.64 percent. In this fiscal year, the annual growth rate in profit margin was gone in negative value that refers as the decreased in profit growth rate during that year.

The calculated profit margin also can be explained by following diagram. The horizontal side of this diagram is indicating the profit margin of during last five years and the vertical side shows the sampled years. The diagram shows that profit margin of this co-operative is earning as same level. The following diagram clearly shows the profit margin position of this co-operative during last five years:

Figure No. 4.5

The following diagram shows the annual growth rate in profit margin of this co-operative:

Figure No. 4.6

This drawn diagram shows the growth rate in profit margin of the co-operative during last five years.

iv. Basic Earning Power (BEP) and its Growth Rate (GC)

The next objective mentioned in third point is to determine the basic earning power and its growth rate of the co-operative. The Basic Earning Power is the ratio of Earning before interest and tax (EBIT) and total assets of an organization. BEP of the organization indicates the total assets utilization power of the co-operative. The Basic Earning Power (BEP), during last five years, of this co-operation is determined as below:

Table No. 4.5

Years	BEP = EBIT/Total Assets	Growth rate
2068-2069	5.66%	-
2069-2070	9.17%	60.77%
2070-2071	9.07%	- 1.09%
2071-2072	7.12%	- 21.5.38%
2072-2073	8.87%	24.57%

The above table clearly shows the taken sampled years, determined basic earning power of co-operative (determined as dividing to EBIT by the total assets of the co-operative) and its annual growth rate during last five years.

Column second shows the basic earning power percent of the co-operative. Here, in the fiscal year 2068/69, the total assets were 5.66 percent operating income earning power on them. Similarly, in fiscal year 2069/70, 2070/71, 2071/72 and 2072/73 there were 9.17 percent, 9.07 percent, 7.12 percent and 8.87 percent Basic Earnings Power (BEP) of total assets. The fiscal year 2069/70 seems the having highest (9.17%) Basic Earning Power year and the fiscal year 20687/69 seems the year having lowest (5.66%) basic earning power.

The highest growth rate in basic earning power was during the fiscal year 2069/70. That was 60.77 percent. Similarly, lower annual growth rate in basic earning power was appeared in fiscal year 2071/72. That was – 21.5 percent. The negative value in basic earning power refers as the decreased in basic earning percentage power of the total assets of the co-operative than previous year. The fiscal year 2070/71 also was faced the negative growth rate in basic earning power. That was – 1.09 percent which is lower than next year's decreased value.

To give diagram more precise to the Basic Earning Power (BEP) of the co-operative in during last five years, following diagram is drawn. The horizontal (Y-axis) side of the diagram shows the Basic Earning Power (BEP) volume and the vertical side shows the last five sampled years.

Figure No. 4.7

And, the growth rate in the basic earning power is shown below as diagram:

Figure No. 4.8

v. Return on Assets (ROA) and its Growth Rate (GC)

The another objective of our study, mentioned in point third, was to determine the Return on assets (ROA) and its growth rate of this co-operative to know the rate of net return on its total assets. In another words, Return on Assets (RAO) shows the net return on a units of asset. Return on assets (ROA) is the ratio between net profit after tax (NAT) and total assets of an organization. To know the profitability condition of a firm, the ROA also plays a vital role. We have calculated ROA and its growth rate as follows:

Table No. 4.6

Years	ROA = NAT/Total Assets	Growth rate
2068-2069	1.812%	-
2069-2070	4.79%	164.35%
2070-2071	4.34%	- 9.35%
2071-2072	3.8%	- 1.244%
2072-2073	3.66%	- 3.684%

Source: Table No. 4.1

The given table No. 4.6 shows the data relating to the Return on Assets (ROA) and its annual growth rate during last five year.

The Return on Assets (ROA) of the co-operative, during fiscal year 2068/69, is calculated as dividing to net profit after tax (NAT) by the total assets of the co-operative, is 1.812 percent. Similarly, the return on assets (ROA) of this co-operative, during the last five fiscal year are calculated as 4.79 percent, 4.34 percent, 3.8 percent and 3.66 percent in the fiscal year 2069/70, 2070/71, 2071/72 and 2072/73, respectively. It shows, the fiscal year 2068/69 was faced by lowest ROA, among these five years, and the next fiscal year i.e. 2069/70 was enjoyed as it was highest ROA among these five years.

The growth rate in ROA of this co-operative is 164.35 percent, in fiscal year 2069/70. This fiscal year is only was gained positive growth rate value in ROA. The growth rate in ROA in the fiscal year 2070/71 was in negative value. That was – 9.35 percent. Similarly, the annual ROA growth was in fiscal year 2071/72 was also negative. That is, - 1.244 percent. And the next fiscal year 2072/73 was also negative value in ROPA growth rate. That is, - 3.684 percent. The annual ROA growth rate of this co-operative seems very poor. Only in the fiscal year 2069/70 has faced the positive growth rate in ROA of this co-operative. Remained all three years of this co-operative, were facing the negative growth rate in ROA.

The determination of return on assets of this co-operative during last five years is illustrated by following diagram:

Figure No. 4.9

The growth rate in return on assets can be illustrated as below as line graph:

Figure No.4.10

Major Findings

Our conducted research has found following major things related with our research objectives:

Primary objective of the project work was to study about the operating income (EBIT) and its growth rate of the co-operative in fiscal year 2068/69 was Rs.1253271. Similarly, that was Rs. 4385593.87 in fiscal year 2069/70, Rs. 8747747.37 in fiscal year 2070/71, Rs. 8787022.85 in fiscal year 2071/72 and Rs. 13536971.22 in fiscal year 2072/73. The annual growth rate of EBIT in fiscal year 2069/70 was 249.93 percent in 2070/71 was 99.46 percent, in 2071/72 was 0.449 percent and in 2072/73 was 54.56 percent.

Our second objective was to study about the net profit after tax (NAT) and its growth rate of the co-operative. And that was Rs. 405112 in fiscal year 2068/69. Similarly, the fiscal year 2069/70 was earned Rs. 2289874.72 net profit tax, the fiscal year 2070/71 was earned Rs. 4085385.55 Net profit after tax amount, the fiscal year 2071/72 was earned Rs. 4645002.97 and 2072/73 was earned Rs.9506754.04 Net profit after tax (NAT) amount. The annual growth rate of net profit after tax in fiscal year 2069/70 was 465.24 percent, in fiscal year 2070/71 was 78.4 percent, in fiscal year 271/72 was 13.7 percent and in fiscal year 2071/72 was 1047.66 percent.

Our third purpose of this study was to determine the profit margin and its growth rate of this institute. In fiscal year 2068/69, there was 11.57 percent of profit margin. Similarly, in fiscal year 2069/70 it was 28.22 percent, it was 29.2 percent in fiscal year 2070/71, in fiscal year 2071/72 it was decreased to 125.8 percent and it was reached 27.04 percent in the fiscal year 2072/73. The growth rate in fiscal year 2069/70 was 143.9 percent. The growth rate in fiscal year 2070/71 was decreased to 3.47 percent. In fiscal year 2071/72, the annual growth rate in profit margin is gone to negative form that is 11.64 percent and in fiscal year it was 4.8 percent.

Our next studying purpose was to study about the basic earning power and its growth rate of this co-operative. The basic earning power in fiscal year 2068/69 was 5.66 percent. That was increased to 9.17 percent in fiscal year 2069/70. But in fiscal year 2070/71 and 2071/72, it was decreased to 9.07 percent and 7.12 percent, respectively. The basic earning power was 8.87 percent in the last sampled fiscal year 2072/73. The growth rate in basic earning power of this co-operative in fiscal year 2069/70 was 60.77 percent. But, in fiscal year 2070/71 I was highly decreased to -1.09 percent. Similarly, next fiscal year 2071/72 was also faced the negative growth rate in basic earning power that is -21.538 percent. But next fiscal year 2072/73 was generate the positive growth rate in BEP. That is 24.57 percent.

The last determined purpose in our study was to determine and analysis of the Return on assets and its annual growth rate of the co-operative during last five years. The return on assets in fiscal year 2068/69 was 1.8125 percent. In next fiscal year 2069/70 it was increased to 4.79 percent. But after that year it was decreased to 4.34 percent. Similarly, in fiscal year 2070/71, it was again decreased and reached to 3.8 percent. The final sampled fiscal year 2072/73, it was again decreased, that is 3.66 percent. The growth rate in return on assets in fiscal year 2069/70 was 164.34 percent. That is decreased to – 9.35 percent in fiscal year 2070/71. Similarly, it was also decrease in fiscal year 2071/72 and 2072/73. That was – 1.244 percent and – 3.684 percent, respectively.

CHAPTER V: DISCUSSION AND CONCLUSION

Summary/Discussion

The study was conducted for the fulfillment of the requirement of the degree of BBS in order to gain the practical knowledge on report writing. The study was focused on the profitability position analysis of Sanakishan Kirsi Sahakari Santha Geta, branch office Attariya.

The report was subjected to find out various things related to the topic of profitability position analysis of this institute such as Net profit after tax (NAT), operation income (EBIT), profit margin (PM), Basic Earning Power (BEP) and Return on Assets (ROA).

The relevant data was collected from this co-operative Ltd. branch office, Attariya. Secondary data as well as primary data collection approach was used in the collection of the necessary data and information required for the study. All the available data were grouped under several heading and interpreted by different statistical techniques. Findings were categories as below:

a. Operating income (EBIT) and growth rate on it during last five years

b. Net profit after tax (NAT) and growth rate on it during last line year.

c. Profit margin (PM) and growth rate on it during last five years.

d. Basic earning power (BEP) and growth rate on it during last five years.

e. Return on assets (ROA) of the bank and growth rate on it during last five years.

To see the found and determined result, the co-operative is not seems to gaining the proper profit. It doesn’t seem in good position of profitability. The mostly things calculated in above pages are seem not so appreciable. Again, if we see the annual growth rate, the co-operative is going on mostly negative growth rate form. The management system of past years (Previous years than last five years) seem better than these last five years because the first sampled year (2068/69) seem good sound in profitability position of this co-operative. From this fiscal year the position of the co-operative mostly seems going toward the negative form. This refers as, the financial management system going down year by year of this co-operative. But the last fiscal year 2072/73 seems sound profitability. In this fiscal year, the calculated value has increased than previous year. It means, the co-operative is trying to make correction on management. It is a good point for this co-operative.

The Primary objective of the project work was to study about the operating income (EBIT) and its growth rate. The highest operating earned year is fiscal year 2072/73among last five years and that was Rs. 13536971.22. Similarly, growth rate on operating income was highest in fiscal year 2069/70. And that was 249.93 percent.

Our second objective was to study about the net profit after tax (NAT) and its growth rate of the co-operative. The highest Net profit after tax earned year is fiscal year 2072/73 and that was Rs. Rs.9506754.04. Similarly, the growth rate on net profit was highest in fiscal year 2069/70. And that was 465.24 percent.

Our third purpose of this study was to determine the profit margin and its growth rate of this institute. The highest profit margin posse's fiscal year was 2070/71. And that was 29.2 percent. The growth rate on profit margin was highest in fiscal year 2069/70. And that was 143.9 percent.

Our next studying purpose was to study about the basic earning power and its growth rate of this co-operative. The fiscal year having highest Basic Earning Power (BEP) was 2070/71. And that was 9.07 percent. The growth rate on Basic Earning Power among last five fiscal years was highest in fiscal year 2069/70. And that was 60.77 percent.

The last determined purpose in our study was to determine and analysis of the Return on assets and its annual growth rate of the co-operative during last five years. The fiscal year having highest Return on Assets (ROA) was 2069/70. And that was 4.79 percent. The growth rate on Return on Assets (ROA) among last five fiscal years was highest in fiscal year 2069/70. And that was 164.35 percent.

Conclusion

The following conclusion can be drawn from this study:

The Earning before interest and tax (EBIT) is in increasing form but its annual growth rate is not satisfactory. There is great variation in annual growth rate in EBIT.

The profit after tax (NAT) value during last five year is not so bad. But the growth rate on it is not so satisfactory. The first and last sampled years only show the good sound in profit after tax (NAT) growth rate. Other two years are not good sounded.

Profit Margin (PM) of last five fiscal years have find out in positive form but its annual growing rate is not seems good. Furthermore, it has faced negative growth rate (-11.64 percent) in fiscal year 2071/72. Other years are in positive growth rate but in not satisfactory form. There is great variation n profit margin of this co-operative.

To talk about the Basic earning power of the co-operative, it is also not satisfaction position. The percentage of basic earning power of the co-operative is more than one (BEP> 1 but the annual growth rate has appeared in two fiscal year. That are: -1.09 percent in fiscal year 2071/72 and-21.538 percent in fiscal year 2071/72. But in last fiscal year 2072/73, its growth rate is in positive form. It is a good achievement for this co-operative. It seems to be increasing its basic earning power annual growth rate gradually.

The calculated Return on Assets (ROA). Of this co-operative, indicates that the co-operative is not properly utilizing its total assets. Although, the total assets are increasing year by year, the decreasing form of growth rate in ROA indicate the increased assets are not properly utilizing. They are not used properly as previously had been used. Since fiscal year 2069/70, the ROA is found in negative form. It indicates that the total assets utilizing power of this co-operative is found decreasing gradually year by year.

So in conclusion, the main problem of this co-operative seems is that, it is not utilizing its total existing assets properly which effect the overall profitability position of the co-operative. The not proper utilization of total assets leads to not generating the proper (Well) revenue but leads to increase in nonsense operating and others interest expenses. Consequently, that makes lower in Earnings before Interest and tax (EBIT) and Net profit after tax (NAT), and the overall profitability review of the co-operative becomes weak. Because, all profitability ratios are mainly based on EBIT and Profit after tax (NAT) and that are low in this co-operation. So, the profitability position of this co-operative is not in good sound. It is in weak position.

Recommendation/Implication

To see the overall written report of this co-operative, following suggestion can be given:

The EBIT growth rate of this co-operative is decreased as compare to the previous year EBIT growth rate. The firm should try to maintain same or above level of annual growth rate in EBIT. For it, the firm should try to reduce in the operating expenses of the co-operative. The lower the annual expenses will lead to increase in growth rate of the co operative EBIT.

The annual growth rate in Net profit after tax (NAT) should try to be maintained in the same rate as it was in fiscal 2069/70. That was 465.24 percent. For this, the firm should try to find out the less cost sources of financing. The reduction in interest expenses increases in the level of Net profit after tax growth rate. The firm should also try to reduce in operating expenses because declining in operating expenses also helps to increase in growth rate in net profit after tax.

The co-operative should consider about the growth rate in profit margin. There is great variation in PM growth rate of the co-operative. At first, the firm should try to achieve the profit margin in a sustainable level. Then after, firm should try to maintain same level of constant growth rate in profit margin. For this, first firm should try to increase in net profit and should reduce in total assets of the co-operative by doing different activities such as by selling the idle assets (non usable assets).

The growth rate in Basic earning power of the co-operative is very weak and variation. The firm should try to increase in earnings before interest and tax by reducing the operating expenses of the co-operative. For this, the firm should be eliminated the casual expenses. Such as try to reduce in guest expenses, telephone expenses, electricity expenses and general expenses etc. reduction in the casual operating expenses leads to increase in earnings before interest and tax (EBIT) and increasing in EBIT leads to increase in Basic earning power growth rate. Total assets reduction approach also can be used for increase in BEP growth rate of the co-operative.

The final suggestion for this co-operative is to try to increase in the growth rate in return on assets (ROA) of the co-operative. The main problem of the co-operative is, not proper using of its total assets. To increase in the return on assets of the co-operative, the management should try to reduce in the total assets of the company by keeping same level of net profit after tax balance. Here, the company can increase its profit margin. For this, the company should try to reduce in operating expenses and interest expenses. For this, the co-operative should finance the deficit balance from low costing institute for reduction in interest expenses. In others hand, the co-operative also can reduce in its total assets to increase in the growth rate on return on assets. To reduce in total assets, the co-operative should make following task:

i. The fixed assets of the co-operative should be used by a trained, competent manpower that would make proper utilization of fixed assets of the co-operative.

ii. The co-operative should not keep the excess ideal assets.

iii. The old assets, not usable assets, should be sold out in relevant amount.

iv. The new assets should be purchase only after preparing a best plan.

v. The co-operative should no keep the excess cash balance. It should be in a proper level as co-operative needs because the invested cash amount would generate revenue that increase in the net profit.

vi. For the better utilization of total assets, the management team should make the financial plan, such as investing plan, financing plan, dividend policy plan etc.

-XXX-

Bibliography

Ø Thapa, Asok (2064), BBS project work report (KMC), Analysis of Profitability and assets utilization of The Bank of Kathmandu Ltd. Branch Office, Dhangadhi.

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Ø Faculty of Economics, Matej Bel University Tajovského Street 10, 975 90 Banská Bystrica Slovak Republic on 5th International Conference on Management, Enterprise and Benchmarking June 1-2, 2007.

Ø Bhawani Prasad Joshi, A MBS project report (2063), "Analysis of profitability and financial performance of Nepal Standard Chartered Bank Limited, Bank of Kathmandu Limited.

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Ø Business Research Methods, Book, Samjhana Publication.

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Ø Www. google.com

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Bikram Shah

Friday 29 September 2017

Options Basics: What Are Options?

Thursday 28 September 2017

Scopes of accounting

PROFITABILITY POSITION OF SANAKISHAN KIRSI SAHAKARI SANTHA, KAILALI, NEPAL.

Bikram Shah- Global IME BANK Dhangadhi

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