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:
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):
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:
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
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Research Methods, Book, Samjhana Publication.
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