| Title : | Financial leverage and firm Performance : a case of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Rachana Gyawali, Author | | Publication Date: | 2016 | | Pagination: | 76p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Leveraged buyouts
| | Class number: | 658.152 | | Abstract: | Financial decisions are taken in different paradigms of investment, financing, asset management and dividend policy. Investment decision is mainly concerned with three areas either the manager has to take decision about opening a new venture, or decision may be specific to expansion of current business venture and it may be to replace current assets or machinery. Once the investment decision is done, another most important decision is to how to finance in the investment. Firms mainly finance either from internal or from external sources. Firms internally finance from retained earnings whereas external source for firms is to either borrow or to finance through equity. Thus, the mix of debt and equity in financing is known as financial leverage. Financial leverage has always been one of the main topics among the studies of finance scholars. Its importance derives from the fact that capital structure is tightly related to firm’s performance to fulfill the needs of various stakeholders. The first milestone on the issue was set by Modigliani and Miller (1958), whose model argued on the irrelevance of the capital structure in determining firms’ value and performance. This study attempts to shed some light on the financial leverage issues in Nepalese context. The main issue is to analyze impact of financial leverage on firm’s performance in context of Nepalese commercial banks.
The major objective of the study is to analyze the impact of financial leverage on firm performance in context of Nepalese commercial banks. The specific objectives are: (a)to analyze the structure and pattern of debt to equity ratio, debt to assets ratio and interest coverage ratio.(b)to evaluate the impact of financial leverage on firm’s performance.(c)to determine the impact of liquidity and capital adequacy on firm’s performance.(d)to examine the major factors affecting financial performance of Nepalese commercial banks.
The data collected for the study are quantitative and based on fact. The quantitative data were taken from different secondary sources.Data were obtained from financial statements of 16 sample commercial banks. The necessary financial statements have been collected from official website of concern commercial banks, Nepal Stock Exchange Limited (NEPSE), Security Board of Nepal (SEBON), and Nepal Rastra Bank (NRB). This study collected financial statements of sampled commercial banks for the period of 2003- 2014. Data are collected from balance sheet, income statement and ratio analysis section of annual reports. Descriptive statistics and correlation analysis has been used as method of analysis along with different statistical tests of significance for validation of model such as t-test, F-test.
The result revealed that that debt to total assets ratio is negatively related to return on assets. It indicates that larger the debt to total assets ratio, lower would be return on assets. The study found that debt to equity ratio and interest coverage ratio are positively related with return on assets which indicates that higher the debt to equity ratio and interest coverage ratio, higher would be return on assets of firm. Likewise, firm’s size, liquidity and capital adequacy ratio are positively related to return on asset which indicates that larger the firm size, liquidity and capital adequacy ratio, higher would be return on assets.
The study found that beta coefficient for debt to total assets ratio is negative with ROA. It indicates that debt to assets ratio has negative and significant impact on return on assets. The result showed that beta coefficient is positive for interest coverage ratio which indicates that greater the interest coverage ratio, higher would be return on assets. Similarly, the result reveals that beta coefficient is positive for debt to equity ratio. Thus, debt to equity ratio has positive impact on return on assets. The study found that the beta coefficient for debt to total assets ratio is positive with ROE. It indicates that debt to assets ratio has positive impact on return on equity. Interest coverage ratio has positively significant impact on return on equity. Similarly, the result also reveals that beta coefficient is positive for debt to equity ratio. Thus, increase in debt to equity ratio leads to increase in return on equity.
The major conclusion of the study is higher the value of debt to equity, interest coverage ratio, size, liquidity and capital adequacy ratio, higher would be return on assets. Similarly, the study also concludes that higher the debt to equity, debt to total assets ratio, interest coverage ratio, liquidity and capital adequacy ratio, higher would be return on equity.
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Financial leverage and firm Performance : a case of Nepalese commercial banks [printed text] / Rachana Gyawali, Author . - 2016 . - 76p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Leveraged buyouts
| | Class number: | 658.152 | | Abstract: | Financial decisions are taken in different paradigms of investment, financing, asset management and dividend policy. Investment decision is mainly concerned with three areas either the manager has to take decision about opening a new venture, or decision may be specific to expansion of current business venture and it may be to replace current assets or machinery. Once the investment decision is done, another most important decision is to how to finance in the investment. Firms mainly finance either from internal or from external sources. Firms internally finance from retained earnings whereas external source for firms is to either borrow or to finance through equity. Thus, the mix of debt and equity in financing is known as financial leverage. Financial leverage has always been one of the main topics among the studies of finance scholars. Its importance derives from the fact that capital structure is tightly related to firm’s performance to fulfill the needs of various stakeholders. The first milestone on the issue was set by Modigliani and Miller (1958), whose model argued on the irrelevance of the capital structure in determining firms’ value and performance. This study attempts to shed some light on the financial leverage issues in Nepalese context. The main issue is to analyze impact of financial leverage on firm’s performance in context of Nepalese commercial banks.
The major objective of the study is to analyze the impact of financial leverage on firm performance in context of Nepalese commercial banks. The specific objectives are: (a)to analyze the structure and pattern of debt to equity ratio, debt to assets ratio and interest coverage ratio.(b)to evaluate the impact of financial leverage on firm’s performance.(c)to determine the impact of liquidity and capital adequacy on firm’s performance.(d)to examine the major factors affecting financial performance of Nepalese commercial banks.
The data collected for the study are quantitative and based on fact. The quantitative data were taken from different secondary sources.Data were obtained from financial statements of 16 sample commercial banks. The necessary financial statements have been collected from official website of concern commercial banks, Nepal Stock Exchange Limited (NEPSE), Security Board of Nepal (SEBON), and Nepal Rastra Bank (NRB). This study collected financial statements of sampled commercial banks for the period of 2003- 2014. Data are collected from balance sheet, income statement and ratio analysis section of annual reports. Descriptive statistics and correlation analysis has been used as method of analysis along with different statistical tests of significance for validation of model such as t-test, F-test.
The result revealed that that debt to total assets ratio is negatively related to return on assets. It indicates that larger the debt to total assets ratio, lower would be return on assets. The study found that debt to equity ratio and interest coverage ratio are positively related with return on assets which indicates that higher the debt to equity ratio and interest coverage ratio, higher would be return on assets of firm. Likewise, firm’s size, liquidity and capital adequacy ratio are positively related to return on asset which indicates that larger the firm size, liquidity and capital adequacy ratio, higher would be return on assets.
The study found that beta coefficient for debt to total assets ratio is negative with ROA. It indicates that debt to assets ratio has negative and significant impact on return on assets. The result showed that beta coefficient is positive for interest coverage ratio which indicates that greater the interest coverage ratio, higher would be return on assets. Similarly, the result reveals that beta coefficient is positive for debt to equity ratio. Thus, debt to equity ratio has positive impact on return on assets. The study found that the beta coefficient for debt to total assets ratio is positive with ROE. It indicates that debt to assets ratio has positive impact on return on equity. Interest coverage ratio has positively significant impact on return on equity. Similarly, the result also reveals that beta coefficient is positive for debt to equity ratio. Thus, increase in debt to equity ratio leads to increase in return on equity.
The major conclusion of the study is higher the value of debt to equity, interest coverage ratio, size, liquidity and capital adequacy ratio, higher would be return on assets. Similarly, the study also concludes that higher the debt to equity, debt to total assets ratio, interest coverage ratio, liquidity and capital adequacy ratio, higher would be return on equity.
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