| Title : | Impact of working capital management on banks profitability : a case of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Sumit Pradhan, Author | | Publication Date: | 2016 | | Pagination: | 93p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Finance.
| | Class number: | 658.15 | | Abstract: | Working capital management is an aspect of financial managements that seeks proper policies for managing current assets, liabilities and practically for maximizing the benefits from managing working capital. Efficient working capital management involves planning and controlling current assets and current liabilities to prevent the risk of a company’s inability to meet due short term obligation on the one hand and to avoid excessive investment in these assets on the other hand (Eljelly, 2004).
Profitability is the ability to earn profit from all the activities of an enterprise. It indicates how well management of an enterprise generates earnings by using the resource at its disposal. Profitability may be defined as the net surplus of a large number of policies and decisions (Weston and Brighon, 1977). Profitability is simply the difference between total revenues and total cost. Therefore, the factors which affect the bank profitability would be those that affect the bank’s revenue and cost. Hence, the impact of working capital management on commercial bank profitability is analyzed. This study focuses on the dependent variable namely bank profitability which has been measured in term of return on assets, return on equity and net interest margin.
This study examines the working capital management and its impact on profitability of Nepalese commercial banks with respect to banks specific variables and working capital variables. The specific objectives of this study is to analyze the relationship and impact of cash conversion cycle, bank liquidity, bank size, bank age, credit risk and leverage on return on assets, return on equity and net interest margin. The study has selected 15 Nepalese commercial banks. The research is based on secondary data and the data were collected from bank supervision report published by Nepal rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis.
The study results show that credit risk, bank age, financial leverage and cash conversion cycle were statistically significant factors that determine the return on assets of commercial banks in Nepal. The results indicate that higher the financial leverage, higher would be the return on assets. Higher the cash conversion cycle, lower would be return on assets. Similarly higher the credit risk, lower would be the bank’s return on assets. Likewise, higher the bank age, higher would be the return on assets. However, the result did not support the significant effect of liquidity management ratio and bank size on return on assets as bank’s profitability.
Cash conversion cycle and financial leverage were statistically significant factors that determine the return on equity of commercial banks in Nepal. The result indicates that higher the cash conversion cycle, lower would be the return on equity. Whereas, higher the financial leverage, higher would be the return on equity. However, the result did not support the significant effect of liquidity management ratio, credit risk, bank age and bank size on bank’s return on equity.
Similarly, credit risk, liquidity management ratio, leverage ratio and bank age were statistically significant factors that determine the net interest margin of commercial banks in Nepal. The result indicates that higher the liquidity management ratio, higher would be the net interest margin. High level of credit risk in Nepalese commercial banks lower would be net interest margin of banks. Similarly, higher the bank age, higher would be the bank’s net interest margin. However, the results did not support the significant effect of bank size and cash conversion cycle on bank’s net interest margin.
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Impact of working capital management on banks profitability : a case of Nepalese commercial banks [printed text] / Sumit Pradhan, Author . - 2016 . - 93p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Finance.
| | Class number: | 658.15 | | Abstract: | Working capital management is an aspect of financial managements that seeks proper policies for managing current assets, liabilities and practically for maximizing the benefits from managing working capital. Efficient working capital management involves planning and controlling current assets and current liabilities to prevent the risk of a company’s inability to meet due short term obligation on the one hand and to avoid excessive investment in these assets on the other hand (Eljelly, 2004).
Profitability is the ability to earn profit from all the activities of an enterprise. It indicates how well management of an enterprise generates earnings by using the resource at its disposal. Profitability may be defined as the net surplus of a large number of policies and decisions (Weston and Brighon, 1977). Profitability is simply the difference between total revenues and total cost. Therefore, the factors which affect the bank profitability would be those that affect the bank’s revenue and cost. Hence, the impact of working capital management on commercial bank profitability is analyzed. This study focuses on the dependent variable namely bank profitability which has been measured in term of return on assets, return on equity and net interest margin.
This study examines the working capital management and its impact on profitability of Nepalese commercial banks with respect to banks specific variables and working capital variables. The specific objectives of this study is to analyze the relationship and impact of cash conversion cycle, bank liquidity, bank size, bank age, credit risk and leverage on return on assets, return on equity and net interest margin. The study has selected 15 Nepalese commercial banks. The research is based on secondary data and the data were collected from bank supervision report published by Nepal rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis.
The study results show that credit risk, bank age, financial leverage and cash conversion cycle were statistically significant factors that determine the return on assets of commercial banks in Nepal. The results indicate that higher the financial leverage, higher would be the return on assets. Higher the cash conversion cycle, lower would be return on assets. Similarly higher the credit risk, lower would be the bank’s return on assets. Likewise, higher the bank age, higher would be the return on assets. However, the result did not support the significant effect of liquidity management ratio and bank size on return on assets as bank’s profitability.
Cash conversion cycle and financial leverage were statistically significant factors that determine the return on equity of commercial banks in Nepal. The result indicates that higher the cash conversion cycle, lower would be the return on equity. Whereas, higher the financial leverage, higher would be the return on equity. However, the result did not support the significant effect of liquidity management ratio, credit risk, bank age and bank size on bank’s return on equity.
Similarly, credit risk, liquidity management ratio, leverage ratio and bank age were statistically significant factors that determine the net interest margin of commercial banks in Nepal. The result indicates that higher the liquidity management ratio, higher would be the net interest margin. High level of credit risk in Nepalese commercial banks lower would be net interest margin of banks. Similarly, higher the bank age, higher would be the bank’s net interest margin. However, the results did not support the significant effect of bank size and cash conversion cycle on bank’s net interest margin.
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