DIVIDEND DISTRIBUTION PRACTISE OF NEPAL TELECOM CORPORATION

A Project Work Proposal

By

Yaman Luitel
T.U Registered Number: 7-2-1073-142-2019
Himalaya Darshan College
Biratnagar, Nepal

Submitted to:

The Management Research Committee

Himalaya Darshan College
Biratnagar, Nepal
Faculty of Management
Tribhuvan University
Kathmandu, Nepal

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Biratnagar, Nepal
February, 2024
 Introduction
1.1 Background of the study
The study is entitled as “Dividend Distribution Practice of Nepal Telecom Corporation”. The
main focus of this study is to analyze the dividend distribution policy of NTC. Every public
limited organization has issued their share for public and company must provide dividend in the
from of cash or share if it is making profit. Hence, in this report we will be studying and
analyzing overall dividend distribution behavior of Nepal Telecom Corporation.
Dividend in a simple word is defined as the distribution of some percent of profit by a
corporation to its shareholders usually in the form of cash or additional shares. Dividends are
typically paid out of the company's profits and are distributed to shareholders based on the
number of shares they own. Dividends are usually paid on a regular basis, such as quarterly or
annually, and are typically calculated as a fixed amount per share of stock. The amount of the
dividend can vary based on the company's financial performance, but once a dividend is
declared, it becomes a debt of the company and must be paid to the shareholders.
Moreover, I have selected Nepal Telecom Corporation for my research because NTC plays a
crucial role in the country's telecommunications sector. And also, it has been instrumental in
expanding telecommunication services to remote areas of Nepal, contributing to the country's
economic development.

1.1 Profile of Nepal Telecom Corporation

Nepal Telecom Corporation popularly known as NTC is a legal entity established in 2032 B.S in
Nepal after the adoption of Communications Corporations Act 2028. It is a government owned
telecommunications service provider with 91.49% shares. The Nepal Telecom is responsible for
regulating all the matters related to telecommunication. NTC provides a range of
telecommunications services including landline, mobile, and internet services across the country.
Nepal Telecom offers both GSM (under the brand name Namaste) and CDMA mobile services.
It also provides fixed-line telephone services, ADSL internet services, and fiber-to-the-home
(FTTH) internet services.
In Nepal start of telecommunication service can be traced back to B.S. 1973. But formally
telecom service was provided mainly after the establishment of MOHAN AKASHWANI in B.S.
2005. Later as per the plan formulated in the First National five years plan (2012-2017),
Telecommunication Department was established in B.S. 2016. To modernize the
telecommunications services and to expand the services, during the third five-year plan (2023-
2028), Telecommunication Department was converted into Telecommunications Development
Board in B.S. 2026. After the enactment of the Communications Corporation Act 2028, it was
formally established as a fully owned Government Corporation called Nepal
Telecommunications Corporation in B.S. 2032 for the purpose of providing telecommunications
services. After serving the nation for 29 years with great pride and a sense of accomplishment,
Nepal Telecommunication Corporation was transformed into Nepal Doorsanchar Company
Limited (NDCL) from Baisakh 1, 2061. Nepal Doorsanchar Company Limited is a company
registered under the Company Act 2053. However, the company is known to the general public
by the brand name "Nepal Telecom" as its registered trademark.

1.2 Statement of problem

Analysis on profitability of a firm is crucial in determining the performance and making different
business plans. It helps to determine future strategies, investments, and the performance of the
business by analyzing the current financial position. A study on profitability analysis of Nepal
Telecom Corporation helps to answers some following research questions:
 What is NTC’s net profit margin?
 How has the company’s profitability changed over time?
 What is the NTC’s return on assets (ROA) and return on equity (ROE)?

1.5 Objective of the study

Nepal Telecom Corporation is one of the leading telecommunication company of Nepal. The
main objective of studying dividend distribution practice of NTC’s are as under:

1.6 Rationale of the study
Below listed points are some rationale of the study:
 It gives knowledge about the financial health of NTC.
 It provides overview on profitability changing over the time.
 It helps to determine future strategies, investments, and the performance of the business.
 It allows management to identify potential threats to profitability and develop risk
mitigation strategies.
 It helps in demonstrating the company's ability to generate returns and create shareholder
value.

1.7 Review of literature

Review of literature refers to an overview of the previously published report on a specific topic.
In the context of dividend distribution practice, a review of literature would involve summarizing
and synthesizing key findings, theories, and methodologies from previous studies related to
dividend distribution behavior of business. Under this section, conceptual reviews, review of
journals, articles and thesis related to dividend distribution behavior of NTC will be presented.
  Conceptual review
 Review of previous work
 Research gap

1.8 Research methodology

Research methodology refers to the series of action taken in order to complete a research work. It
provides a framework and guidelines for researchers to clearly define research questions and
objectives. In order to analyze dividend distribution behavior of Nepal Telecom Corporation, its
annual report is examined. All those essential measures were sorted out from NTC’s official
website and other various sources. After that, financial and statistical tools were used to analyze
and interpret the profitability of Nepal Telecom. The report will be prepared as following
procedures.
1.8.1 Research design
Research design refers to the overall plan and strategies created in order to answer all the
research questions. Research is designed based on research question, research approach, data
collection method, sampling strategy, data analysis plan, resources and limitations. This research
will be based on time series analysis.
1.8.2 Population and sample size
In research, population is defined as an entire group or set of individual, events or objects about
which some information is required to be ascertained. And sample means specific group that we
collect data from. Currently there are 6 telecommunication companies in Nepal but none of them
are like NTC. Among those, Nepal Telecom Corporations is a selected sample for this research.
1.8.3 Sample method
Sampling is a method used in research to select a subset of individuals from a larger population.
The choice of sampling will be varying according to the nature and objective of research. There
are several sampling methods, each with its own advantages and limitations. For this research,
random sampling method will be used. Random sampling method refers to the type of sample in
which each member of the population has equal chance of being selected as a sample.
1.8.4 Types of data
There are mainly two method of collecting a data. They are primary data collection method and
secondary data collection method. Both methods will be used in this study.
 Primary data are original data which are collected firsthand by the researcher. It is
typically gathered through method such as surveys, interviews, observations or
experiments. These data can be collected through interview with personnel working in
Nepal Telecom Corporation.
  Secondary data are the data that has been collected by someone else for research or other
works. These kinds of data are readily available or can accessed through research centers,
articles or government agencies. The secondary data required for this research can be
obtained from NTC’s websites and other research reports.

1.8.5 Data collection procedure

The research will be based on secondary data sources. The reasons behind choosing secondary
data sources are historical comparison, board coverage, cost effective and time saving. The major
sources for secondary data collection are:
 Annual report of Nepal Telecom Corporation
 Previous research
 Articles, journals, etc.

1.9 Profitability Analysis Techniques and financial tools

Profitability analysis techniques are used to assess the financial performance of a business and
determine its ability to generate profits. Below mentioned financial ratios are to be examined
carefully to analyze the profitability of NTC.
1.9.1 Gross Profit Margin
The total profit of a business after deducting operational or inventory costs is gross profit margin.
It represents gross profit of a company in comparison to sales revenue. If a business has higher
gross profit margin, it means that it can easily covers its operating and other expenses. Where as
low gross profit margin indicates that operating cost is high and profit earned are low. Gross
Profit Margin can be calculated as:
Gross Profit Margin = Gross Profit/Sales
1.9.2 Net Profit Margin
Net profit margin is a financial metric that measures the proportion of revenue that represents a
company's net profit after all expenses, taxes, and other deductions have been subtracted. A
higher net profit margin indicates that a business is able to keep its expenses low and is making
high profits. It can be calculated as:
Net Profit Margin = Net Income/Sales
1.9.3 Operating Profit Margin or EBIT Margin
This represents that how much profit a business is making after the deduction of variable costs
like wages or cost of raw materials. It determines whether a company is capable of managing its
fixed costs and can run its operations smoothly. The formula to calculate operating profit margin
is:
Operating Profit Margin = Earning before Interest and Taxes (EBIT)/Sales
1.9.4 Cash Flow Margin
Cash flow margin is a financial metric that measures the proportion of a company's total sales
revenue that is converted into cash after deducting all cash expenses. It is calculated by dividing
the cash flow from operations by the total sales revenue and is typically expressed as a
percentage.
Cash Flow Margin = Cash Flow from Operating Activities/Net Sales
1.9.5 Return on Assets
Return on Assets is a financial ratio that measures a company’s efficiency in using its assets to
generate income. A higher ROA indicates better asset utilization and profitability. It is calculated
by dividing net income with total assets.
Return on Assets (ROA) = Net Income/Total Assets
1.9.6 Return on Equity
This ratio compares net income to average shareholder equity, showing how effectively a
company generates profit from shareholders' equity. A higher ROE is generally considered
favorable, as it suggests that the company is efficiently using its equity to generate profit for
shareholders.
Return on Equity (ROE) = Net Income/Shareholders Equity
1.9.7 Break-Even Analysis
The level of sales at which a company neither makes a profit nor incurs a loss is commonly
known as Break-Even point. The analysis is done on the basis of that break-even point. This
analysis is useful for businesses to understand the minimum level of sales needed to cover all
costs and begin generating a profit. By calculating the break-even point, businesses can make
informed decisions about pricing, production levels, and overall profitability.
Break-even points (in revenue) = Fixed costs/Gross margin percentage

1.10 Limitations of the study

Several limitations were faced while preparing this report. Some of the limitations are as follows:
 This report only presents the analysis on profitability of Nepal Telecom Corporation.
 Only three years data will be presented and compared i.e. till 2079/80.
 Only secondary sources of data are collected and presented.
 Allocating overhead costs to different products or services can be challenging and may
not accurately reflect their true profitability.
 Competitors factors are not included in this report.
  The preparation will solely depend on the availability of the data. Any false information
may lead to false interpretation.
 Only few tools and techniques are considered for the preparation of report.
 External factors were not considered while preparing the report.

REFERENCES

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Bhole, L.M. (2003). Financial Institutions and Markets. New Delhi: Tata McGraw-Hill
Publishing Company Limited.
Cooper, DR. & Schindler, P.M. (2006). Business Research Methods (9th ed). New Delhi: Tata
McGraw Hill Publishing Company
Dr. M. Dhanabhakyam, Dr M. Dhanabhakyam, and Swapna Kurain. "Profitability Analysis of
Bharath Sanchar Nigam Limited (Bsnl)." Indian Journal of Applied Research 1, no. 6
(October 1, 2011)
Joshi, Padam Raj. (2004). Fundamentals of Financial Management. Kathmandu: Asmita Books
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Websites:
www.ntc.net.np
www.investopedia.com
www.en.wikipedia.org
www.emeritus.org
www.tallysolutions.com