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CHAPTER I
INTRODUCTION

1.1 Background of the Study

Profitability is the first priority for any business. Profitability ratios, which are used to
ascertain the company's bottom line and return to investors, are among the most often
used instruments of financial ratio analysis. For both business owners and managers,
profitability metrics are crucial. The primary owner of a small firm must undoubtedly
demonstrate profitability to outside investors who have contributed their own funds to
the enterprise. Profitability ratios indicate the overall effectiveness and success of a
business. Returns and margins are the two categories of profitability ratios. The ability
of the company to convert sales dollars into profits at different phases of measurement
is represented by ratios that display margins. Ratios that show return represent the
firm's ability to measure the overall efficiency of the firm in generating returns for its
shareholders (Crossee, 2015).

Profitability is an indication of the efficiency with which the operations of the

business are carried on profitability analysis, measure management and overall
effectiveness as shown by the returns of enervated on sales and investment.
According to the Hayward and Upton, "profitability is the ability of a given
investment to earn a return from its use (Thapa 2022).

However, the term 'profitability' is not synonymous to the terms 'Efficiency'.

Profitability is an index of efficiency; and is regarded as a measure of efficiency and
management guide to greater efficiency. Through, profitability is an important
yardstick for measuring the efficiency, the extent of profitability cannot be taken as a
final proof of efficiency. Sometimes satisfactory profits can mark inefficiency and
conversely, a proper degree of efficiency can be accompanied by an absence of profit.
The net profit figure simply reveals a satisfactory balance between the values receive
and value given. The change in operational efficiency is merely one of the factors on
which profitability of the enterprise largely depends. Moreover, there are many other
factors besides efficiency, which affect the profitability. Profitability analysis is the
way and mechanism of analyzing and forecasting the future earning of the firm in
today. It is the systematic process of determining the financial statements of the
organization of today and yesterday’s data and able to give feedback for the result.
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In cost accounting, profitability is an analysis of the profitability of an organization's

output. Output of the organization can be grouped into products, customers, locations,
channels and transactions. In order to perform a profitability analysis, all the costs of
organization have to be allocated to output units by using intermediates allocation
steps. Also profitability analysis indicates the degree of success in a achieving derided
profit. The profitability ratio gives answer to how effectively the bank is being
managed. Also the profitability ratio mainly studies the earning power of the firm it
depicts almost entire performance of the bank.

Therefore the main purpose of the profitability analysis is to utilize the past
profitability of the organization to make better in the future use. Another purpose to
find of the identify problem's solution which arise in the analysis of the profitability
of the organization. Bank is financial institution where financial services are broadly
offered and performed. So, bank can be said a financial supermarket. In general sense,
bank is a kind of business, which deals in money by accepting deposits, advancing
loan and rendering other financial services. In a board senses, bank can be defined as
the financial intermediary between depositors and entrepreneurs. ‘Bank’ was
originated from the italic language Blanco means bench or chair. People do all
transaction of money by sitting on the chair, in the Italy. So this types of business is
been called bank. The word bank mainly indicates commercial banks. Generally, the
organization, which activates money and credit, is a bank. But nowadays, the bank’s
functions are not limited. It has various functions. Thus any organization which is
included in exchange of money is called bank (Baxley, 2015).

In Nepal, the history of banking started on 17 th century, when Raja Gunakamdev took
loan from the public for the reconstruction of Kathmandu valley. Later on, the use of
different types of coins started in the periods of Malla rulers. In 1933, at the period of
Ranodip Singh, TejarathAdda was established in Kathmandu, which aimed to provide
the facilities related to loan for the public. It then established many branch offices in
different places of Nepal to provide facilities to more people. Thus this TejarathAdda
is considered to be one of the most important traditional milestones in the banking
system of Nepal. Then in 1989 B.S., when TaksarBibhag was established, since then
coins were created scientifically.
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The modern banking system in Nepal started on 1994 B.S. Kartik 30 th, where Nepal
Bank Limited was established. This was the effect of First World War, after which the
new revolution and industrialism developed all over. Then in 2012 B.S. Baishak 14 th,
Nepal Rastra Bank was established, which is the central bank in Nepal. It issued the
Nepali note in 2015 Falgun 7th for the first time. Then in 2022, the government
established another commercial bank named RastriyaBanijya Bank. After this, the
banking activities continued to increase and thus in the last 3 to 4 years, the number of
banks and finance companies are increased rapidly.

1.2 Profile of the Laxmi Sunrise Bank Limited

On July 14, 2023, a new era in banking began with the birth of Laxmi Sunrise Bank,
emerging from the merger of two established Nepali banks – Laxmi Sunrise bank,
established in 2002, and Sunrise Bank, established in 2007. As a category “KA”
financial institution licensed by the Nepal Rastra Bank and registered under the
BAFIA, Laxmi Sunrise is committed to delivering unparalleled financial services to
our valued customers. Welcome to Laxmi Sunrise, where the future of banking meets
a rich legacy of trust and excellence.

Laxmi Laghubitta Bittiya Sanstha Limited holds the distinction of being the pioneer
microfinance subsidiary of Laxmi Sunrise Bank Limited. As a national-level
microfinance institution, it operates under the licensing of Nepal Rastra Bank, the
central bank of Nepal. Notably, it achieved the milestone of becoming the first
microfinance institution in Nepal to be registered as a subsidiary of a commercial
bank. LS Capital Limited, established on January 9, 2024, through the fusion of
Laxmi Capital and Sunrise Capital, stands as a wholly owned subsidiary of Laxmi
Sunrise Bank. This innovative venture combines over three decades of unmatched
expertise, solidifying its role as a pioneer in Nepal’s capital market and paving the
way for the future of finance in the nation.

Vision
“Laxmi Sunrise will be the most trusted and respected Bank, empowering households,
businesses, and communities to achieve shared & sustainable prosperity, together.”
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Mission
We celebrate Diversity and embrace Equality as the cornerstones of our Inclusive
approach. We will offer the best Customer Experience through an empowered team,
delivering smart, simple and secure banking. We will thrive by harnessing the powers
of technology, robust risk management practices, and strong corporate governance.
We will value relationships over transactions in how we engage and serve our
customers and stakeholders.

Our customers touch us through 254 branches, 318 ATM 28 Extension Counter
located in 59 districts across the country, complimented by more than 1,000
remittance payout agents and 700 mobile banking business correspondents who
support our access to finance initiatives. Laxmi Sunrise bank contribution is to
improve meaningful financial inclusion. Complimenting this expansion, we continue
to strengthen and improve our existing digital banking channels – ATMs, internet and
mobile – keeping up with the demands of the rapidly urbanizing, mobile and
connected customers.

1.3 Statement of Problem

Profitability is a crucial indicator of a bank's overall health and performance,
influencing its capacity to sustain operations, grow, and provide returns to
shareholders. Laxmi Sunrise Bank Limited, a prominent financial institution in Nepal,
faces the challenge of maintaining and enhancing its profitability in a competitive
banking environment. Despite its significant market presence and customer base, the
bank must navigate various internal and external factors that impact its profitability.
These include regulatory changes, market competition, interest rate fluctuations,
operational efficiency, and economic conditions.

Understanding the factors influencing the profitability of Laxmi Sunrise Bank Limited
is essential for developing strategies to improve financial performance and achieve
sustainable growth. This study aims to analyze the bank’s profitability by examining
key financial metrics, such as net interest margin, return on assets, return on equity,
and cost-to-income ratio. Additionally, it seeks to identify the underlying causes of
profitability fluctuations and propose actionable recommendations to enhance the
bank's financial outcomes.
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1.4 Objectives of the Study

The study has the following Objectives:
 To examine the profitability of Laxmi Sunrise bank Limited.
 To evaluate the financial position of Laxmi Sunrise bank Limited.
1.5 Rationale of the Study
This report is prepared to examine the profitability position of the Laxmi Sunrise bank
Limited. The report is made by the annual report from five years. After studying the
given data and information, it will be helpful to know about profitability of the
banking organization. By this research we can observe the financial position of the
organization. Also, this study helps to find out the profitability ratio sound/better than
the previous period or years and make efficient profitability. It is really needed for
banking organization because from it, they can change and adopt something new in
their firm for the betterment in future.

The study of the analysis of profitability position of Laxmi Sunrise bank Limited
plays vital role in the managerial decision. Every organization has to analyse its
financial performance in the every step of its operation, promotion, and expansion.
There should be an appropriate equilibrium between the earning and non-earning
assets. Commercial banks are always guided by the objective of profitability. All
financial decisions of commercial banks are for the betterment of shareholders wealth.
There should be an effective system of funds allocation in order to safeguard the
banks from the danger of illiquidity. An appropriate level must be achieved between
them. The study ponders to find out whether commercial banks are alert or not in this
regard. This study helps to enhance the profitability position of concern organization.
This study is a valuable document for academicians, students, teachers and
practitioners in the help of accounting and finance. This study enlightens the
shareholders, financial agencies, stock exchange, stock trader, customers, depositors
and debtors who can objectively identify the better banks to deal with.This study
analyses and stales to maintain balance between principalities of liquidity and
profitability. This study helps to the bank too in analysing its practices on trade-off
between liquidity and profitability.
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1.6 Review of the Literature

A literature review surveys books, scholarly articles, and any other sources relevant to
a particular issue, area of research, or theory, and by so doing, provides a description,
summary, and critical evaluation of these works in relation to the research problem
being investigated. Literature reviews are designed to provide an overview of sources
you have explored while researching a particular topic and to demonstrate to your
readers how your research fits within a larger field of study.

1.6.1 Conceptual Review

A literature review is a type of review article. A literature review is a scholarly paper,
which includes the current knowledge including substantive findings, as well as
theoretical and methodological contributions to a particular topic. Literature reviews
are secondary sources, and do not report new or original experimental work.

A literature review is more than the search for information, and goes beyond being a
descriptive annotated bibliography. All works included in the review must be read,
evaluated and analyzed. Relationships between the literatures must also be identified
and articulated, in relation to your field of research. "In writing the literature review,
the purpose is to convey to the reader what knowledge and ideas have been
established on a topic, and what their strengths and weaknesses are. The literature
review must be defined by a guiding concept (e.g. your research objective, the
problem or issue you are discussing or your argumentative thesis). It is not just a
descriptive list of the material available, or a set of summaries.

The existing literature on the concept of profitability analyzed and also reviewed the
journals and articles. Review of literature comprises upon the existing literature and
research related to the present study with a view to find out what had already been
studied. Review of literature is thus, an essential part of all research studies .it is the
way to discover what other research in the area of uncovered problems. It also helps
to avoid the investigating problems that have already been definitely answered. The
literature review helps to know about the profitability of the banking by various
sources.
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Profitability is the measurement of efficiency. Profitability also indicates public

acceptance of the product and shows that the firm can produce competitively.
Moreover, profit provides the money for repaying the debt incurred to finance the
project and the resources for the internal financing expansion. The profitability of a
firm can be measured by its profitability ratios. Simply, bank means a financial
institution, which is engaged in monetary transaction. Basically, bank works as an
institution which deals in accepting deposits, disbursing loans and rendering other
financial services. Banks render a wide range of services to the people of different
walks of life. The concept of banking has developed from the ancient history with the
effort of ancient goldsmith who developed the practice of storing people’s gold and
valuables. The history reveals that it was the merchant banker who first evolved the
system of banking by trading in commodities than money. Then they issued different
documents as the near substitutes of money, called drafts or hundis in modern days.

Broadly speaking, a Bank draws surplus idle money in the hand of public in the form
of deposits and supplies that money in the form of loans to those who are in a position
to utilize the same for some productive uses. Bank provides benefits to depositors by
paying fixed interest and borrower gets chance to improve business or other work by
getting financial support. The bank helps people in every sector of economy like
trade, industry, agriculture etc. Not only has that now had a day’s bank also helped in
education sector too. Bank provides education loans in a reasonable interest rate.
Therefore we call a bank as a social institution also. A bank simply carries out the
work of exchanging money, providing loan, accepting deposits and transferring
money (Gupta, 2004).

1.6.2 Review of Related Studies

Review is a basic requirement for any report writing. Review of literature help to get
the important information which is needed for the repost in short period. Some
definition of the profitability analysis is shown below:

Grubisic (2022) examined the relationship between profitability and market power of
commercial banks that operated in Serbia and Montenegro, covering the period from
the first quarter of 2010 to last quarter of 2019. Determinants of profitability are
separated into internal and external. Selected ratios were used for market power.
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Sixteen panel regression model were used, eight for each country. The results indicate
that variations of return on assets and return on equity in Serbia can be explained by
the variations of the ratio of concentration and the results of banking sector in
Montenegro does not give enough argument to support such explanation.

López (2022) examined the “Effects of a negative interest rate policy in bank
profitability and risk taking: Evidence from European banks”, to evaluate the effect of
a negative interest rate policy (NIRP) on profitability and risk taking of the European
banking sector and whether this effect is differentiated according to the bank business
model. Using a dataset of 2596 banks from 29 European countries over the period
2011–2019 and applying a static modeling approach. The results indicate that the
implementation of NIRPs lowers the net interest margin and the return on assets of a
representative bank by 14.5 basis points and 18.5 basis points. Also conclude that a
decrease in the short-term interest rate lowers the net interest margin when interest
rates are already negative.

Sthapit and Maharjan (2022) studied on “Impact of Liquidity management on

Profitability: Comparative Study between NABIL and SCBNL”have mentioned that
the overall trend of liquidity ratios are in not smoothing in both NABIL and SCBN.
But variation in liquidity ratios as well as profitability in SCBN is lower than NABIL.
Fluctuating trend of the liquidity ratios make difficult in increased trend of
profitability of the banks. So, according to liquidity and profitability, SCBN seems to
be more efficient than NABIL. There is a significant effect on profitability in SCBN
only. This indicates that increase in these liquidity ratios boost the bank profitability
and vice-versa. But there are no significant effects of the liquidity ratios on
profitability in NABIL. This reveals that profitability has no relationship with those
liquidity ratios. The highly fluctuation of liquidity ratios may cause the insignificance
of the hypotheses.

Shakya (2022) conducted a study on Liquidity and Profitability of the Selected Joint
Venture Banks, had set the following objectives:
 To examine the comparative financial strengths and weakness of the selected
Banks.
 To analyze the liquidity and profitability of sampled banks.
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 To highlight various aspects relating to financial performance of these Banks

for last five years.
The research was conducted mainly on the basis of secondary data. Findings of this
research are summarized below:
 Analysis of liquidity ratio indicates better liquidity position of the NB bank.
Although liquidity position of NBL and NABIL are lower, they are still able to
meet their current obligation.
 Return on investment, interest earned to total assets ratio and commission and
discount earned to personnel expenses ratio of NB bank is higher than NABIL
bank and HBL, while return on shareholder’s equity is higher in HBL and
interest income to interest expense ratio is higher in NABIL bank.

Pandey (2022) conducted a study on Liquidity and Profitability of Nepal Bangladesh

Bank Limited and other Joint Venture Banks (Himalayan Bank Limited and Nepal SBI
Bank Limited) with the objective of:
 To study the liquidity and profitability of sampled banks.
 To evaluate the trends of deposit utilization towards total investment and loan
& advances and its projection for next five years.
 To study the various risks in investment
The study was conducted on the basis of secondary data. The research findings of the
study are:
 The liquidity position of NBBL is not better than that of HBL and NSBL.
 NBBL is in better position regarding its on balance sheet activities. The ratios
of NBBL are highly variable which reveals NBBL has not followed stable
policy.
 NBBL is not better regarding off-balance sheet transactions. The ratios of
NBBL are highly variable also. The position of NBBL is moderate in OBS
transaction.
 The profitability position of NBBL is comparatively not better than that of
HBL but better than that of NSBL.

1.7 Methodology
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Research method describes the methods and process applied in the entire study. In the
other words, research method is the systematic process to approach any research
problem and explore it objectively. Research method are the strategies, processes or
techniques utilized of the collection of data or evidence for analysis in order to
uncover new information or create better understanding of the topic. The rationale
behind the study is to evaluate and assess the Profitability position or performance of
bank Laxmi Sunrise bank Limited. Thus, this chapter includes those methods and
techniques used for finding out the required data. Hence this topic includes research
design, source of the data, population and sample, data collection tools and data
analysis tools.

1.7.1 Research Design

In this research, the trade-off between profitability positions of the selected
commercial banks is analysed. Mostly the secondary data have been used for the
research study. The data are collected from the various websites, annual reports of the
respective banks. Hence, the research design is made by collecting the information's
from the different source and data have been tabulated and analysed by using various
financial and statistical tools. The financial tools include liquidity and profitability
ratios. This study is based on secondary data and descriptive research design has been
used to conduct the study (Adhikari, 2017).

1.7.2 Population and Sample

There are 20 commercial banks operating in Nepal which is the population of the
study and out of them only one commercial bank selected for sample which is Laxmi
Sunrise bank Limited is the samples for the study. Commercial banks are “Class A”
financial institutions in Nepal. These commercial banks plays vital role to collect
money in the nation. The total number of the commercial bank represent as the total
population for the purpose of this study.

1.7.3 Source of Data

Data collection is a process of collecting information from all the relevant sources to
find answers to the research problem, test the hypothesis and evaluate the outcomes.
Data collection methods can be divided into two categories: secondary methods of
data collection and primary methods of data collection. On this survey the secondary
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source are mainly used to get the information related to the subject matter/topic.
Secondary data is a type of data that has already been published in books, newspapers,
magazines, journals, online portals etc. The sources of the data are collected from the
annual report of the Laxmi Sunrise bank Limited from FY 2021/22 to 2023/24.

i) Primary Data
The data, which are originally collected by an investigator or an agent for the first
time for the purpose of statistical enquiry, are known as primary data. The primary
data are collected personally through the questionnaires, observation and interviewing
method.

ii) Secondary data

The source of secondary data is those, which has been collected by other people. Here
the secondary data include AGM’S report of Laxmi Sunrise bank Ltd. Covering fiscal
year 2022/23 to 2023/24 journal publish by various institutions. The study only
considered on Secondary data.
1.7.4 Data collection Procedure
Data collection is an important aspect of any type of research study. Data collection is
the process of gathering and measuring information on variables of interest in a
systematic manner. It enables the researcher to answer the research questions, test
hypotheses and evaluate the outcome. Inaccurate data collection can impact the
results of a study and ultimately lead to invalid results. The study is mainly based in
Secondary data. Secondary data are those data that are collected by someone else or
used already & made available to other in the form of published statistic such as
annual reports, periodicals, newspapers, magazines etc. The various data collection
instruments used for this study are as follows: Financial statements

1.7.5 Analysis Tools

Financial tools and statistical tools and techniques for processing and analyzing the
data to obtain the result accordingly the set objectives and the study can use different
types of tools and techniques as per the research requirements.

Financial Tools
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Financial Tools is the process of evaluating data using analytical and statistical tools
to discover useful information. In this report financial tools will be used to examine
the profitability ratios of the Laxmi Sunrise bank Limited. Following profitability
analysis ratios are used for the study:

i) Return on assets (ROA):

The Return on Assets ratio is an important profitability ratio because it measures the
efficiency with which the company is managing its investment in assets and using
them to generate profit. It measures the amount of profit earned relative to the firm's
level of investment in total assets. ROA gives an idea as to how efficient management
is at using its assets to generate earnings. It is calculated as:

ii) Return on common equity (ROE):

Although the return on assets gives an aggregate measure of the firm's performance, it
does not tell how well management is performing for the stockholders. The
performance is indicated by the return on equity. The Return on Equity ratio is
perhaps the most important of all the financial ratios to investors in the company. It
measures the return on the money the investors have put into the company. It is the
ratio potential investors look at when deciding whether or not to invest in the
company. It is calculated as:

iii) Earnings per share (EPS):

The Earning per share (EPS) is one of the most important determinants of a common
stock's value because it measures the earning power under each share of stock. The
income per common share is known as earnings per share. EPS is a financial ratio, which
divides net earnings available to common shareholders by the average outstanding
shares over a certain period of time. The EPS formula indicates a organization’s ability to
produce net profits for common shareholders. It is calculated as:

iv) Dividend per shares (DPS):

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Dividend per share (DPS) is the sum of declared dividends issued by a company for
every ordinary share outstanding. The figure is calculated by dividing the total
dividends paid out by a business, including interim dividends, over a period of
time by the number of outstanding shares issued. It is calculated by:

v) Market value per share (MPS):

The market value per share or fair market value of a stock is the price that a stock can
be readily bought or sold in the current market place. In other words, the market value
per share is the “going price” of a share of stock. It has no specific relation to the
value of company’s assets, such as book value per share which is based on the
information from a company’s balance sheet. It is calculated as:

vi) Price Earnings Ratio:

The price to earnings ratio (PE Ratio) is the measure of the share price relative to the
annual net income earned by the firm per share. PE ratio shows current investor
demand for a company share. A high PE ratio generally indicates increased demand
because investors anticipate earnings growth in the future. The PE ratio has units of
years, which can be interpreted as the number of years of earnings to pay back
purchase price. The ratio is drawn out by dividing the market value share by earning
value per share. It is also useful for perspective investors. It is calculated as:

vii) Earning Yield:

The earnings yield is the earnings per share divided by the market price per share.
This is also an inverse of the PE ratio. The market price per share is simply the stock
price. The earnings per share come from the most recent income statement. We
multiply by 100% and report in percentage terms. It is calculated as:

viii) Net interest margin (NIM):

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Net Interest Margin (NIM) is a profitability ratio that measures how well a
organization is making investment decisions by comparing the income, expenses, and
debt of these investments. The NIM ratio measures the profit a company makes on its
investing activities as a percentage of total investing assets. Banks and other financial
institutions typically use this ratio to analyze their investment decisions and track the
profitability of their lending operations. This way they can adjust their lending
practices to maximize profitability. It can be calculated by:

Statistical Tools
The analysis identifies and interprets the relationship between the two or more
variables mean, standard deviation etc.

Statistical tools are the measures or the instruments to analyze the collected data from
the different sources. In statistics, there are numerous statistical tools to analyze the
data of various natures. In this study, the following statistical tools have been used to
analyze the data.

Loans and Advances to Total Assets Ratio =

i) Mean
Arithmetic mean is the most popular and frequently used measure of central tendency.
It is the sum of all observations to the number of observations. Arithmetic mean of a
given set of observations is their sum divided by the number of observations (Silwal,
2017).

Mean (π) =

Where, ∑X = sum of the variable ’X’

N = No of observation

ii) Standard Deviation

Standard deviation is the square root of the arithmetic average of the squares of the
deviations measured from the mean. Thus, in the calculation of standard deviation,
 15

first the arithmetic average is calculated and the deviation of various items from the
arithmetic average are squared.

S.D ( ) =

iii) Coefficient of Variation (C.V)

Coefficient of variation is computed for comparing the variability of two distributions.
A distribution with smaller C.V. is said to be more homogeneous or uniform or less
variable than the other, and the series with greater C.V. is said to be more
heterogeneous or more variable than the other. The coefficient of variation reflects the
relation between standard deviation and mean.
Coefficient of variation(CV)=× 100
1.8 Limitations of the study
The study has following limitations:
 The study has only covered the data of three Fiscal year from 2021/22 to
2023/24.
 It is mainly based on Secondary data.
 The validity of study is depending upon the secondary data.
 The finding of the study cannot be generalized to others bank and organization
because the study is concerned with the Laxmi Sunrise bank Limited.
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CHAPTER-II
RESULTS AND ANALYSIS

2.1 Data Presentation and Analysis

Data presentation and analysis forms an integral part of the academic studies,
commercial, industrial and marketing activities as well as professional practices. It is
necessary to make use of collected data which is considered to be raw data which
must be processed to put for any application. Data analysis helps in the interpretation
of data, take a decision or answer the research questions.

This topic is very important for the research. This part of the study focuses n
presentation and analysis of the data. The result of the secondary data is discusses in
this section regarding the profitability analysis of the Laxmi Sunrise bank Limited.
The discussion and analysis of the result is given below:

i) Return on Assets (ROA)

Table 1
Return on Assets of Laxmi Sunrise Bank Limited
Fiscal Year Return on Assets (%)
2021/22 1.13
2022/23 0.63
2023/24 2.58
Average Mean (X) 1.45%
Std Deviation () 0.83%
CV 57.17%

(Source: Annual Report of Laxmi Sunrise bank Ltd.)

The table 1 shows the Return on Assets (ROA) of Laxmi Sunrise Bank Limited over
three fiscal years from 2021/22 to 2023/24. ROA measures the bank's ability to
generate profit from its total assets. In 2021/22, the ROA was 1.13%, indicating a
moderate level of asset efficiency. It then declined significantly to 0.63% in 2022/23,
reflecting a drop in profitability relative to the bank's assets during that year.
However, in 2023/24, the ROA sharply increased to 2.58%, demonstrating a strong
improvement in the bank's asset utilization and overall profitability compared to the
 17

previous years. This trend suggests that after a temporary setback, the bank managed
to enhance its operational efficiency and generate higher returns from its assets.

Figure 1: Return on assets of Laxmi Sunrise bank Limited

Figure 1 illustrates the Return on Assets (ROA) of Laxmi Sunrise Bank Limited over
three fiscal years. In 2021/22, the bank achieved an ROA of 1.13%, which slightly
declined to 0.64% in 2022/23, indicating a drop in the efficiency of asset utilization to
generate profits. However, in 2023/24, the ROA rose sharply to 2.58%, showing
significant improvement in how effectively the bank used its assets to earn income.
This upward trend in the final year reflects better financial management. The figure
highlights the bank’s fluctuating yet ultimately improving profitability from its total
assets.

ii) Return on equity (ROE)

Table 2
Return on Common Equity of Laxmi Sunrise Bank Limited
Fiscal Years Return on equity (%)
2021/22 1.04
2022/23 5.98
2023/24 19.07
Average Mean (X) 8.70%
Std Deviation () 7.61%
CV 87.49%

(Source: Annual Report of Laxmi Sunrise bank Ltd.)

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The table 2 presents the Return on Common Equity (ROE) of Laxmi Sunrise Bank
Limited over three fiscal years from 2021/22 to 2023/24. ROE measures the bank's
ability to generate profit from its shareholders' equity. In 2021/22, the ROE was
relatively low at 1.04%, indicating modest returns for equity investors. However,
there was a significant increase in 2022/23, with ROE rising sharply to 5.98%,
suggesting improved profitability and more efficient use of shareholders’ funds. This
upward trend continued dramatically in 2023/24, where ROE reached 19.07%,
reflecting a strong growth in the bank’s capacity to generate returns for its equity
holders, highlighting enhanced operational performance and financial strength over
the period.

Figure 2: Return on equity of Laxmi Sunrise bank Limited

Figure 2 displays the Return on Equity (ROE) of the bank from 2021/22 to 2023/24.
The ROE was quite low at 1.04% in the first year, suggesting limited returns to
shareholders. In 2022/23, it increased substantially to 5.98%, and then jumped
dramatically to 19.07% in 2023/24. This significant growth shows that the bank has
become more effective at generating profits from shareholders’ equity. The figure
demonstrates how the bank improved its ability to reward its investors through
increased profitability.
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iii) Earnings per share (EPS)

Table 3
Earnings Per Share of Laxmi Sunrise Bank Limited
Fiscal Year Earnings per share (NPR)
2021/22 16.03
2022/23 19.64
2023/24 12.86
Average Mean (X) 16.18
Std Deviation () 2.77
CV 17.13%

(Source: Annual Report of Laxmi Sunrise bank Ltd.)

The table 3 illustrates the Earnings Per Share (EPS) of Laxmi Sunrise Bank Limited
over three fiscal years from 2021/22 to 2023/24. EPS represents the portion of the
bank’s profit allocated to each outstanding share, indicating its profitability on a per-
share basis. In 2021/22, the EPS was NPR 16.03, which increased to NPR 19.64 in
2022/23, showing improved earnings for shareholders. However, in 2023/24, the EPS
declined significantly to NPR 12.86, suggesting a reduction in profitability per share
compared to the previous year. This fluctuation highlights variability in the bank’s net
income or changes in the number of shares outstanding during the period.

Figure 3: Earnings per share of Laxmi Sunrise bank Limited.

Figure 3 presents the Earnings Per Share (EPS) of Laxmi Sunrise Bank Limited over
three years. EPS increased from 16.03 in 2021/22 to 19.64 in 2022/23, showing strong
growth in per-share earnings. However, in 2023/24, EPS dropped to 12.86, indicating
a decline in net profit available to each shareholder. This decrease could be due to
 20

lower earnings or a higher number of outstanding shares. The figure clearly shows
how the bank’s per-share profitability fluctuated across the period.

iv) Dividend Per Share

Table 4
Dividend Per Share of Laxmi Sunrise Bank Limited
Fiscal Year Dividend per share (%)
2021/22 8.29
2022/23 1.73
2023/24 5.56
Average Mean (X) 5.19%
Std Deviation () 2.69%
CV 51.82%

(Source: Annual Report of Laxmi Sunrise Bank Ltd.)

The table 4 shows the Dividend Per Share (DPS) of Laxmi Sunrise Bank Limited over
the fiscal years 2021/22 to 2023/24. DPS indicates the percentage of earnings
distributed to shareholders as dividends per share. In 2021/22, the bank paid a
relatively high dividend of 8.29%, reflecting a strong return to shareholders.
However, in 2022/23, the dividend dropped sharply to 1.73%, suggesting either lower
profits or a decision to retain more earnings within the bank. In 2023/24, the dividend
increased again to 5.56%, indicating a partial recovery in dividend payments, but still
below the level seen in 2021/22. This variation highlights fluctuations in the bank’s
dividend policy or its financial performance during the period.

Figure 4: Dividend per share of Laxmi Sunrise bank Limited

 21

Figure 4 shows the Dividend Per Share (DPS) of Laxmi Sunrise Bank Limited over
three years. In 2021/22, the bank distributed a healthy dividend of NPR 8.29 per
share. However, in 2022/23, the DPS dropped significantly to just NPR 1.73,
reflecting a more conservative payout policy or lower distributable profit. In 2023/24,
the DPS partially recovered to NPR 5.56, indicating a moderate return to
shareholders. This figure highlights the changes in the bank’s dividend distribution
strategy across the years.

v) Market Value Per Share

Table 5
Market Value Per Share of Laxmi Sunrise bank Limited
Fiscal Year Market Value per Share (NPR)
2021/22 210
2022/23 216.7
2023/24 212.30
Average Mean (X) 213
Std Deviation () 2.78
CV 1.31%
(Source: Annual Report of Laxmi Sunrise bank Ltd.)
The table presents the Market Value Per Share of Laxmi Sunrise Bank Limited for the
fiscal years 2021/22 to 2023/24, expressed in Nepalese Rupees (NPR). The market
value per share represents the current trading price of a single share of the bank on the
stock market, reflecting investor perception and demand. In 2021/22, the share price
was NPR 210, which slightly increased to NPR 216.7 in 2022/23, indicating a modest
growth in investor confidence or market valuation. However, in 2023/24, the market
value per share slightly decreased to NPR 212.30, suggesting a minor dip in market
price but overall relative stability in the bank’s share value during the period. This
stability may indicate consistent market performance and investor sentiment toward
the bank’s stock.
 22

Figure 5: Market value per share of Laxmi Sunrise bank Limited

Figure 5 illustrates the Market Value Per Share of the bank from 2021/22 to 2023/24.
The share price remained relatively stable, starting at NPR 210 in 2021/22, slightly
rising to NPR 216.7 in 2022/23, and settling at NPR 212.30 in 2023/24. These small
fluctuations suggest that the market's perception of the bank's value was consistent
despite changes in earnings and dividends. The figure reflects investor confidence and
stability in the bank’s market presence. It indicates no major volatility in stock value
during the observed period.

vi) Price Earnings Ratio

Table 6
Price Earnings Ratio of Laxmi Sunrise Bank Limited
Fiscal Year Price Earnings Ratio (%)
2021/22 9.64
2022/23 10.18
2023/24 16.51
Average Mean
Std Deviation ()
CV

(Source: Annual Report of Laxmi Sunrise Bank Ltd.)

The table 6 displays the Price Earnings (P/E) Ratio of Laxmi Sunrise Bank Limited
over three fiscal years from 2021/22 to 2023/24. The P/E ratio indicates how much
investors are willing to pay for each rupee of the bank’s earnings, serving as a
measure of market expectations. In 2021/22, the P/E ratio was 9.64, suggesting a
 23

moderate valuation by the market. This slightly increased to 10.18 in 2022/23,

reflecting a gradual rise in investor confidence. A significant increase occurred in
2023/24, with the P/E ratio rising to 16.51, implying that investors were willing to pay
a much higher premium for the bank’s earnings, possibly due to improved
performance expectations or positive market sentiment. This upward trend in P/E ratio
indicates growing investor optimism regarding the bank's future earnings potential.

Figure 6: Price earnings ratio of Laxmi Sunrise Bank Limited

Figure 6 displays the Price-to-Earnings (P/E) Ratio of Laxmi Sunrise Bank. The ratio
was 9.64 in 2021/22 and slightly increased to 10.18 in 2022/23, indicating a steady
valuation relative to earnings. In 2023/24, the P/E ratio rose significantly to 16.51,
suggesting the market was willing to pay more for each rupee of earnings, possibly
due to higher future expectations. This figure reflects how investor sentiment and
valuation of the bank’s profitability evolved over time. A higher P/E often points to
anticipated growth or overvaluation.

vii) Earning Yield Ratio

Table 7
Earning Yield of Laxmi Sunrise bank Limited
Fiscal Year Earning Yield (%)
2021/22 7.64
2022/23 9.82
2023/24 6.06
Average Mean 7.84%
Std Deviation () 1.54
CV 19.66%
(Source: Annual Report of Laxmi Sunrise bank Ltd.).
 24

Table 7 shows the Earnings Yield Ratio of Laxmi Sunrise Bank Limited over three
consecutive fiscal years. In 2021/22, the earnings yield stood at 7.64%, reflecting a
moderate return for investors based on the bank’s earnings relative to its share price.
The ratio increased significantly to 9.82% in 2022/23, indicating improved
profitability or a lower market price, both of which make the stock more attractive to
value-focused investors. However, in 2023/24, the earnings yield dropped to 6.06%,
suggesting either a decline in earnings or a rise in the bank’s market valuation,
potentially signaling reduced investor returns or increased investor optimism despite
lower earnings. This fluctuation highlights changes in market perception and the
bank’s profitability over the period.

Figure 7: Earning Yield of Laxmi Sunrise Bank Limited

Figure 7 illustrates the Earnings Yield of the bank for the same period. It was 7.64%
in 2021/22, increased to 9.82% in 2022/23, and then declined to 6.06% in 2023/24.
Since earnings yield is the inverse of the P/E ratio, its movement reflects similar
market trends. The high yield in 2022/23 suggests better returns for investors, while
the drop in 2023/24 shows reduced earnings relative to the market price. This figure
shows how attractive the bank’s shares were to investors in terms of earnings return.
 25

viii) Net Interest margin

Table 8
Net Interest Margin of Laxmi Sunrise Bank Limited
Net Interest
Fiscal Year Total Assets (Rs.) Ratio (%)
income (Rs.)
2021/22 8,100,913,526 292,674,940,213 2.77
2022/23 5,686,690,771 301,230,685,332 1.89
2023/24 4,579,911,322 100,997,061,765 4.53
Average Mean (X)
3.06%
Std Deviation () 1.10
CV 35.83%

(Source: Annual Report of Laxmi Sunrise Bank Ltd.)

Table 8 displays the Net Interest Margin (NIM) of Laxmi Sunrise Bank Limited over
three fiscal years, reflecting how efficiently the bank generates interest income from
its assets. In 2021/22, the NIM was 2.77%, based on a net interest income of over
NPR 8.1 billion and total assets exceeding NPR 292 billion. The margin declined to
1.89% in 2022/23, indicating reduced profitability from lending operations, possibly
due to tighter interest spreads or increased funding costs. However, in 2023/24, the
NIM sharply increased to 4.53%, despite lower net interest income and total assets,
suggesting the bank became more effective in utilizing its asset base to earn interest.
This fluctuation points to significant changes in the bank’s asset structure, interest rate
environment, or management strategy over the period.
 26

Figure 8: Net Interest Margin of Laxmi Sunrise Bank Limited

Figure 8 shows the Net Interest Margin (NIM) of Laxmi Sunrise Bank across three
fiscal years. In 2021/22, NIM stood at 2.77%, dropped to 1.89% in 2022/23, and then
rose significantly to 4.53% in 2023/24. The initial decline indicates reduced efficiency
in interest-generating activities, while the sharp increase later reflects strong recovery
and better margin control. NIM is a key profitability measure for banks, and this
figure shows the bank's changing ability to earn from its core lending operations.

Table 9
Consolidated Ratios of Laxmi Sunrise bank Limited
Ratios
2021/22 2022/23 2023/24
Year
Return on Assets 1.13 0.64 2.58
Return on common equity 1.04 5.98 19.07
Earnings per share 16.03 19.64 12.86
Dividend per share 8.29 1.73 5.56
Market value per share 210 216.7 212.30
Price earnings ratio 9.64 10.18 16.51
Earning yield 7.64 9.82 6.06
Net Interest margin 2.77 1.89 4.53

(Source: Balance sheet &P/L Accounts of Laxmi Bank Ltd.)

Table 9 presents a consolidated view of key financial ratios of Laxmi Sunrise Bank
Limited across three fiscal years, offering insights into the bank’s profitability,
shareholder returns, and market performance. The Return on Assets (ROA) and
 27

Return on Common Equity (ROE) indicate fluctuating efficiency, with ROA rising
from 1.13% in 2021/22 to 2.58% in 2023/24, and ROE increasing sharply from 1.04%
to 19.07%, suggesting improved management of equity. Earnings per Share (EPS)
shows inconsistency, peaking at 19.64 in 2022/23 before declining to 12.86.
Similarly, Dividend per Share (DPS) dropped drastically in 2022/23 to 1.73 but
recovered slightly in 2023/24 to 5.56, indicating variable dividend policy. The Market
Value per Share remained relatively stable, with slight changes year-over-year. The
Price-to-Earnings (P/E) Ratio increased from 9.64 to 16.51, implying higher investor
expectations or overvaluation. Conversely, the Earnings Yield, which is inversely
related to P/E, decreased in 2023/24, showing lower returns per rupee invested.
Lastly, the Net Interest Margin (NIM), a key profitability indicator, dropped in
2022/23 but rebounded strongly in 2023/24 to 4.53%, reflecting improved efficiency
in interest-generating operations. Overall, the table reflects a dynamic financial
performance with significant shifts in profitability and market perception over the
three-year period.

2.2 Major Findings

The study has the following major findings:
 Return on Assets (ROA) showed significant volatility - declined from 1.13% in
2021/22 to 0.63% in 2022/23, then surged to 2.58% in 2023/24, indicating
fluctuating asset utilization efficiency with strong recovery in the final year.
 Return on Equity (ROE) demonstrated dramatic improvement - increased
substantially from 1.04% in 2021/22 to 5.98% in 2022/23, and reached an
impressive 19.07% in 2023/24, showing enhanced shareholder value generation.
 High coefficient of variation in ROE (87.49%) indicates significant year-to-year
variability in equity returns, suggesting inconsistent performance patterns.
 Earnings Per Share (EPS) exhibited inconsistent trends - rose from NPR 16.03 in
2021/22 to NPR 19.64 in 2022/23, but declined to NPR 12.86 in 2023/24,
reflecting unstable profitability per share.
 Dividend policy showed high volatility - dividend per share dropped dramatically
from 8.29% in 2021/22 to 1.73% in 2022/23, then partially recovered to 5.56% in
2023/24, indicating inconsistent dividend distribution strategy.
 Relatively low coefficient of variation for EPS (17.13%) compared to other ratios
suggests more stable earnings performance despite fluctuations.
 28

 Market value per share remained relatively stable - fluctuated minimally between
NPR 210-216.7 across the three years with very low coefficient of variation
(1.31%), indicating consistent market confidence.
 Price-to-Earnings ratio increased significantly - rose from 9.64 in 2021/22 to
16.51 in 2023/24, suggesting growing investor optimism and willingness to pay
premium for future earnings.
 Earnings yield showed inverse relationship to P/E ratio - peaked at 9.82% in
2022/23 but declined to 6.06% in 2023/24, indicating reduced current returns as
market expectations increased.
 Net Interest Margin (NIM) demonstrated strong recovery - dropped from 2.77%
in 2021/22 to 1.89% in 2022/23, then surged to 4.53% in 2023/24, showing
improved efficiency in core banking operations.
 Significant changes in asset structure - total assets varied considerably,
particularly in 2023/24 where assets were substantially lower, suggesting possible
restructuring or business model changes.
 High variability across most financial metrics - most ratios showed coefficients of
variation above 35%, indicating significant fluctuations in bank performance
year-over-year.
 Strong performance recovery in 2023/24 - most profitability indicators improved
significantly in the final year, suggesting effective management interventions or
favorable market conditions.
 Inconsistent dividend policy and earnings distribution - wide variations in
dividend payments and earnings per share indicate potential challenges in
maintaining steady returns to shareholders.
 Growing market confidence despite operational volatility - stable share prices and
increasing P/E ratios suggest investor optimism about future prospects despite
historical performance fluctuations.
 29

CHAPTER-III
SUMMARY AND CONCLUSION

3.1 Summary
This study examined the profitability analysis of Laxmi Sunrise Bank Limited
through a comprehensive evaluation of key financial performance indicators over the
period from 2021/22 to 2023/24. The theoretical framework for this analysis was
grounded in fundamental banking profitability metrics that provide insights into
operational efficiency, shareholder value creation, and market performance.

The analysis employed eight critical financial ratios as primary indicators of bank
performance. Return on Assets (ROA) and Return on Equity (ROE) served as core
profitability measures, evaluating the bank's efficiency in utilizing its total assets and
shareholders' equity respectively. These ratios are fundamental in assessing
management's effectiveness in generating profits from available resources and provide
crucial insights into operational performance trends.

Earnings Per Share (EPS) and Dividend Per Share (DPS) were analyzed to understand
the bank's capacity to generate returns for shareholders and its dividend distribution
policy. These metrics are essential for evaluating shareholder value creation and the
sustainability of the bank's earnings distribution strategy. The study revealed
significant fluctuations in both measures, indicating variability in the bank's earnings
management and dividend policy over the analysis period.

Market-based indicators including Market Value Per Share, Price-to-Earnings Ratio,

and Earnings Yield were examined to assess investor perception and market valuation
of the bank. These ratios provide critical insights into market confidence, investor
expectations, and the relative attractiveness of the bank's shares compared to earnings
generated. The analysis showed that despite operational volatility, market valuation
remained relatively stable, suggesting sustained investor confidence.

Net Interest Margin (NIM) was analyzed as a key operational efficiency indicator,
measuring the bank's ability to generate interest income from its asset base. This ratio
is particularly crucial for commercial banks as it reflects the core profitability of
banking operations through the spread between interest earned and interest paid.
 30

The study utilized descriptive statistical measures including mean, standard deviation,
and coefficient of variation to analyze the consistency and variability of performance
indicators. These statistical tools provided insights into the stability of the bank's
performance and helped identify periods of significant fluctuation.

The findings revealed that Laxmi Sunrise Bank Limited experienced considerable
performance volatility during the study period, with 2022/23 representing a
challenging year followed by significant recovery in 2023/24. The bank demonstrated
particular strength in equity returns and net interest margin improvement, while
showing inconsistency in earnings per share and dividend distribution. Despite
operational fluctuations, market indicators suggested sustained investor confidence in
the bank's long-term prospects.

This comprehensive profitability analysis provides valuable insights for stakeholders

including investors, regulators, and management, offering a clear picture of the bank's
financial trajectory and areas requiring strategic attention for sustainable growth and
improved shareholder value creation.

3.2 Conclusion
The profitability analysis of Laxmi Sunrise Bank Limited demonstrates the critical
importance of comprehensive financial ratio analysis in understanding banking sector
performance dynamics. This study validates the theoretical framework that
profitability assessment requires a multidimensional approach, examining various
indicators to gain meaningful insights into institutional financial health.

The theoretical application of profitability ratios proved effective in revealing

underlying performance patterns that would not be apparent through single-metric
analysis. The integration of asset efficiency measures, equity performance indicators,
market valuation metrics, and operational efficiency ratios provided a holistic view of
the bank's financial trajectory, confirming the necessity of employing diverse
analytical tools in banking sector evaluation.

The study reinforces the theoretical principle that banking profitability is inherently
cyclical and subject to significant volatility due to external economic factors,
regulatory changes, and internal strategic decisions. The observed fluctuations align
with established banking theory regarding the sensitivity of financial institutions to
 31

market conditions and the importance of adaptive management strategies in

maintaining competitive positioning.

From a theoretical perspective, the analysis validates the interconnected nature of

profitability indicators. The relationship between return on assets and return on equity
demonstrated the leverage effect theory, while the inverse relationship between price-
earnings ratios and earnings yield confirmed fundamental valuation principles. These
relationships underscore the importance of understanding how different metrics
complement each other in comprehensive financial analysis.

The study contributes to banking theory by highlighting the significance of net

interest margin as a core profitability driver for commercial banks. The analysis
reinforces theoretical frameworks that emphasize interest-based income as the
foundation of banking profitability, validating the critical role of asset-liability
management in institutional success.

Market efficiency theory is partially supported by the findings, as market valuations

showed relative stability despite operational fluctuations, suggesting that investors
incorporate forward-looking expectations rather than solely relying on historical
performance. This supports the semi-strong form of market efficiency where publicly
available information is reflected in stock prices.

The research confirms the theoretical importance of consistency in financial

performance for stakeholder confidence. The observed volatility patterns align with
risk management theory, emphasizing that while high returns may be attractive,
consistency and predictability are equally crucial for sustainable institutional growth
and stakeholder trust.

From a methodological standpoint, the study validates the effectiveness of descriptive

statistical measures in financial analysis. The use of coefficient of variation proved
particularly valuable in assessing performance stability, supporting theoretical
frameworks that emphasize the importance of risk-adjusted returns rather than
absolute performance measures.

The theoretical implications extend to dividend policy theory, where the observed
patterns support the signaling hypothesis that dividend distributions communicate
management confidence and financial stability to the market. The variability in
 32

dividend payments reflects the complex balance between retaining earnings for
growth and rewarding shareholders.

In conclusion, this analysis reinforces established financial theory while providing

practical insights into banking sector dynamics. The study demonstrates that effective
profitability analysis requires both theoretical grounding and practical application,
combining multiple analytical tools to achieve comprehensive understanding. The
findings contribute to the broader body of knowledge in banking finance and provide
a foundation for future research in institutional performance evaluation.