PROFITABILITY ANALYSIS

OF
NEPAL ELECTRICITY AUTHORITY (NEA)

A PROJECT WORK REPORT

By:

RASHI GOYAL

T.U. Registration No. 7-2-0934-0072-2016

Applied College of Management & Education, Biratnagar

Submitted to:

Faculty of Management

Tribhuvan University

Kathmandu

In partial fulfillment of the requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Biratnagar, Nepal

January, 2021
 DECLARATION

I hereby declare that the project work entitled PROFITABILITY ANALYSIS OF NEPAL
ELECTRICITY AUTHORITY submitted to the Management Research Committee, Faculty of
Management, Tribhuvan University is an original piece of work under the supervision of Dr.
BHABISHYA KUMAR MISHRA, faculty member, Applied College of Management &
Education, Biratnagar, and is submitted in partial fulfillment of the requirements for the degree
of BACHELOR OF BUSINESS STUDIES (BBS). This project work report has not been
submitted to any other university or institution for the award of any degree or diploma.

…………………
RASHI GOYAL
Date:

ii
 SUPERVISOR’S RECOMMENDATION

The project work report entitled PROFITABILITY ANALYSIS OF NEPAL ELECTRICITY

AUTHORITY submitted by RASHI GOYAL of Applied College of Management & Education,
Biratnagar, is prepared under my supervision as per the procedure and format requirements laid
by the Faculty of Management, Tribhuvan University, as partial fulfillment of the requirements
for the degree of BACHELOR OF BUSINESS STUDIES (BBS). I, therefore, recommend the
project work report for evaluation.

……………….. ………
BHABISHYA KUMAR MISHRA
Date:

iii
 ENDORSEMENT

We hereby endorse the project work report entitled PROFITABILITY ANALYSIS OF NEPAL
ELECTRICITY AUTHORITY submitted by RASHI GOYAL of Applied College of Management
& Education, Biratnagar, in partial fulfillment of the requirements for the degree of the
BACHELOR OF BUSINESS STUDIES (BBS) for external evaluation.

……………………. ……………………….
Prof. Dr. Ramesh Dahal Mr. Deepak Shrestha
Chairman, Research Committee Campus Chief
Applied College of Management & Education Applied College of Management
Date: Date:

iv
 ACKNOWLEDGEMENT

This report entitled “PROFITABILITY ANALYSIS OF NEPAL ELECTRICITY

AUTHORITY” has been prepared in partial fulfillment for the degree of Bachelor in Business
Studies (BBS) under the supervision of Dr. BHABISHYA KUMAR MISHRA, faculty member,
Applied College of Management & Education, Biratnagar. This study attempts to examine the
Profitability Ratio of Nepal Electricity Authority with available data and information. For easier
study, the data has been presented by tables, graphs and have been interpreted using various
statistical methods.

It is my privilege of getting help and co-operation from different persons. I am deeply indebted
and also express my heartfelt gratitude to all who supported me. I express my heartiest gratitude
to BHABISHYA KUMAR MISHRA for guiding and inspiring me to do this fieldwork. I would
also like to thank Prof. Dr. Ramesh Dahal (Chairman of Research Department) and Mr. Deepak
Shrestha (Campus Chief) and the entire staff members for their kind co-operation and supports
providing valuable information required for the completion of the report.

I could not remain without thanking to my teachers, lecturers, and my friends, who all helped me
during my study of BBS and during preparation of this report. I am thankful to my parents who
believe my strength and helped me a lot by providing their valuable time, investment during my
college education. Finally, I want to thank my colleagues for their continued moral support.

Rashi Goyal
Exam Roll No: 9340041
Applied College of Management and Education
Munalpath, Biratnagar

v
 TABLE OF CONTENTS
TITLE PAGE…………………...………………………………………....................…….…………………i
DECLARATION ........................................................................................................................... ii
SUPERVISOR’S RECOMMENDATION...................................................................................... iii
ENDORSEMENT ......................................................................................................................... iv
ACKNOWLEDGEMENT ............................................................................................................... v
TABLE OF CONTENTS ............................................................................................................... vi
LIST OF TABLES ........................................................................................................................vii
LIST OF FIGURES ................................................................................................................... viii
ABBREVIATIONS ........................................................................................................................ ix

CHAPTER I: INTRODUCTION .............................................................................................. 1

1.1 Background of the Study ........................................................................................................ 1
1.2 Profile of the Organization: .................................................................................................... 3
1.3 Statement of Problem ............................................................................................................. 6
1.4 Objectives of the Study .......................................................................................................... 6
1.5 Rationale/Significance of the study......................................................................................... 6
1.6 Review of the Literature ......................................................................................................... 7
1.7 Methods of Study ..................................................................................................................11
1.8 Limitation of the Study ..........................................................................................................15
CHAPTER II: RESULTS AND ANALYSIS ...........................................................................16
2.1 Data Presentation ..................................................................................................................16
2.2 Data Analysis ........................................................................................................................16
2.3 Major Findings of the Study: .................................................................................................26
CHAPTER III: SUMMARY AND CONCLUSION ................................................................29
3.1 Summary ...............................................................................................................................29
3.2 Conclusion ............................................................................................................................30
Bibliography ..............................................................................................................................33
Appendix ...................................................................................................................................35
 LIST OF TABLES

Table 1: Capital Structure of NEA .................................................................................. 5

Table 2: Board of Directors of NEA ............................................................................... 5

Table 3: Gross Profit Margin of Nepal Electricity Authority ........................................... 17

Table 4: Net Profit Margin of Nepal Electricity Authority .............................................. 18

Table 5: Return on Assets of Nepal Electricity Authority ............................................... 20

Table 6: Return on Equity of Nepal Electricity Authority ............................................... 21

Table 7: Earning per Share of Nepal Electricity Authority .............................................. 23

Table 8: Book Value per Share of Nepal Electricity Authority........................................ 24

Table 9: Summary of Computed Ratios under Profitability Analysis of NEA ................. 26

vii
 LIST OF FIGURES

Figure 1: Sectors of Nepal Electricity Authority ............................................................. 5

Figure 2: Gross Profit Margin of Nepal Electricity Authority ......................................... 17

Figure 3: Net Profit Margin of Nepal Electricity Authority ............................................. 19

Figure 4: Return on Assets of Nepal Electricity Authority .............................................. 20

Figure 5: Return on Equity of Nepal Electricity Authority .............................................. 22

Figure 6: Earning per Share of Nepal Electricity Authority............................................. 23

Figure 7: Book Value per Share of Nepal Electricity Authority ...................................... 25

viii
 ABBREVIATIONS

& - and
/ - or
µ - micron(s) used as Mean
σ - Sigma used as Standard Deviation
∑ - summation
BS - Bikram Sambat
BVPS - Book Value per Share
EAS - Earnings Available for Equity Shareholders
EBIT - Earnings before Interest and Tax
EPS - Earning per Share
Etc. - Etcetera
FOM - Faculty of Management
FY - Financial Year
GJ - Giga joule
i.e. - That is
INPS - Integrated Nepal Power System
IPP - Independent Power Producer
Km - Kilometers
Kwh - Kilowatt-hour
Ltd. - Limited
Mr. - Mister
MW - Mega Watt
NEA - Nepal Electricity Authority
NPAT - Net Profit after Tax
NRs. - Nepalese Rupees
PPA - Power Purchase Agreements
ROA - Return on Asset
ROE - Return on Equity
SD - Standard Deviation

ix
 1

CHAPTER I

INTRODUCTION

1.1 Background of the Study

1.1.1 Background

Profitability is one of the finance topics among the studies of researchers and scholars.
Profitability is the ability of the firm to use its resources to generate revenues in excess of its
expenses. The primary goal of any organization is Profit Maximization. A Business that is not
profitable cannot survive in the competitive market. Conversely, a business that is highly
profitable has the ability to reward its owners with a large return on their investment. Thus,
“Profitability Analysis” may be an appropriate subject matter for project report writing.

Profitability means ability to make profit from all the business activities of an Organization,
company, firm, or an enterprise. It shows how efficiently the Management can make profit by
using all the resources available in the market. According to Harward & Upton, “profitability is
the „the ability of a given investment to earn a return from its use.” However, the term
„Profitability‟ is not synonymous to the term „Efficiency‟. Profitability is an index of efficiency;
and is regarded as a measure of efficiency and management guide to greater efficiency. However,
profitability is an important yardstick for measuring the efficiency, the extent of profitability
cannot be taken as a final proof of efficiency. (Academia.edu)

Sometimes satisfactory profits can mark inefficiency and conversely, a proper degree of
efficiency can be accompanied by an absence of profit. Sometimes, the terms „Profit‟ and
„Profitability‟ are used interchangeably. But in real sense, there is a difference between the two.
Profit is an absolute term, whereas, the profitability is a relative concept. Profit refers to the total
income earned by the enterprise during the specified period of time, while profitability refers to
the operating efficiency of the enterprise. It is the ability of the enterprise to make profit on sales.
It is the ability of enterprise to get sufficient return on the capital and employees used in the
business operation. (Academia.edu)
 2
Profitability Analysis measures the amount of Profit earned due to the efficiency of any operation
in a business. Among the components of Financial Statements, Income Statement shows the
profitability of the corporation. Gross Profit margin, Net Profit margin, Return on Assets, Return
on Equity, etc. are the main indicators of corporation's profitability. The main objective of this
study is to analyze the Profitability of Nepal Electricity Authority.

1.1.2 Energy Sector in Nepal:

Nepal relies heavily on traditional energy resources, as no significant deposits of fossil fuel are
available. Nepalese use the lowest commercial energy (around 500 kWh per capita per year) of
all South Asians by far. The total energy consumption in Nepal for the year 2003/04 was 363
million GJ of which the residential sector consumed 90% and agriculture sector 1% as shown in
the figure. Based on the fuel type, biomass provided 86% of the total energy consumption,
petroleum 9%, which is mainly consumed by urban areas, electricity only 2% and renewable 1%
of the total energy. About 40% of the total population has benefited from electricity by the end of
the Ninth Plan. This 40% is reported to include consumption of 33% from National grid and 7%
from alternative energy. (The official Portal of Government of Nepal)

The hydropower potential of Nepal's river systems is about 83,000 MW. Hydropower utilization
is currently less than one per cent of the proven potential. The total installed hydroelectric
generation capacity is around 650 MW. This power has been made available to 2,053,259
consumers through 1980 km of transmission and distribution lines (2011 data). The national grid
represents the overall hydroelectric industry of Nepal as it accounts for almost 98 per cent of the
capacity and 99 per cent of the energy supplied. Apart from national grid, both the public and
private sectors and independent power producers manage isolated supply systems.

At present there are 11 major hydroelectric plants, 16 grid connected small hydroelectric plants,
23 isolated small hydroelectric plants, and 22 Private Sector Hydro Projects known as
Independent Power producers (IPPs) connected to Integrated Nepal Power System (INPS) in
operation in the country. During 2010/11 Nepal Electricity Authority (NEA) signed Power
Purchase Agreements (PPAs) worth 714.77 MW, which was almost double the total capacity of
power purchase agreement signed in the past. Total capacity of power purchase agreement signed
by NEA so far has reached 1,118.35 MW. (The official Portal of Government of Nepal)
 3
1.2 Profile of the Organization:

The electricity market of Nepal is unbundled at the generation point. Under unbundled market,
more than one generation company can participate and generate power. This prevents monopoly
in the generation market. However, at the distribution and transmission level, the market is
bundled meaning there is only one party responsible for distribution and transmission of the grid
electricity. Currently, the electricity market is dominated by the two institutions: Nepal
Electricity Authority and Independent Power Producer. Furthermore, there is an important trade
that forms a huge component of the market and is called “Indo-Nepal Power Trade”.

Nepal Electricity Authority popularly known as NEA was created on August 16, 1985 (Bhadra 1,
2042) under the Nepal Electricity Authority Act 1984, through the merger of the Department of
Electricity of Ministry of Water Resources, Nepal Electricity Corporation and related
Development Boards and is the parent generator and distributor of electric power under the
supervision of the government of Nepal. The merger was necessitated to remedy the inherent
weaknesses associated with these fragmented electricity organizations with overlapping and
duplication of works, and became necessary to achieve efficiency and reliable service. (Nepal
Electricity Authority)

The primary objective of NEA is to generate, transmit and distribute adequate, reliable and
affordable power by planning, constructing, operating and maintaining all generation,
transmission and distribution facilities in Nepal's power system both interconnected and isolated.
There have been many years in its short history that NEA has had to indulge in pre-planned load
shedding to manage power supply to its consumers. The last four years have been much brighter
as far as the power supply management and financial health is concerned. (Nepal Electricity
Authority)

Bijuli Adda held monopoly system in term of electricity till 1962. Nepal Electricity Authority
(NEA) was established by the government by using the electricity act 2041. Nepal Electricity
Authority Act 2042 was brought forward and put into effect from 1st Bhadra 2042. According to
new NEA Act 2041, all former divisions and committees concerning electricity production and
supply were amalgamated into Nepal Electricity Authority to unify and regulate the development
effort and supply of electricity.
 4
1.2.1 Objective of Nepal Electricity Authority:
Increased use of electricity is indicative of economic and financial well-being of a country and its
citizens. Extending the reach of electricity to all Nepali households either through on-grid or off-
grid solutions is an essential aim of the government and a fundamental objective of NEA. The
energy crisis resulted in load shedding of up to 16 hours to household and industries which
brought about misery to everyone. The continuous supply of electricity was a result of improved
transmission system, increased domestic generation, supply and demand side management,
decrease in commercial and technical losses and trade. With the aim of increasing domestic
generations, NEA has signed PPAs for more than 6000 MW and is dedicated to improve the
country‟s transmission and distribution capacity.

However, NEA still needs to push itself further to improve on multiple fronts. Some of the
critical areas include further reducing losses in transmission and distribution stages, automation,
upgrading its IT systems, improving contract management and ensuring timely completion of
generation, transmission and distribution projects. NEA is making all efforts to ensure the supply
of continuous, reliable and affordable power to its consumers. Even during lockdown due to
COVID 19 NEA has tried its level bests for a continuous supply of power its consumers.

The main objectives of NEA as a power sector utility are to satisfy its consumers with
continuous, reliable and quality supply of electricity as well as to maintain reasonable financial
returns for further development. The end to load shedding through integrated resource planning
including domestic generation, imports and efficient demand side management has culminated in
people‟s trust and optimism in our endeavors towards achieving the long-standing goal of
becoming self-sufficient in electricity generation and supply. (Nepal Electricity Authority, 2020)

The objectives of NEA are to manage electricity supply by way of effective generation and
distribution. The reliable objectives of NEA are: (Nepal Law Commission, 2049)
 To supply electricity by way of proper generation, transmission and distribution under the
prevailing law.
 To develop and implement the program for the production, transmission and distribution of
electricity supply.
 For the convenience of the people and industry, feasible project in economically area is
developed to insure the supply by the generation, transmission and distribution of electricity.
 5
Mainly, NEA has three sectors:

NEA

GENERATION TRANSMISSION DISTRIBUTION

Figure 1: Sectors of Nepal Electricity Authority

Table 1:

Capital Structure of Nepal Electricity Authority:

Shareholders Government of Nepal
Paid-up Capital Rs. 139,541,000,000
Note: (Nepal Electricity Authority, 2020)

Table 2:

Board of Directors of Nepal Electricity Authority:

Names Positions

Mr. Barsha Man Pun „Ananta‟ Chairman

Mr. Dinesh Kumar Ghimire Member
Mr. Ram Sharan Pudasaini Member
Mr. Rajendra Bahadur Chhetri Member
Mr. Chet Raj Joshi Member
Mr. Bhakta Bahadur Pun Member
Mr. Vishow Prasad Gautam Member
Mr. Kul Man Ghising Member Secretary
Note: (Nepal Electricity Authority, 2020)
 6

1.3 Statement of Problem

The major problem of the study is presented by raising the following research question:
 What is the profitability position of Nepal Electricity Authority?
 How has profitability of Nepal Electricity Authority changed over the period of time?
 What are the factors of profitability of Nepal Electricity Authority?

1.4 Objectives of the Study

The primary objective of the study is to analyze the Profitability Situation of Nepal Electricity
Authority. The specific objectives of this study are as follows:
 To measure the profitability position of Nepal Electricity Authority.
 To find the trend of profitability of Nepal Electricity Authority.
 To determine factors of profitability of Nepal Electricity Authority.
 To evaluate profitability ratios of Nepal Electricity Authority.

1.5 Rationale/Significance of the study

Generally, the study gives emphasis on the welfare of students while preparing fieldwork report;
they gain knowledge through their own experience enabling them to deal with problems relating
to their studies. The study also intends to let students know about required information by them.
The following are the few points that highlights of the significance of field work report:
 To the Researcher: This study is an important part of fulfillment of academic requirement of
the researcher.
 To the Society: As Nepal Electricity Authority is the sole distributor of electricity within the
country, the society will get to know about the financial performance of their electricity
supplier.
 To the shareholders: Nepal Electricity Authority is fully owned by Nepal Government till
date. But, recently NEA has decided to 25% of its share to public. Thus, the profitability
analysis shall play a significant role as the shareholders wants to know about the financial
performance and profitability of the corporation.
 7
 To the management: The corporation depends upon the management and management
depends upon the corporation. The managers are major decision makers thus they need to
know to about the profitability of the corporation and how to strengthen it.

1.6 Review of the Literature

Scientific research must be based on past events. The previous studies can never be ignored
because they provide important information for the upcoming study. Research works are
continuing in nature. This continuity in research is insured by linking the present study with the
past research studies. Review of literature is one of the essential elements of research. It will be
better to review some fundamental aspects of relevant literature before doing analysis. Review
means thinking again, studying the documents published or unpublished related to the field of
research. The review of literature is a crucial aspect of planning of the study. Reviews of
literature about "Profitability of Nepal Electricity Authority" are presented in this chapter. This
chapter basically concerned with review of literature relevant to the profitability analysis of
different writer. Every study or research is very much based on the past knowledge. The past
knowledge or the previous studies should not be ignored as it provides foundation to the present
study. So review of literature is the most necessary chapter. “The purpose of literature review is
to diagnosis all past information related to the development of selected topic or area of study in
detail so that they can form an idea for further extension of the proposed research.” (Joshi, 2073)

This chapter has been divided into two sections. Section I, deals with the conceptual frame work.
Review of Related studies on Profitability Analysis has been described in section II.

1.6.1 Conceptual Framework

Profit is necessary to survive in any business field for its successful operation and further
expansion. It measures management's overall effectiveness as shown by the returns generated on
investment. The financial analyst must attempt to understand whether the firm's profit is in the
rising trend. In the initial years of establishment of the firm, the profit will be in the lower side,
but slowly year by year, profit gradually starts to rise.
 8
Profitability analysis indicates the efficiency with which the operations of the business are
carried; it measures the management's effectiveness as shown by the returns on sales or
investment. The Profitability Ratio gives answer to how effectively the corporation is being
managed. The measurement of profit can be given greatest weight since it is probably the best
indicator of overall efficiency. Also, the profitability ratio mainly studies the earning power of
any corporation, which depicts the financial performance of the corporation. Profitability Ratios
show how well companies use their existing assets to generate profit and value for shareholders.

Higher ratio results are often more favorable, but ratio provides much more information when
compared to results from other, similar companies, the company's own historical performance or
the industry's average.

Profitability is the end result of a number of corporate policies and decisions. It measures how
effectively the firm is being operated and managed. Owners and Managers of the firm are
interested to know the profit earning capacity of the firm. Particularly, owners are eager to know
their returns whereas managers are interested in their operating efficiency. So, they calculate
profitability ratios because expectations of both owners and managers are evaluated in terms of
profit earned by the firm. Besides owners and managers, creditors are also interested to know the
financial soundness of the firm. So, creditors also use profitability ratios. (Rajan B. Paudel, 2018)

One of the Yardsticks of Measuring the efficiency of a firm is profitability. Ability to make
maximum profit from optimum utilization of resources by a business concern is termed as
profitability. The sustainability of a firm depends on income earned. Moreover, a firm should
earn sufficient profit on each rupee of sales to meet the operating expenses and to avail returns to
the owners. The profitability ratios are calculated to know the capability of a firm in earning
profit. (Yadav Raj Koirala, 2016)

Profitability ratio is both an analytic and judgmental process that helps to answer the questions
that have been properly posed to and therefore, it is a mean to an end. We can stress enough that
financial analysis is an aid that allows those responsible for results to make sound decisions.
(Helfert, 1964)

Profitability is a relative concept whereas profit is an absolute connotation. Despite being closely
related to and mutually interdependent, profit and profitability are two different concepts. As an
 9
absolute term, profit has no relevance to compare the efficiency of a business organization. A
very high profit does not always indicate sound organizational efficiency and low profitability is
not always a sign of organizational sickness. Therefore, it can be said that profit is not the prime
variable on the basis of which the operational efficiency and financial efficiency of an
organization can be compared. To measure the productivity of capital employed and to measure
operational efficiency, profitability analysis is considered as one of the best techniques. (Gazely
& Lambert, 2006)

1.6.2 Review of Relevant Researches and Journals

The available relevant literature on NEA was reviewed under various subtitles by previous
researchers and research organizations such as- working capital management, ratio analysis,
priority sector investment, capital structure, etc.:

Research conducted by Mr. Nischal Risal on “Performance Scrutiny of Nepal Electricity

Authority using DuPont Analysis” with the objectives of analyzing the financial strength and
weaknesses of NEA by using DuPont analysis, concluded that despite being the sole distributor
of the electricity in the country, the financial performance, measured in terms of ROE, of NEA is
very poor in first five years (2010/11 – 2015/16) of the study period. The primary source of such
poor performance was negative profit margin. Besides, NEA is also exposed to higher financial
risk measured in terms of equity multiplier. However, both these measures, ROE and EM have
improved in later two years (2016/17 – 2017/18) of the study period. (Risal, Performance
Scrutiny of Nepal Electricity Authority using DuPont Analysis, 2019)

Another researcher, Mr. Suman Acharya has submitted his research report on the topic of "Profit
planning in public utility undertaking of Nepal" He has tried to analyze and evaluate the profit
planning of NEA and Nepal Telecom on the basis of selective financial tools. He has concluded
some following points. (Acharya, 2000)

 NEA's goals and objectives are not communicated to lower level staff.
 The top level executive are only involved in the planning an decision making.
 There are communication gap between department to department and top level
management to lower level management.
 There is not any concept of profit planning system.
 10
 Budgeting procedure of NEA is realistic because there is less deviation between budgeted
data and actual data.
 In NEA, overhead are not classified systematically and it creates problem to control cost.
 NEA has not practice to follow the budget.
 NEA is suffering from power less which is 24% of production.
 NEA is suffering from the idle cash and bank balance.
 There is a problem of autonomous because the government directly interferes to the
public enterprises.
Another researcher Mr. Bharat Kumar Dhami has submitted his research work in the topic of "A
case study of Nepal Electricity Authority". He has analyzed of financial position of NEA. And on
the basis of different analysis and observation, he has pointed out the following major findings.
(Dhami, 2007)

 Actual sales and production of NEA is in increasing trend.

 NEA has very low employee productivity and profit productivity.
 Achievement of authority for actual sales is more variable than budgeted sales and actual
production also more variable than planned production.
 NEA is suffering from power loss which is 23.907 of production because sales are below
than production
 NEA is paying a long amount of interest every year and it is suffering from high fixed
costs.
 In term of cost volume profit analysis of NEA it shows the satisfactory position because
BEP is less than its sales revenue and margin of safety ratio is also 32.54 percent.
 Return on sales ratio, return on net worth fixed assets turnover nation, capital turnover
ratio, total assets turnover ratio are not perfectly satisfactory but quick ratio seems better.
 From flexible budget analysis, NEA is to generate some operating profit but it is not
satisfactory because the authority is not running full capacity.

In conclusion, it can be said that profitability ratio measures the success of the firm in earning a
net return on sales or on investment since profit is the ultimate objective of the firm. Various
profitability ratios are calculated to measure the operating efficiency of a business enterprise.
 11
1.7 Methods of Study

Evaluating the profitability ratio of NEPAL ELECTRICITY AUTHORITY in a micro level and
to highlight the trend of profitability throughout these years at the macro level forms the basic
objective of this research.

1.7.1 Research Design

The research design tells us about the mode with which the entire project is prepared. Keeping in
mind the objective of the study, descriptive cum analytical research design has been followed.
The present study is based on secondary sources of data and information. The study is based on
the wide range of variables & factors portraying accurately upon the profitability of NEA.

1.7.2 Population and Sample

There are two major generation institutions that can generate electricity in Nepal namely: Nepal
Electricity Authority and Independent Power Producer. The researcher selected Nepal Electricity
Authority to fulfill the purpose of this study using judgmental sampling basis. For analysis
purpose, financial statements only from preceding five years (2072/73 to 2076/77) are used.

1.7.3 Sources of Data

The sources of data can be primary or secondary. This study is based on secondary data.
Secondary data can define as the data collected earlier for a purpose other than one currently
being pursued. As a researcher I have scanned lot of sources to get an access to secondary data
which have formed a reference base to compare the research findings. The Annual Reports of
NEA, newspapers, library books, websites & internet research were used to elicit secondary data.

1.7.4 Data collection Procedure

Data collection is the process of gathering and measuring information or targeted variables in an
established systematic fashion, to answer relevant questions and evaluate outcomes. The data and
information are collected from secondary sources, for which various publications of Nepal
Electricity Authority, newspapers, internet websites and other publications have been used.
 12
1.7.5 Techniques of Analysis

In the course of analysis, data gathered from the various sources will be inserted in the tabular
from according to their homogeneous nature.
The financial and statistical tools applied are:

A. Financial Analysis Tools:

 Gross Profit Margin:

Gross Profit Margin is the ratio between gross profit and sales of the firm. It shows the
firm‟s efficiency to generate the amount in gross profit per rupee of sales. It is calculated as:
(Paudel, Baral, Joshi, Gautam, & Rana, 2018)

 Net Profit Margin:

The profit margin ratio, also known as the operating performance ratio, measures the
company‟s ability to turn its sales into net income. In simple words, it indicates
organization‟s ability to generate profit from sales. Net profit margin helps investors assess
if a company's management is generating enough profit from its sales and whether
operating costs and overhead costs are being contained. It is calculated by dividing net
income by net sales. (Paudel, Baral, Joshi, Gautam, & Rana, 2018)

 Return on Assets:
The return on assets (ROA) is considered an overall measure of profitability. Return on
assets gives an idea as to how efficient management is at using its assets to generate
earnings. In simple words, this ratio measures how much net income was generated for each
rupee of assets the company has. It is computed as follows: - (Paudel, Baral, Joshi, Gautam,
& Rana, 2018)

( )
 13
 Return on Equity:
The return on common shareholders‟ equity (ROE) measures how much net income was
earned relative to each rupee of common stockholders‟ equity. It is calculated by dividing
net income by total common stockholders‟ equity. Here net income refers to net income less
preference dividend (i.e., earnings available for equity shareholders). (Paudel, Baral, Joshi,
Gautam, & Rana, 2018)

( )

 Earnings Per Share:

The Earning per Share (EPS) is the ratio of total earning available to equity share
shareholders by total number of equity shares of the company. In other words, it is the
monetary value of earnings per outstanding share of common stock for a company. It is
calculated as: - (Paudel, Baral, Joshi, Gautam, & Rana, 2018)

( )

 Book Value per Share:

The Book Value per Share (BVPS) is a method to calculate the per-share value of company
based on common shareholders‟ equity in the company. It is worked out as total book value
of equity divided by number of outstanding shares of common stock. The higher market to
book ratio generally indicates that the company‟s overall activities have enhanced the value
of the company. It is computed as: - (Paudel, Baral, Joshi, Gautam, & Rana, 2018)

( )
 14
B. Measures of Central Tendency:

 Mean: -
Arithmetic mean or simple mean is the sum of ratios divide by number of years considered
to compute the given ratio. It is the most often used measures of central tendency. In
financial terms, it is also referred as return. The formula for computing mean is:
(Bajracharya, 2072)

 Standard Deviation: -
The standard deviation is a measure of the amount of variation or dispersion of a set of
values. A low standard deviation indicates that the values tend to be close to the mean (also
called the expected value) of the set, while a high standard deviation indicates that the
values are spread out over a wider range. It is computed by: (Bajracharya, 2072).

Where,

σ = standard deviation
N = the size of population
Xi = each value from the population
µ = the population mean

 Coefficient of Variation (CV): -

The Coefficient of Variation (CV) is the ratio of the standard deviation to the mean. It is
widely used in analytical chemistry to express the precision and repeatability of an assay.
Mathematically, (CV = σ † µ) (Bajracharya, 2072).

( )
 15
C. Simple Table and Bar Diagram
Besides the above-mentioned ratio analysis tools and measures of central tendency, the data are
analyzed by presenting them in simple table and simple bar diagram.

 Simple Table: -
Simple table is also popularly known as one way table. It is a table that presents the data
based on single characteristics.

 Simple Bar Diagram: -

Bar diagram represent the data by means of bars or rectangles of equal width. The length of
bars represents the given data and the width may be of any size. A simple bar diagram is the
bar diagram with a single variable classified on a quantitative basis. The X-axis shows the
financial year of the study period and the Y-axis shows the different ratios computed under
the current study.

1.8 Limitation of the Study

This study, apart from its numerous advantages and benefit to various stakeholders with genuine
data, has its own exceptions and limitations which can be listed as follows:

 The study is made within limited data.

 The study is limited to a firm among various firms in the industry i.e. only profitability of
Nepal Electricity Authority is analyzed.
 Data of past five years (2072/73 to 2076/77 ) will only be used in this study.
 Data of year 2076/77 is provisional data which is subject to audit.
 The study will primarily be based on secondary data source which may lack reliability.
 The study is based on past data.
 Data are collected from websites of the organization and other websites. Thus, they might
lack reliability.
 Research may not be free from human errors.
 16

CHAPTER II

RESULTS AND ANALYSIS

2.1 Data Presentation

Presentation and data analysis of data is the main body of the study. Introduction, review of
literature and research methodology is presented in the previous chapter that provides the basic
inputs to analyze and interpret the data. In this chapter, data are presented and analyzed. The
objectives of the study have been already highlighted in the first chapter. In order to accomplish
the above objectives, descriptive and analytical research has been followed. The tools used for the
presentation of the data generated from secondary sources include:

 Simple Table
 Simple Bar Diagram

The data presented are then analyzed through ratio analysis. Financial ratios are designed to reveal
the relative strength and weaknesses of a company as compared to other companies in the same
industry and to show weather the firm's position has been improving or deteriorating over time.
Ratio analysis is the systematic use of profitability ratio information of the firm‟s strength and
weakness as its historical performance, and current condition can be determined. This study
focuses on presentation and analysis of profitability ratios of Nepal Electricity Authority.

2.2 Data Analysis

Profitability ratio indicates the degree of overall success in achieving the desired profit of the
bank. It helps in ascertaining whether adequate profits are being earned on the capital invested in
the business or not. Analysts and investors use profitability ratios to measure and evaluate a
company's ability to generate income (profit) relative to revenue, balance sheet assets, operating
costs, and shareholders' equity during a specific period of time. As mentioned earlier, various
financial and statistical tools have been used, in order to achieve the targeted objectives. Under the
financial tool have included ratio analysis made to evaluate net profit margin, return on assets,
EPS and other important ratios, which will help to evaluate the profitability of NEA and under the
statistical tools here is included calculation of Average, Standard Deviation & its Coefficient.
 17
The following profitability ratios are computed and analyzed:

2.2.1 Gross Profit Margin:

Gross Profit Margin is the ratio between gross profit and sales of the firm. It is calculated as:

Table 3:

Gross Profit Margin of Nepal Electricity Authority (NRs. in million):

Fiscal Year Gross Profit Total Ratio (in %) ∑ x-R(x) ∑ [x- R(x)]2
(F/Y) Revenue
2072-73 510 31,824 1.60 (14.56) 211.88
2073-74 7,167 46,796 15.32 (0.84) 0.71
2074-75 8,592 55,358 15.52 (0.64) 0.41
2075-76 14,479 66,613 21.74 5.58 31.11
2076-77 18,243 68,534 26.62 10.46 109.42
Total 80.79 353.52
Mean (µ) 16.16
S.D. 8.41
C.V. 0.52

Note: Researchers has calculated the data from the findings of Appendix I

Gross Profit
30

25

20
Gross Profit

15

10

0
2072-73 2073-74 2074-75 2075-76 2076-77
Gross Profit 1.6 15.32 15.52 21.74 26.62
Fiscal Years

Figure 2: Researcher has drawn the chart from the data of Table 3.
 18

Gross Profit Margin is the ratio between gross profit and sales of the firm. Table 3 and Figure 2
indicate the gross profit margin of Nepal Electricity Authority from fiscal year 2072/73 to 2076/77
which is 1.6%, 15.32%, 15.52%, 21.74% and 26.62% respectively. The highest gross profit
margin is observed during FY 2076/77 and the lowest gross profit margin was observed during FY
2072/73. Hence, the gross profit margin ratio of Nepal Electricity Authority is in increasing trend
as sales are also in increasing trend. The Gross Profit Margin of NEA has a high increase within
the past five years; it has increased from 1.6% in 2072/73 to 26.62% in 2076/77. The average ratio
(i.e., mean) is 16.16%. Similarly, the standard deviation and coefficient of variance stood at 8.41%
and 0.52 respectively. Thus, the ratios in FY 2075/76 and FY 2076/77 are above the mean or
average gross profit margin of NEA during the past five years study period. The ratio of gross
profit shows the profitability of authority indicating NEA sales is increasing each year with gross
profit increasing proportionately.

2.2.2 Net Profit Margin:

It is calculated by dividing net income by net sales.

Table 4:

Net Profit Margin of Nepal Electricity Authority (NRs. in million):

Fiscal Year Net Profit Total Ratio (in %) ∑ x-R(x) ∑ [x- R(x)]2
(F/Y) Revenue
2072-73 -8,890 31,824 (27.93) (39.49) 1,559.29
2073-74 1,502 46,796 3.21 (8.34) 69.61
2074-75 2,975 55,358 5.37 (6.18) 38.18
2075-76 9,840 66,613 14.77 3.22 10.36
2076-77 11,056 68,534 16.13 4.58 20.97
Total 11.55 1698.41
Mean (µ) 2.31
S.D. 20.61
C.V. 8.92

Note: Researchers has calculated the data from the findings of Appendix II
 19

Net Profit
20.00

15.00

10.00

5.00

-
Net Profit

(5.00)

(10.00)

(15.00)

(20.00)

(25.00)

(30.00)

(35.00)
2072-73 2073-74 2074-75 2075-76 2076-77
Net Profit (27.93) 3.21 5.37 14.77 16.13
Fiscal Year

Figure 3: Researcher has drawn the chart from the data of Table 4.

Net Profit Margin is the ratio between net profit and sales of the firm. Table 4 and Figure 3
indicate the net profit margin of Nepal Electricity Authority from fiscal year 2072/73 to 2076/77
which is -27.93%, 3.21%, 5.37%, 14.77% and 16.13% respectively. The highest net profit margin
is observed during FY 2076/77 and the lowest net profit margin, which was negative, was
observed during FY 2072/73. Hence, the net profit margin ratio of Nepal Electricity Authority is
in increasing trend as sales are also in increasing trend. The Net Profit Margin of NEA has a high
increase within the past five years; it has increased from -27.93% in 2072/73 to 16.13% in
2076/77. The average ratio (i.e., mean) is 2.31%. Similarly, the standard deviation and coefficient
of variance stood at 20.61% and 8.92 respectively. Thus, the ratio in FY 2072/73 is below the
mean or average net profit margin of NEA during the past five years study period. The ratio of net
profit shows the profitability of authority indicating NEA sales is increasing each year with net
profit increasing proportionately.
 20

2.2.3 Return on Assets:

It is calculated by dividing net income by total assets.

( )

Table 5:

Return on Assets of Nepal Electricity Authority (NRs. in million):

Fiscal Year Net Profit Total Assets Ratio (in %) ∑ x-R(x) ∑ [x- R(x)]2
2072-73 -8,890 210,689 (4.22) (4.81) 23.09
2073-74 1,502 253,326 0.59 0.01 0.00
2074-75 2,975 292,922 1.02 0.43 0.18
2075-76 9,840 349,770 2.81 2.23 4.96
2076-77 11,056 405,500 2.73 2.14 4.58
Total 2.93 32.82
Mean (µ) 0.59
S.D. 2.86
C.V. 4.89

Note: Researchers has calculated the data from the findings of Appendix III

Return on Assets
4.00

3.00

2.00

1.00
Return on Assets

(1.00)

(2.00)

(3.00)

(4.00)

(5.00)
2072-73 2073-74 2074-75 2075-76 2076-77
Return on Assets (4.22) 0.59 1.02 2.81 2.73
Fiscal Years

Figure 4: Researcher has drawn the chart from the data of Table 5.
 21
Return on Assets is the ratio between net profit and total assets of the firm. Table 5 and Figure 4
indicate the Return on Assets of Nepal Electricity Authority from fiscal year 2072/73 to 2076/77
which is -4.22%, 0.59%, 1.02%, 2.81% and 2.73% respectively. The highest return on assets is
observed during FY 2075/76 and the lowest return on assets was observed during FY 2072/73,
which was also negative. Hence, the return on assets ratio of Nepal Electricity Authority is in
fluctuating trend as it increased up to 2075/76 and starts declining after that. The Return on assets
of NEA has a high increase within the past five years; it has increased from -4.22% in 2072/73 to
2.81% in 2075/76. The average ratio (i.e., mean) is 0.59%. Similarly, the standard deviation and
coefficient of variance stood at 2.86% and 4.89 respectively. Thus, the ratio in FY 2072/73 is
below the mean or average return on assets ratio of NEA during the past five years study period.

2.2.4 Return on Equity:

It is calculated by dividing net income by total common stockholders‟ equity.

( )

Table 6:

Return on Equity of Nepal Electricity Authority (NRs. in million):

Fiscal Year EAS Total Equity Ratio (in %) ∑ x-R(x) ∑ [x- R(x)]2
2072-73 -8,890 26,009 (34.18) (31.52) 993.56
2073-74 1,502 62,137 2.42 5.08 25.78
2074-75 2,975 85,384 3.48 6.14 37.75
2075-76 9,840 125,898 7.82 10.48 109.74
2076-77 11,056 154,319 7.16 9.82 96.51
Total (13.30) 1263.33
Mean (µ) (2.66)
S.D. 17.77
C.V. (6.68)

Note: Researchers has calculated the data from the findings of Appendix IV
 22

Return on Equity
10.00

5.00

(5.00)
Return on Equity

(10.00)

(15.00)

(20.00)

(25.00)

(30.00)

(35.00)

(40.00)
2072-73 2073-74 2074-75 2075-76 2076-77
Return on Equity (34.18) 2.42 3.48 7.82 7.16
Fiscal Year

Figure 5: Researcher has drawn the chart from the data of Table 6.

Return on Equity is the ratio between Earning available to Shareholders and total equity of the
firm. Table 6 and Figure 5 indicate the Return on Equity of Nepal Electricity Authority from fiscal
year 2072/73 to 2076/77 which is -34.18%, 2.42%, 3.48%, 7.82% and 7.16% respectively. The
highest return on equity is observed during FY 2075/76 and the lowest return on equity was
observed during FY 2072/73, which was also negative. Hence, the return on equity ratio of Nepal
Electricity Authority is in fluctuating trend as it increased up to 2075/76 and starts declining
thereafter. The Return on equity of NEA has a high increase within the past five years; it has
increased from -34.18% in 2072/73 to 7.82% in 2075/76. The average ratio (i.e., mean) is -2.66%.
Similarly, the standard deviation and coefficient of variance stood at 17.77% and -6.68
respectively. Thus, the ratio in FY 2072/73 is below the mean or average return on assets ratio of
NEA during the past five years study period.
 23
2.2.5 Earning per Share:
The Earning per Share (EPS) is the ratio of total earning available to equity share shareholders by
total number of equity shares of the company.

( )

Table 7:

Earnings per Share of Nepal Electricity Authority (NRs. in million):

Fiscal Year EAS No. of Shares EPS

2072-73 -8,890 585.28 (15.19)
2073-74 1,502 824.11 1.82
2074-75 2,975 1024.38 2.90
2075-76 9,840 1284.41 7.66
2076-77 11,056 1395.41 7.92

Note: Researchers has calculated the data from the findings of Appendix V

EPS
10

0
EPS

-5

-10

-15

-20
2072-73 2073-74 2074-75 2075-76 2076-77
EPS -15.19 1.82 2.9 7.66 7.92
Fiscal Year

Figure 6: Researcher has drawn the chart from the data of Table 7.
 24
The Earning per Share (EPS) is the ratio of total earning available to equity share shareholders by
total number of equity shares of the company. Table 7 and Figure 6 indicate the Earning per share
of Nepal Electricity Authority from fiscal year 2072/73 to 2076/77 which is Rs. (15.19)/share, Rs.
1.82/share, Rs 2.90/share, Rs 7.66/share and Rs. 7.92/share respectively. The highest EPS was
observed during FY 2076/77 and the lowest EPS was observed during FY 2072/73, which was
also negative. Hence, the earning per share of Nepal Electricity Authority is in increasing trend.

2.2.6 Book Value per Share:

It is worked out as total book value of equity divided by number of outstanding shares of common
stock.

( )

Table 8:

Book Value per Share of Nepal Electricity Authority (NRs. in million):

Fiscal Year Total Equity No. of Shares BVPS

2072-73 26,009 585.28 44.44
2073-74 62,137 824.11 75.40
2074-75 85,384 1024.38 83.35
2075-76 125,898 1284.41 98.02
2076-77 154,319 1395.41 110.59

Note: Researchers has calculated the data from the findings of Appendix VI
 25

BVPS
120

100

80
BVPS

60

40

20

0
2072-73 2073-74 2074-75 2075-76 2076-77
BVPS 44.44 75.4 83.35 98.02 110.59

Fiscal Year

Figure 7: Researcher has drawn the chart from the data of Table 8.

Book Value per Share is worked out as total book value of equity divided by number of
outstanding shares of common stock. Table 8 and Figure 7 indicate the book value per share of
Nepal Electricity Authority from fiscal year 2072/73 to 2076/77 which is Rs. 44.44/share, Rs.
75.40/share, Rs. 83.35/share, Rs 98.02/share and Rs 110.59/share respectively. The highest BVPS
was observed during FY 2076/77 and the lowest BVPS was observed during FY 2072/73. Hence,
the book value per share of Nepal Electricity Authority is in increasing trend. The Book Value
finally reaches above par value of Rs. 100, in the year 2076/77 when BVPS is Rs. 110.59.
 26
2.3 Major Findings of the Study:

In this fieldwork report, we study about Nepal Electricity Authority profitability position and we
found the profitability position of Nepal Electricity Authority is better in past five years. In
compliance with analysis, the following finding as made: Overall, the profitability ratios of Nepal
Electricity Authority are in increasing trend. However, the Return on Assets and Return on Equity
of NEA has experienced slight decline during FY 2076/77. Therefore, on the basis of different
analysis and observation about NEA, the following major findings have been presented below:

Table 9

Summary of Computed Ratios under Profitability Analysis of Nepal Electricity Authority

Particulars FY 2072/73 FY 2073/74 FY 2074/75 FY 2075/76 FY 2076/77
Gross Profit Margin 1.60 15.32 15.52 21.74 26.62
Net Profit Margin (27.93) 3.21 5.37 14.77 16.13
Return on Assets (4.22) 0.59 1.02 2.81 2.73
Return on Equity (34.18) 2.42 3.48 7.82 7.16
Earnings Per Share (15.19) 1.82 2.90 7.66 7.92
Book Value Per Share 44.44 75.40 83.35 98.02 110.59

Note: Researchers calculations have been extracted from Table no. 3 to 8.

Gross Profit Margin:

The Gross profit margin of Nepal Electricity Authority is in increasing trend. The current year‟s
gross profit margin is the highest profit margin recorded during the current study period (i.e., FY
2072/73 – FY 2076/77). The increase in gross profit margin during the current fiscal year
indicates that the NEA is more efficient at converting its total revenue into gross profit. The major
reason behind increase in gross profit margin in this past five years is reduction in Energy
(Electricity) Purchase from India and increased own generation of electricity by NEA.

Net Profit Margin:

The net profit margin of Nepal Electricity Authority is in increasing trend. The aim of NEA as a
profit making organization again, after years of losses, was achieved in the fiscal year FY 2073/74
 27
and this trend has become more pronounced in the successive years and the year under review (FY
2076/77) with the profit reaching a record high of NRs 11,056 million which is 16.13% of sales.
The current year‟s net profit margin is the highest profit margin recorded during the current study
period (i.e., FY 2072/73 – FY 2076/77). The increase in net profit margin during the current fiscal
year indicates that the NEA is more efficient at converting its net operating income or total
revenue into net profit. In other words, the proportionate increase in NPAT is more than the
proportionate increase in total revenue. Hence, highest net profit margin is a better indicator of
profitability.

Return on Assets:
The return on assets of Nepal Electricity Authority is in fluctuating trend. The current year‟s
ROA is 2.73%. The decline in the return on assets during the current fiscal year suggests that the
NEA might have over invested on assets that have failed to produce revenue growth as compared
to previous year (2075/76). In other words, the proportionate increase in NPAT is less than the
proportionate increase in total assets. As similar to the profit margin ratio, higher ROA is a better
indicator of profitability and vice-versa.

Return on Equity:
The return on equity of Nepal Electricity Authority is in fluctuating trend. The current year‟s ROE
is 7.16% which is lesser than previous year (2075/76) ROE i.e. 7.82%. The decline in the return
on equity during the current fiscal year suggests that the NEA is becoming less efficient at
creating profits and increasing shareholder value. In other words, the proportionate increase in
NPAT is less than the proportionate increase in total equity. Higher ROE indicates better
profitability situation of a corporation.

Earnings per Share:

Earnings per share of Nepal Electricity Authority are in increasing trend. The current year‟s EPS
is the highest earning per share recorded during the current study period (i.e., FY 2072/73 – FY
2076/77). The current year EPS is Rs. 7.92 per Share. EPS indicates how much money a company
makes for each share of its stock, and a higher EPS indicates greater value because investors will
pay more for a company's shares if they think the company has higher profits relative to its share
price.
 28
Book Value per Share:
Book value per share of Nepal Electricity Authority is in increasing trend. Due to tremendous loss
in past years, the Book Value of Nepal Electricity Authority was less than the par value of Rs.100.
Book value per share is a way to measure the net asset value investors get when they buy a share.
The current year‟s BVPS is the highest book value per share recorded during the current study
period (i.e., FY 2072/73 – FY 2076/77). The current year EPS is Rs. 110.59 per Share. Only this
year, the BVPS has crossed the par value of Rs.100.

The highest NPAT achieved during the study period is at FY 2076/77. Similarly, the highest
revenue generated by NEA is at FY 2076/77, the highest total assets recorded till date is at FY
2076/77, the value of total equity of NEA during the current FY 2076/77 which is the highest total
equity so far. Thus, NEA has achieved 2076/77 has the highest of sales revenue, profit, EPS and
BVPS in the current year (2076/77).
 29

CHAPTER III

SUMMARY AND CONCLUSION

3.1 Summary

The current study can be summarized into three headings:

Introduction:
This is the first chapter of the study which includes the general background of the study, profile of
the organization (in this case, Nepal Electricity Authority), statement of problem, objectives of the
study which is based upon the research problem, significance of the study, review of literatures on
various books, journals, articles and web sources relevant to this report, research methodology,
limitations of the study and organization of the study. Research methodology comprises up of
research design of whole procedure of this research work, population and sample size, sources of
data, data collection technique and data analysis tools.

Results and Analysis:

In the second chapter, the available data relevant to this study of Nepal Electricity Authority for
past five years (2072/73-2076/77) is presented in tabular form and bar diagram. Different
profitability ratios as: gross profit margin, net profit margin, return on assets, return on equity,
Earning per share and book value per share are computed, analyzed, And then statistical tools as:
mean, standard deviation and coefficient of variation are computed and the findings of the study
are reported.

Summary and Conclusion:

The third and final chapter is about a brief summary of whole research report and its conclusion.
After reading thoroughly the current study, the reader shall have a brief understanding of the
various profitability ratios and ratio analysis tools applied in the study and the current profitability
position of Nepal Electricity Authority which is a public enterprise in trading sector operating in
Nepal.The Bibliography section contains reference to all the secondary sources of literatures that
have been helpful for this study and the Appendix contains the full figure amount and ratios
computed under profitability analysis of NEA.
 30
3.2 Conclusion

Nepal is one of the least developed countries of the world. For most of the developing process, it
is financially depending upon the foreign countries. Thus, the economic condition of the people
is weak. In Nepal 85% of the people are depended upon agricultural sector which is unable to
provide full employment to the people. The economy is heavily dependent on imports of basic
materials and on foreign markets for its forest and agricultural products. Nepal government has
to activate people in the nation‟s development through overall industrialization of nation. For this
purpose, development of Public Enterprises is essential.

Public enterprises are business organization established owned, managed and controlled by the
government which can range from 51% to 100% of shares in the entity. Public enterprises have
come to play major role in economic development of Nepal. Government has invested a huge
amount of resources in NEA. However, the return to government on such investment is very low.
There are 44 public enterprises operating in the country. The „Annual Status Review of Public
Enterprises 2020‟ report shows that all the government entities involved in financial services made
profit. However, only 4 out of 10 in manufacturing and 3 out of 10 in the service sector earned
profit. In developing country like ours, the role of public utility undertaking can hardly be ignored.
The services provided by public utilities are essential for economic growth and development. It is
also important because this sector is a large user of economic resources.

Nepal has huge water resources, which can generate power and irrigate land much more than
requirement of this country. But Nepal has utilized only about 650 M.W hydropower from the
huge potential of 83000 M.W., the utilization of our water resources is very significant NEA is
only our institution engaged in the power sector of the country. NEA maintains its status as the
largest government enterprise in term of human resources employment, capital investment and
assets. It has to be undertaking the wide responsibility of electricity service throughout the nation.
NEA experienced continuously remarkable improvement in its operating performance as
compared to last financial years but it is still not able to fulfill the 100% electricity demand.

The subject matter for this research work is one of the top profit earning public enterprises of
Nepal functioning in the field of electricity generation, transmission and distribution in Nepal,
which is a monopoly state owned distributor of Nepal that imports, purchases and generates
 31
electricity and distributes in the entire country. In Nepal, no private or other companies are
allowed to distribute electricity other than NEA. NEA is the sole distributor of electricity in Nepal.
The basic objectives of the present study are to highlight the Profitability Situation of Nepal
Electricity Authority with reference to the annual reports of NEA from Fiscal Year 2072/73 to
Fiscal Year 2076/77.

Nepal Electricity Authority (NEA) has completed 35 years of establishment. NEA is moving
ahead with the goal of providing electricity to all Nepali households by 2023. NEA is leading
organization in Nepal‟s energy production and distribution. It was running at a loss in the past, but
has started making profit from the fiscal year 2073/74. Since then, the profit has been gradually
increasing. After that, NEA earned Rs. 2.85 billion in FY 2074/75, Rs. 9.81 billion in 2075/76 and
Rs. 11.05 billion in the fiscal year 2076/77. (Investopaper, 2020)

This study examined the profitability position of Nepal Electricity Authority over the period of
last five financial years. This study takes its importance from the huge changes in profitability
position in the Nepal Electricity Authority that have exposed them to a number of risks which
stated important challenges for them to overcome losses and maintain profitability for four straight
years including the current study period. NEA has been successful in converting the accumulated
losses of NRs 12,234 million in FY 2075/76 to an accumulated profit of NRs 4,866 million in FY
2076/77. The generalized conclusion drawn from the current study is that- all the profitability
ratios of NEA are in increasing trend. However, the return on Assets and Return on Equity has
seen a slight decline over this current year. The highest NPAT achieved during the study period is
at FY 2076/77. Similarly, the highest revenue generated by NEA was at FY 2076/77, the highest
total assets recorded till date is at FY 2076/77, the value of total equity of NEA is highest during
the current FY 2076/77 which is the highest total equity so far. The continuous supply of
electricity, operational efficiency and the strict measures taken to reduce technical and
nontechnical losses has contributed significantly in this endeavor.

NEA experienced continuously remarkable improvement in its operating performance as

compared to last financial year. Reduction in system losses, increase in supply to industrial
consumers, efficient control and reduction in operating cost, increase in power generation from its
own power plants, uninterrupted and reliable power supply and efficient management of funds
contributed to achieve net profits for the year under review.
 32
Public enterprises are business organization established owned, managed and controlled by the
government which can range from 51% to 100% of shares in the entity. Healthy Economy and
Stable Government are essential for successful operation of public enterprises. However, both of
these factors are somewhat lacking in Nepal. Since this study only focuses on financial factors
responsible for profitability of the concern, there are further multiple behavioral and external
factors which are equally significant for maintaining long term succession and profitability in an
enterprise. Profit is also affected by various external factors such as political factors, economic
factors, and socio-cultural settings of a nation, technological factors and human factors. Also,
profit is affected by behavioral factors as: effective management system, control over the
organization, leader‟s influences, training to the manpower, consumer‟s behavior, etc. Hence, the
direct relationship between these determinants and profitability is in line with theory. Thus,
government policies on employment and investments should be intensified to increase the
profitability of NEA. Although inflation seemed to have a positive influence on profitability, high
inflation may generally be undesirable.
 33

Bibliography

Academia.edu. (n.d.). Profitability. Retrieved 1 20, 2021, from Academia.edu:

https://www.academia.edu/36836161/Profitability_INTRODUCTION

Acharya, S. (2000). Profit Planning in Public Utility Underatking Nepal. Kirtipur: An unpublished
observation submitted to central department of management T.U.

Bajracharya, B. C. (2072). Business Statistics. Kathmandu: M K Publishers and Distributors.

Basnett, Y., Henley, G., Howell, J., Jones, H., Lemma , A., & Pandey, P. (2014, 06). Structural
economic transformation in Nepal: A diagnostic study submitted to DFID Nepal. Retrieved
01 18, 2021, from https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-
opinion-files/9019.pdf

Bhattarai, J., & Ghimire, S. R. (2072). Fundamentals of Financial Management. Dillibazar,

Kathmandu: K.P. Pustak Bhandar.

Dhami, B. K. (2007). A Case Study of Nepal Electricity Authority. Kirtipur: An unpublished

observation submitted to central department of management T.U.

Gazely, A., & Lambert, M. (2006). Management Accounting (13th ed.). New York: SAGE
Publications Ltd.

Helfert, E. A. (1964). Techniques of Financial Analysis. Washington D.C.: R. D. Irwin.

Investopaper. (2020, 07 1). News. Retrieved 1 25, 2021, from Investopaper:

https://www.investopaper.com/news/nepal-electricity-authority/

Joshi, P. (2073). Business Research Methods. Kathmandu: Samjhana Publication Pvt. Ltd.

Levy , H., & Post, T. (2004). Investments. London: Pearson College Div.

My accounting Course. (n.d.). Financial Ratio Analysis. Retrieved from My accounting Course:
http://www.myaccountingcourse.com/financial-ratios
 34
Nepal Electricity Authority. (n.d.). Retrieved from Wikipedia:
https://en.wikipedia.org/wiki/Nepal_Electricity_Authority

Nepal Electricity Authority. (2020). Annual Report 2019/2020. Kathmandu: Nepal Electricty
Authority.

Nepal Electricity Authority. (n.d.). About us. Retrieved from NEA- Website:
https://www.nea.org.np/aboutus

Nepal Law Commission. (2049). Statutes/Acts: Electricity Act, 2049. Retrieved 1 20, 2021, from
Nepal Law Commission: Website:
http://www.lawcommission.gov.np/en/archives/category/documents/prevailing-
law/statutes-acts/electricity-act-2049-1992#

Paudel, R., Baral, K., Joshi, P., Gautam, R., & Rana, S. (2018). Fundamentals of Financial
Management. Kathmandu: Asmita Books Publishers and Distributors (P) Ltd.

Rajan B. Paudel, K. J. (2018). Fundamentals of Financial Management. Kathmandu: Asmita

Books Publishers and Distributors (P) Ltd.

Risal, N. (2019). Performance Scrutiny of Nepal Electricity Authority using DuPont Analysis. PYC
Nepal Journal of Management, 85.

The official Portal of Government of Nepal. (n.d.). Business Power Sector: Energy. Retrieved 1 20,
2021, from The official Portal of Government of Nepal:
https://nepal.gov.np:8443/NationalPortal/view-page?id=92

Yadav Raj Koirala, R. P. (2016). Accounting for Financial Analysis & Planning. Kathmandu:
Asmita Books Publishers & Distributors (P) Ltd.
 35

APPENDICES

APPENDIX-I

Gross Profit Margin of Nepal Electricity Authority

(Rs. In millions)
Particulars F/Y 2072/73 F/Y 2073/74 F/Y 2074/75 F/Y 2075/76 F/Y 2076/77
Gross Profit 510 7,167 8,592 14,479 18,243
Total Revenue 31,824 46,796 55,358 66,613 68,534
Gross Margin% 1.60 15.32 15.52 21.74 26.62

Source: Annual Reports (Nepal Electricity Authority, 2020)

APPENDIX-II

Net Profit Margin of Nepal Electricity Authority

(Rs. In millions)
Particulars F/Y 2072/73 F/Y 2073/74 F/Y 2074/75 F/Y 2075/76 F/Y 2076/77
Net Profit -8,890 1,502 2,975 9,840 11,056
Total Revenue 31,824 46,796 55,358 66,613 68,534
Net Margin% (27.93) 3.21 5.37 14.77 16.13

Source: Annual Reports (Nepal Electricity Authority, 2020)

APPENDIX-III

Return on Assets of Nepal Electricity Authority

(Rs. In millions)
Particulars F/Y 2072/73 F/Y 2073/74 F/Y 2074/75 F/Y 2075/76 F/Y 2076/77
Net Profit -8,890 1,502 2,975 9,840 11,056
Total Assets 210,689 253,326 292,922 349,770 405,500
Return on Assets% (4.22) 0.59 1.02 2.81 2.73

Source: Annual Reports (Nepal Electricity Authority, 2020)

 36

APPENDIX-IV

Return on Equity of Nepal Electricity Authority

(Rs. In millions)
Particulars F/Y 2072/73 F/Y 2073/74 F/Y 2074/75 F/Y 2075/76 F/Y 2076/77
Net Profit -8,890 1,502 2,975 9,840 11,056
Total Equity 26,009 62,137 85,384 125,898 154,319
Return on Equity % (34.18) 2.42 3.48 7.82 7.16

Source: Annual Reports (Nepal Electricity Authority, 2020)

APPENDIX-V

Earnings per Share of Nepal Electricity Authority

(Rs. In millions)
Particulars F/Y 2072/73 F/Y 2073/74 F/Y 2074/75 F/Y 2075/76 F/Y 2076/77
EAS -8,890 1,502 2,975 9,840 11,056
No. of Shares 585.28 824.11 1024.38 1284.41 1395.41
EPS (15.19) 1.82 2.90 7.66 7.92

Source: Annual Reports (Nepal Electricity Authority, 2020)

APPENDIX-VI

Book Value per Share of Nepal Electricity Authority

(Rs. In millions)
Particulars F/Y 2072/73 F/Y 2073/74 F/Y 2074/75 F/Y 2075/76 F/Y 2076/77
Book Value of Equity 26,009 62,137 85,384 125,898 154,319
No. of shares 585.28 824.11 1024.38 1284.41 1395.41
BVPS 44.44 75.40 83.35 98.02 110.59

Source: Annual Reports (Nepal Electricity Authority, 2020)

37
38