WORKING CAPITAL MANAGEMENT AND PROFITABILITY:

A STUDY ON NEPAL TELECOM

A Thesis
Submitted
By
Oshina Rawal
Central Department of Management
Exam Roll No: 3880/18
T.U. Regd. No: 7-2-0163-0039-2013

Submitted in partial fulfillment of the requirements for the degree of

Master of Business Studies (MBS)

In the
Faculty of Management
Tribhuvan University

Kirtipur, Kathmandu
May, 2021
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Certification of Authorship

I certify that the work in this thesis has not previously been submitted for a degree nor
has it been submitted as part of requirements for a degree except as fully
acknowledged within the text.

I also certify that the thesis has been written by me. Any help that I have received in
my research work and the preparation of the thesis itself has been acknowledged. In
addition, I certify that all information sources and literature used are indicated in the
reference section of the thesis.

……………………..

Oshina Rawal

May, 2021
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Report of Research Committee

Ms. Oshina Rawal has defended research proposal entitled Working Capital
Management and Profitability: A study on Nepal Telecom successfully. The research
committee has registered the dissertation for further progress. It is recommended to
carry out the work as per suggestions and guidance of supervisor Prof. Dr. Govind
Tamang and submit the thesis for evaluation and viva voce examination.

…….……………………… Dissertation Proposal Defended Date:

Prof. Dr. Govind Tamang ……………………………………….
Thesis Supervisor

…….………………………
Dissertation Submitted Date:
Prof. Dr. Govind Tamang
……………………………………….
Thesis Supervisor

………………………………….
Dissertation Viva Voce Date:
Prof. Dr. Sanjay Kumar Shrestha
……………………………………….
Chairperson, Research Committee
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Approval Sheet

We have examined the thesis entitled Working Capital Management and

Profitability: A Study on Nepal Telecom presented by Oshina Rawal, a candidate
for the degree of Master of Business Studies (MBS) and conducted the viva voce
examination of the candidate. We hereby certify that the thesis is worthy of
acceptance.

………………………
Prof. Dr. Govind Tamang
Thesis Supervisor

………………………
Asso. Prof. Dr. Achyut Gyawali
Internal Examiner

………………………..…
Santosh Kumar Ghimire
External Examiner

………………………
Prof. Dr. Sanjay Kumar Shrestha
Chairperson, Research Committee

………………………
Prof. Dr. Ramji Gautam
Head of the Department, Central Department of Management
Date: …………………….
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Acknowledgements

This study entitled “Working Capital Management and Profitability: A Study on

Nepal Telecom” has been conducted to satisfy the partial requirements for the degree
of Master of Business Studies, Tribhuvan University.

A study of this kind would not have been possible without the help of all those who
contributed in diverse ways towards its success. Without the continued emotional
support provided by my family, I may have not reached the end of this journey.
During my study, there were times when work commitments and intermittent stress
made me believe that I would not be able to see this journey through. It was during
these times, and many others, that their words of encouragement and confidence in
my ability gave me the motivation to persist. No words of thanks can adequately
express the depth of my appreciation.

I would like to extend my immense gratitude to my supervisor Prof. Dr. Govind

Tamang for his valuable supervision and guidance in completing this study. I cannot
express the extent to which his patience and understanding allowed me to reach the
end of this journey. His encouragement, support, and, above all, his prompt,
constructive and greatly appreciated criticism and feedback, were invaluable to the
research, writing, and completion of this study.

I wish to acknowledge all lecturers and facilitators of Central Department of

Management for the various roles each one of them played towards the successful
completion of this thesis. I am grateful to Prof. Dr. Ramji Gautam, Department Head,
and Prof. Dr. Sanjay Kumar Shrestha, Research Committee Head, for timely
supervision and guidance to complete this work. Similarly, I would like to express
gratitude to my all friends including Narendra Saud for their advice, encouragement,
and cooperation while preparing this thesis.

Last but not least, I heartily respect my family members who morally supported,
encouraged, and provided time for study. My thesis would never have been completed
without their support.

Oshina Rawal
May, 2021
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Table of Contents

Certification of Authorship ii
Report of Research Committee iii
Approval Sheet iv
Acknowledgements v
Table of Contents vi
List of Tables ix
List of Figures x
Abbreviations xi
Abstracts xiii

CHAPTER I: INTRODUCTION 1
1.1 Background of the study 1
1.2 Problem statement 2
1.3 Objectives of the study 3
1.4 Rationale of the study 4
1.5 Limitations of the study 5
1.6 Chapter plan 5

CHAPTER II: LITERATURE REVIEW 7

2.1 Introduction 7
2.2 Theoretical review 7
2.2.1 Concept of working capital 7
2.2.1.1 Gross concept of working capital 8
2.2.1.2 Net concept of working capital 9
2.2.2 Nature of working capital 10
2.2.3 Types of working capital 11
2.2.4 Working capital policy 13
2.2.4.1 Current assets investments policy 14
2.2.4.2 Current assets financing policy 14
2.2.5 Financing of working capital 15
2.2.9 Need for working capital 19
2.2.6 Determinants of working capital 21
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2.3 Empirical review 23

2.3.1 Review of related articles 23
2.3.2 Review of the previous thesis 26
2.4 Research gap 31

CHAPTER III: RESEARCH METHODOLOGY 32

3.1 Introduction 32
3.2 Research design 32
3.3 Population and sample 32
3.3.1 Brief introduction of Nepal Telecom 33
3.4 Nature and sources of data 34
3.5 Data collection and processing procedures 35
3.6 Data analysis tools and techniques 35
3.6.1 Financial analysis 35
3.6.1.1 Composition of working capital 35
3.6.1.2 Activity/Turnover analysis 37
3.6.1.3 Liquidity ratio 39
3.6.1.4 Profitability analysis 40
3.6.2 Statistical analysis 41
3.6.2.1 Arithmetic mean (Average) 41
3.6.2.2 Standard deviation (S.D) 41
3.6.2.3 Coefficient of variation (CV) 42
3.6.2.4 Correlation coefficient (r) 42
3.6.2.5 Multiple regression analysis 43
3.7 Research framework and definition of variables 43

CHAPTER IV: RESULTS AND DISCUSSIONS 48

4.1 Position of current assets and current liabilities 48
4.2 Analysis of working capital 51
4.2.1 Current assets to total assets ratio 51
4.2.2 Cash and bank balance to current assets ratio 52
4.2.3 Inventory to current assets ratio 54
4.2.4 Receivables to current assets ratio 55
4.2.5 Current liabilities to total liabilities 57
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4.2.6 Current assets turnover ratio 58

4.2.7 Inventory turnover ratio 60
4.2.8 Receivable turnover ratio 61
4.2.9 Net working capital turnover ratio 63
4.2.10 Inventory conversion period 64
4.2.11 Average collection period 66
4.2.12 Payable turnover ratio 67
4.2.13 Payable Deferral Period 69
4.3 Analysis of liquidity ratio 70
4.3.1 Current ratio 70
4.3.2 Acid-Test ratio/Quick ratio 72
4.4 Profitability position 74
4.4.1 Net profit margin ratio 74
4.4.2 Return on equity 76
4.4.3 Return on assets 77
4.5 Correlation analysis 79
4.6 Model summary 81
4.7 Regression Analysis 82
4.8 Findings 83
4.9 Discussion 86

CHAPTER V: SUMMARY AND CONCLUSIONS 89

5.1 Summary 89
5.2 Conclusion 91
5.3 Implications 93

REFERENCES 96
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List of Tables

Table 4.1 Position of Current Assets 49

Table 4.2 Position of Current Liabilities and Working Capital 49
Table 4.3 Current Assets to Total Assets Ratio 51
Table 4.4 Cash and Bank to Current Assets Ratio 53
Table 4.5 Inventory to Current Assets Ratio 54
Table 4.6 Receivables to Current Assets Ratio 56
Table 4.7 Current Liabilities to Total Liabilities 57
Table 4.8 Current Assets Turnover Ratio 58
Table 4.9 Inventory Turnover Ratio 60
Table 4.10 Receivable Turnover Ratio 62
Table 4.11 Net Working Capital Turnover Ratio 63
Table 4.12 Inventory Conversion Period 65
Table 4.13 Average Collection Period 66
Table 4.14 Payable Turnover Ratio 67
Table 4.15 Payable Deferral Period 69
Table 4.16 Current Ratio 71
Table 4.17 Quick Ratio 72
Table 4.18 Net Profit Margin Ratio 74
Table 4.19 Return on Equity 76
Table 4.20 Return on Assets 78
Table 4.21 Correlation Matrix 79
Table 4.22 Model summary 81
Table 4.23 Regression Model 82
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List of Figures

Figure 2.1 Working capital cycle 11

Figure 2.2 Permanent/Variable Working Capital 12
Figure 2.3 Financing under Hedging Approach 18
Figure 2.4 Financing under Conservative Approach 18
Figure 2.5 Financing under Aggressive Approach 19
Figure 3.1 Organizational Structure of Nepal Telecom 34
Figure 3.2 Research Framework 45
Figure 4.1 Position of Current Assets, Liabilities and Net Working Capital 50
Figure 4.2 Current Assets to Total Assets Ratio 52
Figure 4.3 Cash and Bank to Current Assets Ratio 53
Figure 4.4 Inventory to Current Assets Ratio 55
Figure 4.5 Receivables to Current Assets Ratio 56
Figure 4.6 Current Liability to Total Liability 57
Figure 4.7 Current Assets Turnover Ratio 59
Figure 4.8 Inventory Turnover Ratio 61
Figure 4.9 Receivables Turnover Ratio 62
Figure 4.10 Net Working Capital Ratio 64
Figure 4.11 Inventory Conversion Period 65
Figure 4.12 Average Collection Period 67
Figure 4.13 Payable Turnover Ratio 68
Figure 4.14 Payable Deferral Period 70
Figure 4.15 Current Ratio 71
Figure 4.16 Quick Ratio 73
Figure 4.17 Net Profit Margin Ratio 75
Figure 4.18 Return on Equity 77
Figure 4.19 Return on Assets 78
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Abbreviations

ACP : Average Collection Period

ADSL : Asymmetric Digital Subscriber Line
APPML : Andra Pradesh Paper Mills Ltd.
B.S : Bikram Sambat
BOD : Board of Directors
CA : Current Assets
CATA : Current Assets to Total Assets
CATR : Current Assets Turnover Ratio
CBCA : Cash and Bank to Current Assets
CCC : Cash Conversion Cycle
CDMA : Code Division Multiple Access
CL : Current Liabilities
CR : Current Ratio
CV : Coefficient of Variation
EDVO : Evolution-Data Optimized
FY : Fiscal Year
GSM : Global System for Mobile Communication
ICA : Inventories to Current Assets
ICP : Inventory Conversion Period
ITR : Inventory Turnover Ratio
KSE : Karachi Stock Exchange
LR : Liquidity Ratio
Ltd : Limited
NDCL : Nepal Doorsanchar Company Ltd
NLIC : Nepal Life Insurance Company
NPM : Net Profit Margin
NSE : Nigerian Stock Exchange
NT : Nepal Telecom
NTC : Nepal Telecom Company
NWCTR : Net Working Capital Turnover Ratio
PDP : Payable Deferral Period
PSTN : Public Switched Telephone Network
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PTR : Payable Turnover Ratio

QA : Quick Assets
QR : Quick Ratio
r : Correlation Coefficient
ROA : Return on Assets
ROE : Return on Equity
SD : Standard Deviation
SPSS : Statistical Package for the Social Sciences
STCL : Salt Trading Corporation
TU : Tribhuvan University
WC : Working Capital
WCM : Working Capital Management
WiMAX : Worldwide Interoperability for Microwave Access
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Abstracts

This study investigates the Working Capital Management and Profitability of Nepal
Telecom. The major purposes of this study are; to analyze the liquidity position of
Nepal Telecom, to analyze the working capital position of Nepal Telecom, to analyze
the relationship between working capital and profitability and to determine the
turnover ratios (i.e. Receivable Turnover, Inventory Turnover, Payable Turnover and
Working Capital Turnover ratios) of Nepal Telecom. To meet these purposes of the
study descriptive research design was used and the sample was collected by using the
convenience sampling method. Nepal Telecom was selected as a sample for the study
between the fiscal years 2066/67 to 2075/76. Data were obtained from the respective
company‟s annual report. Data were analyzed using the correlation coefficient
technique and regression analysis to examine the nature and extent of the relationship
between the variables and determine whether any cause and effect relationship
between them. Variables used were Average Collection Period, Current Ratio,
Inventory Conversion Period, Payable Deferral Period, and Net Working Capital
Turnover Ratio as the independent variable and Return on Assets as the dependent
variable. The findings of the study show that there is a low degree positive correlation
between ROA and Working Capital Turnover Ratio and a high degree of positive
correlation between ROA and Average Collection Period. The study shows a low
degree of negative correlation between Inventory Conversion Period, Current Ratio
and ROA and a moderate degree of negative correlation between Return on Assets
and Current Ratio, Inventory Conversion Period and Payable Deferral Period.

From the analysis, it is revealed that NT has an excess amount of working capital in
comparison to the revenue since the amount of working capital is exceeding net
revenue this cannot be considered as the sign of efficient working capital
management. The results of model summary shows that ACP, CR, ICP, PDP and
NWCTR are responsible for change in return on assets of Nepal Telecom rest of
change depends on other factors. It shows strong relationship between all independent
variables and dependent variables. This means ACP, CR, ICP, PDP and NWCTR
have significant impact in ROA of Nepal Telecom. Independent variables ACP, CR,
ICP, PDP and NWCTR do not have significant results and shows that there is positive
relationship between the independent and dependent variables.
 CHAPTER I
INTRODUCTION

1.1 Background of the study

Working capital is a financial metric, which represents the operating liquidity

available to a business. Along with fixed assets such as plants and equipment,
working capital is considered as a part of the company's operating capital, referring to
current assets. To measure the efficiency of a company's working capital, people often
use net working capital, which is defined as the difference between current assets and
current liabilities. If current assets are higher than current liabilities, this company has
working capital efficiency, explaining the company's ability to continue its operations
and to have sufficient funds to satisfy both maturing short-term debt and upcoming
operational expenses (Maharjan, 2018).

Working capital is a common measure of a company's liquidity efficiency, and overall

health. Because it includes cash, inventory, accounts receivable, accounts payable, the
portion of debt due within one year, and other short-term accounts, a company's
working capital reflects the results of a host of company activities, including
management, debt management, revenue collection, and payments to suppliers.
Positive working capital generally indicates that a company can pay off its short-term
liabilities almost immediately. Negative working capital generally indicates a
company is unable to do so. This is why analysts are sensitive to decreases in working
capital; they suggest a company is becoming overleveraged, is struggling to maintain
or grow sales, is paying bills too quickly, or is collecting receivables too slowly.
Increases in working capital, on the other hand, suggest the opposite. There are
several ways to evaluate a company's working capital further, including calculating
the inventory-turnover ratio, the receivables ratio, days payable, the current ratio, and
the quick ratio (Chaudhary, 2018).

Working capital refers to the resources of a firm that are used to conduct day-to-day
operations work that makes the business successful. Without cash, bills cannot be
paid, without receivables; a firm cannot allow timing difference between delivering
goods or services and collecting the money to pay for them. Without inventories, a
firm cannot engage in production nor can it stock goods to provide immediate
 2

deliveries. As a result of the critical nature of current assets, the management of

working capital is one of the most important areas in determining whether a firm will
be successful. The term working capital refers to the current assets of a firm which
can be converted into cash within a year. It includes cash and marketable securities,
receivables, inventories and current liabilities to maximize the overall value of a firm.
Another way of defining working capital is that portion of the firm's current assets
financed with the long-term fund. Both liquid assets and liabilities are important in
working capital management Proper financial decision-making is extremely important
for its efficiency and profitability. Most of the financial decisions of a bank are
concerned with current assets and current liabilities. (Chaudhary, 2018).

Working capital is that portion of total assets, which circulates from one to another in
the ordinary conduct of business. Working capital is the life-blood and controlling
nerve center for any type of business organization because without the proper control
upon it no business can run smoothly. It is a crucial aspect of financial management
including the administration of all aspects of the current asset and current liabilities,
which plays a vital role in the success or failure of an organization (K.C, 2010).

1.2 Problem statement

Working capital management is regarded as one of the important factors in the

decision-making process. The management of working capital is synonymous with
the management of short-term liquidity. Working capital is regarded as the lifeblood
and nerve of a business concern and is essential to accommodate the smooth
operations of any organization. Both excessive and inadequate levels of working
capital are harmful to an enterprise to achieve its primary objectives. The excessive
level of current assets of a firm means to use more long-term funds, which is costlier
than current liabilities. On the other hand, the inadequate level of current assets may
lead the firm into technical bankruptcy. Hence, the goal of working capital
management is to manage the firm‟s current assets and current liabilities in such a
way that an optimal level of working capital is maintained. However, it is difficult to
point out how much working capital is needed by a particular business organization.
The requirement of working capital may vary from firm to firm due to the
unpredictable nature of cash inflows. In this context, working capital management is
challenging for them. As working capital is the size of investment each type of current
 3

assets should be managed efficiently and effectively. It is because decision regarding

working capital not only affects profitability of the organization in the short-run but also
affects the survival in the long-run.

The basic theme of working capital management is to provide adequate support for
the smooth and efficient functioning of day-to-day business operations by striking a
trade between the three proportions of working capital. They are liquidity,
profitability and risk.

Working capital is an important part of finance having a decisive influence on

liquidity, which is regarded as the lifeblood of a business that plays a vital role in
keeping the wheels of a business. The large holding of current assets consumes more
funds, which cannot be used for other purposes and thus involve high opportunity cost
but strengthens the firm's liquidity position, reduces risk and overall profitability.
Whereas inadequate investment in current assets loses some profitable opportunities
and can threaten the solvency of the firm because of its inability to meet some
obligation to be matured in a short period as well, should bear a bad image in the
market. Both excessive and inadequate level of working capital is not desirable
because of excessive carrying costs and the risk of liquidity. An inadequate level of
working capital obstructs the flow of production as well as market operation. So both
situations should be avoided by maintaining the optimum level of working capital.
Therefore, this study present and analyze the working capital position and shows the
problems this company faces by analyzing the following queries:
i. What is the liquidity position of Nepal Telecom?
ii. What is the working capital position of Nepal Telecom?
iii. What is the relationship between working capital and profitability?
iv. What is the level of inventories, receivables, payables and working capital
maintained by Nepal Telecom?

1.3 Objectives of the study

Balanced working capital is most important for every organization. The excess and
inadequate working capital are very harmful. The success and failure of the
organization depend upon the amount of working capital. The main objective of this
study is to examine the overall working capital management of Nepal Telecom. Every
 4

research study is conducted with a view of achieving some objectives. The major
objective of this study is to evaluate the working capital position of Nepal Telecom. The
other objectives of this study are to throw light on the importance of the proper
management of working capital and to make suggestions about how to manage the
working capital of Nepal Telecom from the long-range viewpoint. The specific
objectives are as follows:
i. To analyze the liquidity position of Nepal Telecom.
ii. To analyze the working capital position of Nepal Telecom
iii. To analyze the relationship between working capital and profitability.
iv. To determine the turnover ratios (i.e. Receivable Turnover, Inventory Turnover,
Payable Turnover and Working Capital Turnover) of Nepal Telecom.

1.4 Rationale of the study

Working capital management is a crucial part of the financial decision-making

process of a business enterprise. Poor working capital management affects adversely
on liquidity, turnover and profitability. It is required to measure the financial position
of the enterprise periodically to ensure the smooth function of an enterprise. Working
capital management assists in identifying the major strengths and weaknesses of a
business enterprise. It indicates whether a firm has enough funds to meet the
obligation, reasonable accounts receivable collection period, an efficient inventory
management policy, sufficient plant property and equipment and adequate capital
structure, all of which are necessary if a firm is to achieve the goal of maximizing
shareholder's wealth. Working capital management can also be used to assess a firm's
viability as an ongoing enterprise and to determine whether a satisfactory return on
investment is being earned for the risks taken.

It is all known that investment in working capital is significant; Enterprises are

severely affected by the poor working capital management system. So, Nepal
Telecom is selected for the study topic. The study is centered on the analysis of the
system followed and the situation faced by Nepal Telecom in current assets and
current liabilities management. This study will also help as literature for the future
study about the relating topic, apart from this organization can also follow the
suggestion of this study to make their policy and strategy more practical and scientific.
 5

1.5 Limitations of the study

Research is a vast perceived investigation of the subject matter for solving perceived
research problems. Every study has its own limitation. No one can be free from
constraints. The present study of working capital has the following assumptions and
limitations:
i. This study covers only the relevant data of ten years i.e. from fiscal year
2066/67 to 2075/76.
ii. Due to time constraints, not all the related areas are possible to cover in-depth.
iii. The data published in the annual reports have been assumed to be correct and
true.
iv. This study is limited to the working capital management of Nepal Telecom and
ignores other managerial functions.
v. Basically, the data and financial statement provided is secondary in nature.

1.6 Chapter plan

The whole study is divided into five main chapters:

Chapter I. Introduction
Chapter one deals with the general background of the study with the subject matter of
the study. This chapter consists of the background of the study, brief introduction of
Nepal Telecom, problem statement, objectives of the study, rationale of the study, and
limitations of the study.

Chapter II. Literature Review

This Chapter is a brief review of the literature related to this study. It includes a
discussion on the conceptual framework and review of the major studies and research
gap.

Chapter III. Research Methodology

This chapter deals with research design, research methods, sources of data, data
collection techniques and data analysis tools to be used and methods of analysis are
included.
 6

Chapter IV. Results and Discussions

This chapter deals with the data requirements for the study which is presented, analyzed
and interpreted by using various tools and techniques to present the result relating to the
study.

Chapter V. Summary and Conclusion

The fifth chapter is the final chapter of the study that contains a summary of this
research. This chapter tries to fetch out a conclusion from the finding of the study and
attempts to offer analytical and critical views on the performance of the selected
company and present various suggestions and recommendations for present and
prospective investors.
Finally, references and appendices are also included at the end of the study.
 7

CHAPTER II
LITERATURE REVIEW

2.1 Introduction

This chapter explains the review of related literature of the study which covers
published, unpublished literature e.g. books, journals, newspapers, different thesis,
dissertations, business reports and government publications. It also provides insight
into the findings of earlier studies through the review of books journals, publications
and previous studies. The literature review helps to find out what research studies
have been conducted in the once chosen field of study, and what remaining to be
done, which provides the foundation for developing a comprehensive theoretical
framework from which hypothesis can be developed for testing.

2.2 Theoretical review

2.2.1 Concept of working capital

Working capital is the amount of fund that is needed to finance the current assets of
the firm. Since the current assets are normally converted into cash within one year.
Working capital helps to revolve within one year or less through different current
assets. Once the fund is converted into current assets, it is constantly converted into
cash and cash outflow in exchange for other current assets. The cash and marketable
securities are respectively considered purely liquid and near liquid assets, whereas
account receivables and inventories are not. However, they can be liquidated as and
when necessary within less than one year. In a like manner, the current liabilities
comprising sundry debtors, trade creditors, accounts payable, short-term bank loan
and outstanding expenses, etc. must be paid within one year as they become due
(Poudel, 2019).

Working capital is a controlling nerve of the center of every business organization

because no business can run smoothly without the proper control upon it. Thus, it
plays a crucial role in the success and failure of the organization. Working capital
management is concerned with determining the firm's level of investment in current
assets and the financing pattern of the current assets. It covers all decisions of an
organization involving cash flows in the short run with the emphasis on the
 8

management of investment in current assets and their financing. The basic objective
of working capital management is to manage current assets and current liabilities in
such a way that an optimal level of working capital is maintained. The optimum
working capital insists on maintaining a trade-off between profitability and cost
associated with the current assets investment and financing policy of the firm (Poudel,
2019).

The working capital is the capital needed to conduct the day-to-day operations of the
business. Working capital is therefore a broader term and chances of misunderstanding
it. If business enterprises' managers clear cut the concept of working capital, a liquidity
crisis could have been avoided. The deficiency of knowledge about working capital
concepts has often brought a lot of liquidity crises. There are two concepts of working
capital.
(i) Gross concept
(ii) Net concept

2.2.1.1 Gross concept of working capital

The gross concept of working capital refers to total current assets. It refers to the total
amount invested into current assets. Current assets are those assets, which in the
ordinary course of business can be converted into cash within a short period of
normally one accounting year. Current assets include cash in hand, cash at bank,
sundry debtors inventories or stock, short term investments, loan and advances,
accrued income, etc. (Chaudhary, 2018).

Supporters of this concept argue that the real working operation of public enterprise
solely relies on current assets. Moreover, there is logical reasoning that explains if
fixed assets imply fixed capital, then-current assets will be implied into working
capital. Adam Smith called “circulating capital” for current assets. In the word of
Adam Smith, “The goods of the merchant yield him no revenue in profit till he sells
them for money and the money yields him a little till it is again exchanged for goods.”
His capital is continuously going from him in one shape and returning him in another
and it's only through such circulation or successive exchange that can yield very him
any profit. Such capital therefore may properly be called circulating capital. As
working capital is evaluated in terms of utilization of current assets, it is naturally on
current assets only. Current liabilities are not entered into the picture while judging
 9

the turnover of current assets. But reformer of this concept states that this is a concept
incomplete in itself. The management of working capital gives mistaken results if
public enterprises do not consider current liabilities. Again, if they rely on this
concept, the true financial position of the enterprise will not be disclosed (Poudel,
2019).

2.2.1.2 Net concept of working capital

Net working capital is commonly defined as the difference between current assets and
current liabilities. Current assets and current liabilities both play a vital role in the
operation cycle of business, so all the current liabilities must be considered rather than
current assets alone. Since working capital is current assets, it includes all those
assets, which in the normal course of business return to the firm, as cash within a
short period. Ordinary investments, which may be readily converted into cash upon
need, are also current assets. The current liabilities include those debts that mature
within a year. If public enterprises fail to consider current liabilities, the management
of working capital gives misleading results (Poudel, 2019).
The term net working capital can be defined in two ways.
i. The most common definition of net working capital is the difference between
current assets and current liabilities.
ii. And Alternative definition of working capital is that portion of a firm's current
assets, which is financed with long-term funds. Current liabilities are those
liabilities that are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of current assets or the income of
the business. Current liabilities Includes Bills payable, Sundry creditors, Accounts
payable, Accrued outstanding expenses, Short-term loan, Advantages and deposit,
Dividend payable, Bank Overdraft, etc. (Poudel, 2019).

The gross concept is a financial or going concern concept whereas net working capital
concept is as accounting concept of working capital. Proper management of working
capital must ensure an adequate amount of working capital as per the need of business
firms. It should be in good health and circulated. To have an adequate healthy and
efficient circulation of working capital: working capital must be properly determined
and allocated to its various segments, effectively controlled and regularly reviewed
(Chaudhary, 2018).
 10

2.2.2 Nature of working capital

Working capital management is concerned with the problems that arise in attempting
to manage the current assets, current liabilities and the relationship that exists between
them. The nature of working capital is described with the help of the nature of the
cash cycle or operation cycle of the firm. Current assets are usually converted into
cash within an accounting year (operation cycle). Conversion of current assets into
cash in the subject matter of the cash cycle. The process of cash starts when a firm
uses cash to purchase raw material and pay for other manufacturing costs to produce
goods. These goods are carried as inventory for some time till they are sold. These
goods are either sold on cash or accounts receivable are created. Account receivable is
collected from the debtor which brings cash into the firm. In this way, the cash cycle
is complete and the new process of the cash cycle starts again. The major current
assets are cash, marketable securities, accounts receivable, inventories, etc. Current
liabilities are those liabilities that are expected to mature for payment within an
accounting year. The basic current liabilities are the account payable, creditors, bills
payable, bank overdraft and outstanding expenses. Nature and interrelationship of
working capital can be best understood by the operating cycle of the firm. A firm begins
with cash that is used for the purchase of raw materials and bought-in components.
Materials and other operating supplies can also be purchased on credit which in turn
generates accounts payable. Further cash is extended to pay the labor and other
manufacturing costs and further trade-credit obtained to enable the production of
finished goods; which are eventually sold on credit giving rise to account receivables.
The collection of receivables brings cash into the firm and creditors are paid. The
average time, which elapses between the acquisitions of materials or services entering
into cash, realization constitutes an operating cycle (Poudel, 2019).
The operating cycle can be depicted as given below:
 11

Figure 2.1
Working capital cycle

Cash

Purchase of Raw
Debtors
Material

Account Payable

Sales
Production
Inventory
Finished Goods

(Source: Pandey, 1999)

2.2.3 Types of working capital

Working capital can be classified into two parts: permanent (fixed working capital0
and fluctuating working capital. Those two types of working capital are necessary for
continuous production and sales.

(i) Permanent working capital

Permanent working capital refers to that level of current assets, which is required
continuously over the entire year. A manufacturing concern cannot operate regular
production and sales functions in the absence of this portion of working capital.
Therefore, a manufacturing concern holds a certain minimum amount of working
capital to ensure uninterrupted reduction and sales function. This portion of working
capital is directly related to the firm‟s expansion of the operation capacity. This
minimum working capital a firm has to provide out of long – term sources, such as,
i. Issue of share
ii. Issue of debenture
iii. Retention in various forms (i.e., plugging back of profits, general reserves,
etc.) (K.C, 2010).
 12

(ii) Variable working capital

Variable working capital represents the portion of working capital, which is required
over permanent working capital. Therefore, this portion of working capital depends
upon the nature of the firm‟s production, the relation between labor and management.
The firms, which are seasonal in their business, need a large amount of capital for
holding inventory during the peak period. But, as soon as the peak period is over, their
working capital becomes idle. Therefore, firm‟s having seasonality in their business
find it convenient to meet their working capital requirements by resorting to short –
term sources, such as:
a) Bank loan
b) Public deposits
c) Trade credit and other payables
d) Provision for taxation
e) Depreciation provision etc. (K.C, 2010).

Figure 2.2
Permanent/Variable Working Capital
Amount of W/C (Rs.)

Temporary W/C

Permanent working capital

Source: (K.C, 2010) Time

Permanent working capital is stable over time or fairly constant while temporary
working capital is fluctuating. Sometimes increasing and sometimes decreasing.
However, the permanent capital line need not be horizontal if the firm's requirement for
permanent capital is increasing or decreasing over a period.
 13

2.2.4 Working capital policy

Working capital policy refers to the firm‟s basic policies regarding (i) target levels for
each category of current assets and (ii) how current assets will be finished. So, of all,
in working capital management, the firm has to determine how much funds should be
invested in working capital in gross concept. Every firm can adopt a different
financing policy according to the financial manager‟s attitude towards the risk-return
trade-off. One of the most important decisions of finance managers is how much
current liabilities should be used to finance current assets. Every firm has to find out
the different sources of funds for working capital (K.C, 2010).
The goals of working capital policies are as follows

i. Adequate liquidity
If a firm lacks sufficient cash to pay its bills when due, it will experience continuing
problems. The most important goal is to achieve adequate liquidity for the conduct of
day-to-day operations.

ii. Minimization of risk

In selecting its sources of financing, payables and other short-term liabilities may
involve relatively low costs. The firm must ensure that these near-term obligations do
not become excessive compared to the current assets on hand to pay them. The
matching of assets and liabilities among current accounts is a task of minimizing the
risk of being unable to pay bills other obligations.

iii. Contribute to maximizing firm's value

The firm holds working capital for the same purpose as if holds any other asset, which
is to maximize the present value of common stock and the value of the firm. It should
not hold idle current assets any more than idle fixed assets. The investment of excess
cash, minimizing of inventories, and speedy collection of receivables and elimination
of unnecessary and costly short-term financing all contribute to maximizing the value
of the firm. In working capital management the firm has to determine how much
funds to invest in working in gross concept i.e. in current assets and how much should
be financed in working capital through different sources of funds. The funds can be
raised from long-term sources and short-term sources. So, the firm should decide
 14

how much of long term and short term funds to be financed in working capital (K.C,
2010).

2.2.4.1 Current assets investments policy

Current assets investment policy refers to the policies regarding the total amount of
current assets to be carried to support the given level of sales. There are three
alternative current assets investment policies – Fat cat, Lean and Mean & Moderate.

(i) Fat cat policy

This is known as relaxed current assets investment policy. In this policy, the firm
holds a relatively large amount of cash, marketable securities, and inventory and cash
conversion cycles. It also creates a longer receivable collection period due to the
liberal credit policy. Thus, this policy provides the lowest expected return on
investment with lower risk.

(ii) Lean and mean policy

In lean and mean policy, a firm holds the minimum amount of cash, cash marketable
securities, inventory and receivable to support a given level of sales. This policy
trends to reduce the inventory and receivable conversion cycle. Under this policy, the
firm follows a light credit policy and bears the risk of losing sales (Chaudhary, 2018).

(iii) Moderate policy

In moderate policy, a firm holds the number of current assets in between the relaxed
and restrictive policies. Both risk and return are moderate in this policy (Chaudhary,
2018).

2.2.4.2 Current assets financing policy

It is the policy in which the permanent and temporary current assets are financed.
Current assets are financed with funds raised from different sources. But cost and risk
affect the financing of any assets. Thus, the current assets financing policy should
clearly outline the sources of financing. There are three types of policies.

(i)Aggressive policy:
In an aggressive policy, the firm finances a part of its permanent current assets with
short-term financing and the rest with financing. In other words, the firm finance not
only temporary current assets but also a part of the permanent current assets with
 15

short-term financing. In general, the interest rate increases with time i.e. shorter the
time lower the interest – rate. It is because lenders are risk-averse and risk generally
increases with the length of the leading period. Thus, under normal, the firm borrows
on short-term financing rather than financing. On the other side, the firm finances its
permanent current assets by short-term financing, then it runs the risk of renewing the
borrowing again and again. In conclusion, there is higher risk, higher return and low
liquidity position under this policy (Chaudhary, 2018).

(ii) Conservative policy:

In conservation policy, the firm uses to finance not only fixed and permanent current
assets, but also part of the temporary current assets. This policy leads to a high level
of current assets, with a long conversion cycle, low level of current liabilities and
higher interest cost. The risk and return are lower than that of aggressive policy and
adverse management follows this policy.

(iii) Moderate policy:

In this policy, the firm finances the permanent current assets with long-term financing
and temporary with short-term financing. It lies in between the aggressive and
conservative policies. It leads to neither a high nor low level of current assets and
current liabilities (Chaudhary, 2018).

2.2.5 Financing of working capital

Every firm requires additional assets whether they are in stable or growing conditions.
The most important function of the financial manager is to determine the level of
working capital and to decide how it is to be financed. Financing of any assets is
concerned with two major factors: cost and risk. Therefore, the financial manager
must determine an appropriate financing mix, or decide how current liabilities should
be used to finance current assets. However, some financing mixes are available to the
financial manager. He can resort generally to three kinds of financing (K.C, 2010).
(i) Long-term financing
(ii) Short-term financing
(iii) Spontaneous financing
 16

(i) Long-term financing:

Long-term financing has high liquidity and low profitability. Ordinary share,
debenture, preference share, retained earnings and long-term debt from the financial
institutions are the major sources of long-term financing.

(ii) Short – term financing:

The firm must arrange short-term credit in advance. The sources of short-term
financing of working capital are trade credit and bank borrowing.

a. Trade credit: It refers to the credit that a customer gets from suppliers of goods in
the normal course of business. The buying firms have not to pay cash immediately for
the purchase is called trade credit. It is mostly an informal arrangement and is granted
on an open account basis. Another form of trade credit is a bill payable. It depends
upon the term of trade credit.

b. Bank credit: Bank credit is the primary institutional source for working capital
financing. For bank credit, the amount of working capital requirement has to be
estimated by borrows and banks are approached with the necessary supporting
data.After available of this data, the bank determines the maximum credit based on
the margin requirement of the security. The types of loan provide by commercial
banks are loan arrangement. Overdraft arrangement, commercial papers, etc. (K.C,
2018).

(iii) Spontaneous financing:

Spontaneous financing arises firm the normal operation of the firms. The two major
sources of such financing are trade credit (i.e. creditor and bill payable) and accruals.
Whether trade credit is the free cost or not, actually depends upon the terms of trade
credit. The financial manager of the firm would like to finance its working capital
with spontaneous source as much as possible. In the practical aspect, the real choice
of current assets financing is either short-term or long-term sources. Thus, the
financial manager concentrates his power on short-term versus financing. Hence, the
financing of working capital depends upon the working capital policy, which is
 17

perfectly dominated by management attitude towards the risk and return. The firm‟s
working capital assets policy is never set in a vacuum it is always established in
conjunction with the firm working capital financing policy. The real choice of financing
current assets is between short-term and long-term sources which are different
regarding the cost and flexibility (K.C, 2010).

So, far as the financing mix of these two sources is concerned there are three
approaches: Hedging or Matching Approach, Conservative Approach and Aggressive
Approach.

i. Hedging (Matching) approach

Under this approach, a firm uses long-term financing to finance fixed assets and
permanent current assets and short-term financing to finance temporary or variable
assets. In other words, concerning an appropriate financing mix, the term hedging can
be said to refer to a process of matching maturities of debt with the maturities of
financial need.

The justification for the exact matching is that since the purpose of financing is to pay
for assets, the financing should be relinquished when the assets are expected to be
relinquished using long-term financing, for short-term, assets are expensive as the funds
will not be utilized for the full period. Similarly, financing long-term assets with long-
term financing is costly as well as inconvenient as the arrangement for the new short-
term financing will have to be made as a continuing for the new short-term financing
will have to make as a continuing basis. Thus, when the firm follows the matching
approach long-term financing will be used to finance fixed assets and permanent assets
and short-term financing to finance temporary or variable current assets. But this
situation may not be realized due to the uncertainty about the expected lives of assets.
So, this approach is not practical (Poudel, 2019).
 18

Figure 2.3
Financing under Hedging Approach

Short-term financing
Temporary current Assets
Assets

Long-term financing
Permanent current Assets

Fixed Assets

Source: (Pandey, 1999)

ii. Conservative approach

This approach suggests that the estimated requirement of total funds should be met
from long-run sources, the use of short-term funds should be restricted to the only
emergency, or when there is an unexpected outflow of funds. Under a conservative
plan, the firm finances its permanents with long-term financing. This, in periods when
the firms have not temporary current assets; stores liquidity by investing surplus funds
into marketable securities. The conservative plan relies heavily on long-term financing
and therefore, is less risky (Poudel, 2019).

Figure 2.4
Financing under Conservative Approach

Marketable securities
Short-term
financing
Temporary CA
Assets

Permanent current Assets

Fixed Assets

Time
Source: (Pandey, 1999)
 19

iii. Aggressive approach

Under an aggressive policy, the firm finances a part of its permanent current assets with
short-term financing. The greater the portion of the permanent fund requirement
finances with short-term debt, the more aggressive the financing is said to be as there is
more risky.

Working capital management involves deciding upon the amount and composition of
current assets low to finance these assets. These decisions involve a trade-off between
risk and profitability. The greater the relative proportions of liquid assets the lesser the
risk of running out of cash all other things being equal. Profitability, unfortunately, also
will be a loss. The longer the composite maturity schedules of securities risk of the cash
insolvency, all other things being equal. Again the profits of the firm are likely to be
less. Resolution of the trade-off between risk and profitability concerning those
decisions depends upon the risk preference of management (Poudel, 2019).

Figure 2.5
Financing under Aggressive Approach

Temporary Current Assets

Short-term
financing

Permanent current Assets Long-term

financing

Fixed Assets
Time

Source: (Pandey, 1999)

2.2.9 Need for working capital

Most of the firms aim at maximizing the wealth of shareholders. The firm should earn
sufficient returns from its operation. The extent to which profit can be earned
naturally depends upon the magnitude of sales among other things. Especially,
working capital required to spend on raw materials, salary, wages, rent, electricity,
advertisement and other sales-related expenses (Maharjan, 2018).
 20

The need for working capital can be categorized into the following ways.

i. Transaction motive
A business firm holds cash for the smooth running of a business. To conduct its
ordinary business and making purchases and sales, working capital is needed. In the
business, where billings are predictable cash inflows, can be scheduled and
synchronized with the need for the cash outflow. In a seasonal business more cash
may be needed and if firms want to operate transactions smoothly, they have to keep
an inventory of raw materials and finished goods. Generally, a business firm invests
in marketable securities that can be converted into cash in a short time. It is a
temporary investment. So, to run a business smoothly on an uninterrupted basis, a
business firm has to manage working capital for transaction motive (Maharjan, 2018).

ii. The precautionary motive

Precautionary motive refers to holding cash as a safety margin to act as a financial
reserve. A firm should also hold some cash for the payment of unpredictable or
unanticipated events. It is the need to hold cash and inventories to guard against the
risk of unpredictable change in demand and supply forces and other factors such as
strike, failure of important customers, unexpected slow down in a collection of
account receivable, cancellation of some order for goods and some other emergency.
Thus, the firm needs the working capital to meet any contingencies in the future. The
precautionary needs for holding cash usually are satisfied by holding near-cash items
such as investment in marketable securities (Maharjan, 2018).

iii. The speculative motive

The working capital is needed to meet the speculative motive which refers to the
desires of a firm to take advantage of the following opportunities.
i. Opportunities of profit investing.
ii. An opportunity to purchase raw material at a reduced price on payment of
immediate cash.
iii. To speculate on the interest rate and
iv. To purchase at a favorable price, etc.
To grab these opportunities, the business enterprises have to manage cash and
marketable securities. It also represents a war chest or pool of funds that a firm may
 21

draw quickly to meet a short-term opportunity, including acquisition (Maharjan,

2018).

2.2.6 Determinants of working capital

The importance of efficient working capital management is an aspect of overall

financial management. Thus, a firm plans its operations with an adequate working
capital requirement or it should have neither too excess nor too inadequate working
capital. But there are no sets of rules or formulas to determine the working capital
requirements of the firm. It‟s because of a large number of factors that influence the
working capital requirement of the firm. Several factors affect the different firms in
different ways. Internal policies and environmental change also affect the working
capital. Generally, the following factors affect the working capital requirements of the
firms (K.C, 2010):

i) Nature and size of business

The working capital requirements of the firm are related to the size and nature of the
business. If the size of the firm is bigger, then it requires more working capital. While
small firm needs less working capital. Trading and financial firms require a larger
amount of working capital relative to public utilities.

ii) Manufacturing cycle

The working capital requirements of enterprises are also influenced by the
manufacturing or production cycle. It refers to the time involved to make the finished
goods from the raw materials. During the process of manufacturing cycle funds are
tied – up. The longer manufacturing cycle, working capital requirement larger and
vice – versa.

iii) Production policy

Working capital requirement is also determined by its production policy. If a firm
produces seasonal goods, then its production and sales volume fluctuate with different
seasons. This type of fluctuation production policy affects the working capital policy
of the firm.

iv) Credit policy

Credit policy also affects the working capital of a firm. Working capital requirement
 22

depends on the term of sales. The different terms may be followed by different
customers according to their creditworthiness. If the firm follows the liberal credit
policy, then it requires more working capital. Conversely, if a firm follows a stringent
credit policy, it requires less working capital.

v) Availability of credit
Availability of credit facilities is another factor that affects the working capital
requirements. If the creditors benefit from open-minded credit terms, then the firm
will need less working capital. In other words, the firm can get credit facility easily on
favorable conditions. Thus, it requires less working capital to run the firm otherwise
more working capital is required to operate the firm smoothly.

vi) Growth and expansion

Growth and expansion also affect the working capital requirement of a firm.
However, it is difficult to exactly determine the relationship between the growth and
expansion of the and firm and working capital needs. But the other things being the
same growing firm needs more working capital than these static ones.

vii) Price level change

Price level change also affects the working capital requirement of a firm generally, a
firm requires maintaining the higher amount of working capital it the price level
raises. Because the same level of current assets needs more funds due to the
increasing price. In conclusion, the implications of changing price level on working
capital position will differ from firm to firm depending on the nature and other
relevant considerations of the operation of the concerned firm.

viii) Operating efficient:

Operating efficiency is also an important factor, which influences the working capital
requirement of the firm. It refers to the efficient utilization of available resources at
minimum cost. Thus, a financial manager can contribute to a strong working capital
position through operating efficiency. If a firm has strong operating efficiency then it
needs a lesser amount of working capital and vice–versa.

ix) Profit margin:

The level of profit margin differs from firm to firm. It depends upon the nature and
quality of product, marketing management and monopoly power in the market. If the
 23

firm deals with high-quality products and has sound marketing management and
enjoyed monopoly power in the market then it earns a quite high profit. Profit is the
source of working capital because it contributes towards the working capital as a pool
by generating more internal funds.

x) . Level of taxes:
The level of taxes also influences working capital requirements. The amount of taxes
to be paid in advance is determined by the prevailing tax regulation. But the firm‟s
profit is not constant, or can‟t be predetermined. Tax liability in a sense of short-term
liquidity is payable in cash. Therefore, the provision for tax amount is one of the
important aspects of working capital planning. If tax liability increases, it needs to
increase the working capital (K.C, 2010).

2.3 Empirical review

2.3.1 Review of related articles

Madhavi (2011), conducted a research study on “Working Capital Management of

Paper Mills” and found necessary steps that should be taken to idle "cash and bank
balances in attractive investment or to pay back in short term liabilities". The
objectives of the study were to investigate the financial performance through ratio
analysis of Paper mills in Andhra Pradesh Paper Mills Ltd. (APPML) and Seshasayee
Paper and Boards Ltd (SSPBL). The field investigation was conducted from 1st April
2012 to June 2012. The personal interview method was adopted. The primary data
collected through discussions and the secondary data obtained from the published
source. Major findings of the study were as follows:
i. The low quick ratio may also have a liquidity position if it has fast-moving
inventories.
ii. The cash ratio is not satisfactory in APPML as compared to SSPBL and it
needs the attention of the management to induce effective utilization of cash
and bank balances.

Saghir, Mehmood and Nehal (2011), in their article "Working Capital Management
and Profitability: Evidence from Pakistan Firms", analyzed that working capital
management is an important part of firm financial management decisions. Improper
management of Working capital, that is, too much or too low working capital may
 24

suffer firms, so an optimum level of working capital is the key to a smooth inflow of
profit. In this paper, they investigated the relationship between profitability and
working capital management. They used a sample of 60 textile companies listed at
Karachi Stock Exchange (KSE) from 2001 to 2006. The purpose of this study was to
establish a relationship that is of statistical significance between profitability, the cash
conversion cycle and its components (Number of days Accounts receivables, Number
of days Accounts payables and Number of days Inventory). Major findings of the
study were:
i. The operational profitability dictates how managers or owners will act in
terms of managing the working capital of the firm.
ii. Lower profitability is associated with an increase in the number of days of
account payable.
iii. The less profitable firms wait longer to pay their bills taking advantage of the
credit period granted by the suppliers.
iv. The negative relationship between accounts receivables and a firm's
profitability suggests that less profitable firms will pursue a decrease of their
accounts receivables in an attempt to reduce the cash gap.
v. The negative relationship between the number of days in inventory and
profitability suggests that in case of a sudden drop in sales accompanied by
mismanagement of inventory will lead to tying up excess capital at the
expense of profitable operations.
vi. It showed that there is a statistically negative significance between
profitability, measured through Return on Asset, and the cash conversion
cycle. Moreover, managers can create profits for their companies by handling
correctly the cash conversion cycle and keeping the Number of days Accounts
receivables, Number of days Accounts payables and Number of days
Inventory to an optimum level.

Hoque, Mia and Anwar (2015), in their research “Working Capital Management and
Profitability: A Study on Cement Industry in Bangladesh” found a positive correlation
between working capital efficiency and profitability ratios. The main objectives of
their study were to examine and evaluate the correlation between Working Capital
Management and Profitability as well as to determine the impact of working capital
components on profitability. The researchers selected only listed cement industries as
 25

a sample for their study. The study covered a period of three years from 2010 to 2012.
Secondary data have been collected from periodical reports and other published
documents of the sample cement industries. The collected data were analyzed and
interpreted with the help of different financial ratios, statistical tools like Mean,
Standard Deviation (S.D.), Correlation Coefficient and Regression analysis. The
major findings of the study were as follows:
i. Both current ratio & quick ratio is positively correlated with profitability ratios
such as Gross profit margin, operating profit ratio, Net profit margin and
return on assets.
ii. Cash conversion cycle is negatively correlated with all profitability ratios such
as Gross profit margin, operating profit ratio, Net profit margin and return on
assets
iii. Profitable industries either accelerate their receivables from debtors or delay
their payment towards their creditors.
iv. There exists a positive correlation between working capital efficiency and
profitability ratios.

Varghese and Dhote (2014), in their research “ Impact of Working Capital

Management on Firm Profitability: A Case Study of HUL Ltd., India” found that
"Risks involved in capital investment are very high; the firms give little importance to
the issues related with working capital". The company must improve its present
liquidity position to remain stable at the time of discrepancies or recession. The
company must keep an optimum balance between liquidity and profitability for
efficient use of its working capital. The objectives of the study were to analyze the
Working capital position of HUL Ltd, to analyze the effect of liquidity on
profitability, to analyze the effect of risk on profitability. In this study, the sample
company named HUL has been taken for analysis of Working Capital position. This
study was based on secondary data i.e. published annual reports of the company. The
major findings of the study were as follows:
i. The net working capital of HUL during the period of study was not
satisfactory as it showed frequent fluctuations in its values.
ii. Liquidity position of the firm was not adequate because the average value of
this Current Ratio was only 0.87 times which is well below the ideal ratio of
2:1 times.
 26

iii. The cash position ratio of the firm was also not satisfactory as it was not able
to generate an adequate amount of cash from its assets.
iv. The profitability position of the firm was not satisfactory because its operating
profitability position was 13.34% of its turnover, which is near the risk-free
bank rate.

Onodje (2014), “Working Capital Management and Performance of Selected Nigerian

Manufacturing Companies” found that "working capital management is an important
determinant of manufacturing performance". The objectives of the study were to
determine whether the internal factor of working capital management could be
adduced as an additional reason for the low level of manufacturing performance. He
extracted over the period 2002-2011 from the published financial statements of a
panel of 75 manufacturing firms quoted on the Nigerian Stock Exchange (NSE).
Major findings of the study were as follows:
i. Efficient working capital and debt management are critical to improved
manufacturing performance.
ii. There should be a liberal approach to the management of the cash receivable
portfolio of manufacturing firms to maximize sales revenue.
iii. There should be an aggressive inventory control policy to take advantage of
emerging opportunities while minimizing stock-out costs.
iv. Deferral of creditors and accrued charges should be held at the minimum to
enhance corporate credibility and market share.
v. Effort should be made by manufacturing firms with support from the
government to ensure that the debt profiles of manufacturing firms are kept at
optimum levels

2.3.2 Review of the previous thesis

Besides the review of research studies, several studies have been made by students of
MBS & MBA relating to working capital management in different entities.
Chaudhary (2018 A.D), carried out research on “Working Capital Management of
Nepal Telecom”. The main objectives of the research were to identify the liquidity
and working capital position and to identify the effect of working capital on the
profitability of the company. He had used secondary data five fiscal years from
2069/70 to 2073/74. The major findings of the research were:
 27

i. The average collection period of Nepal Telecom was in decreasing trend;

hence the credit management of Nepal Telecom was good.
ii. The payable Deferral Period is very high; it showed that company was
delaying its payment. Delay payment is not good in long-term for the
company as the supplier may not be happy
iii. The company had invested most of the funds in the form of current assets like
cash & receivables. So the opportunity cost of cash and receivables for the
company is increasing. There may be also a chance of bad debts due to an
increase in receivables.
iv. Nature of business, size of business, credit policy; operating efficiency and
level of competition are the major factors affecting working capital.
v. Working Capital Management of Nepal Telecom is not good. The major
portion of Gross working capital is invested in cash & bank balances.
vi. There is a positive relationship between Working Capital and Current Assets
with profitability. Hence, an increase in working capital and current Assets
increases the profitability of the company. However, there is a negative
relationship between cash and profitability.

Sharma (2014), carried out research on “Working Capital Management of Nepal

Doorsanchar Company Limited”. The main objectives of the research were to analyze
the liquidity and working capital position and to identify the relationship between
working capital on profitability of the company and examine the inventory policy of
the company.
She has used secondary data for five fiscal years from 2064/65 to 2068/69. The major
findings of the research were:
i. The proportion of current assets to total assets and net fixed assets in NDCL
shows that current assets absorb a high percentage of those total assets, as the
higher ratio indicates the greater amount of working capital which will
decrease risk and profitability. It is due to a higher proportion of cash and cash
equivalent and receivables
ii. There is a positive correlation between current assets and total assets as well
as statically significant and there is a significant difference between the two
variables which could adversely affect the firm‟s wealth maximization goal in
the long run.
 28

iii. There is a positive correlation between current assets and inventory. But the
management of inventory is unsound.
iv. Cash constitutes an important part of the assets of the firm. The profitability
position of the NDCL during the study period is satisfactory.

K.C (2010), carried out research on “Working Capital Management of Nepal

Telecom”. The main objectives of the research were to evaluate the trend of current or
total assets position, to study how far Nepal Telecom is being able to utilize its
Current Assets properly, to study the working capital position of NTC, to analyze
working capital NTC to cash, receivables and inventory management. She had used
secondary data five fiscal years from 2004/05 to 2008/09. The major findings of the
research were:
i. The overall financial management of NTC is quite satisfactory during the
study period since it has a sound liquidity position and positive growing
profitability.
ii. There was a sufficient amount of current assets to meet the current obligations
of the company which is a sign of a good liquidity position.
iii. The company had invested its considerable amount in current assets by
increasing the investment on it every year.
iv. The largest portion of current assets was being unproductive by lying in
absolute liquid from which is the indication of the inefficiency of management
in using its assets in productive payment of current liabilities.
v. A significant amount of receivables was tied up which resulted in an
unnecessary amount held up of working capital.
vi. The company is facing a serious problem with outstanding debt collection.

Poudel (2019), carried out research on “A Study on Working Capital Management of

Salt Trading Corporation Limited”. The main objectives of the research were to
analyze the liquidity and working capital position of the company, To find out the
need to control investment in each type of current assets over the study period and to
analyze the effect of working capital on liquidity and profitability. This study was
primary based upon secondary data. Which were published by the company during the
fiscal year 2069/70 to 2073/74. The data were collected from annual reports of Salt
Trading Corporation and other related information has been collected through the direct
 29

interview and question arises with the company's account officer The major findings of
the research were:
i. The liquidity position of STCL is weak; it shows that there are not excess
current assets.
ii. The overall return position of the company is also not in favorable condition
because of inefficient utilization of current assets, total assets and shareholders'
wealth.
iii. The correlation coefficient of the variables selected for the statistical analysis
shows that STCL has a significant and positive correlation with each other
except with net profit and net working capital and sales.
iv. The main sources of cash of STCL are the sale of goods and loans from the
bank. Besides this, the corporation receives miscellaneous income like interest,
commission, dividend and sale of fixed assets.
v. STCL holds a weak Liquidity position. In each year current ratio is lower than
the standard level.

Maharjan (2018), carried out research on “A Study on Working Capital Management

of Nepalese Manufacturing Company”. The main objectives of the research were to
examine the influence of working capital management on the company's profitability,
to analyze the liquidity position and composition of working capital of selected
enterprises and to analyze the utilization of working capital of selected. Out of various
manufacturing companies, this study is concerned with the only three manufacturing
companies of Nepal, Unilever Nepal Ltd, Dabar Nepal Ltd, and Himalayan Distillery
Ltd. This study was based on secondary data which were published by the company
during the fiscal year 2011 to 2015. The major findings of the research were:
i. The results showed the liquidity position of all sample companies is not
satisfactory.
ii. The turnover ratio shows Himalayan Distillery Ltd has the highest turnover
ratio than other sample companies.
iii. The profitability shows Unilever Nepal Ltd has the highest level of ROA and
NPM which indicates that Unilever Nepal Ltd is doing better operation in
comparison to other sample companies.
iv. The correlation result showed cash conversion cycle had a significant positive
impact on return on assets, implying that an increase in CCC leads to an
increase in profitability of Nepalese manufacturing companies.
 30

v. The results showed a positive relationship with sales growth, the negative
relation between the ratio of current liabilities to total assets, which indicates
an increase in sales, leads to an increase in profit, and aggressive financing
policy leads to negative return.

Pyakurel (2010), carried out research on “Working Capital Management of Nepal Life
Insurance Company Ltd.”. The main objectives of the research were to analyze the
size and structure of working capital and the relationship between them, to analyze the
relationship between operating income and different variables of working capital or
turnover position of NLIC, to check the efficiency of the working capital of NLIC, to
see the trend of different variables of working capital and their composition with
others and to know whether the adequacy of working capital depends upon the nature
of financing current assets or not. This study was based on secondary data which were
published by the company during the fiscal year 2061/62 to 2065/66. The major
findings of the research were:
i. The overall working capital management of NLIC's is satisfactory level during
the five years study period.
ii. There is a sufficient amount of current assets to meet the current obligation of
the company which is a sign of a good liquidity position. The company has a
sound liquidity position and there is no probability of technological
insolvency.
iii. The corporation has a conservative working capital policy since it has needed
low level of working capital and working capital is permanent the corporation
has conservative working capital policy since it has needed low level of
working capital and working capital is of permanent nature.
iv. The company has effective working capital, good profitability & sufficient
current assets.
v. A large portion of the long-term fund is invested in current assets where more
than half of current assets are financed by long-term sources.
vi. There is a positive correlation between current assets and total assets but the
correlation of current assets with operating income is a high degree of
negative.

vii. The working capital is not always dependent on operating income but the
study shows that working capital is dependent upon total assets.
 31

viii. The profitability and liquidity position of the company is good but they are
negatively correlated. Trend indices show increasing current assets and total
assets but the current liability, net working capital and receivable are in
fluctuating trend.

2.4 Research gap

All the above mentioned studies in empirical review were conducted with the research
title working capital management. Researcher (K.C, 2010) has done research on the
topic Working capital management of Nepal Telecom, after studying the dissertation
it was found that that researcher had analyzed the data of FY 2004/2005 to 2008/09
and had not taken regression analysis to show the relationship between the variables.
Sharma (2014), had done research on the topic Working capital management of Nepal
Doorsanchar Company ltd, the researcher had analyzed the data of FY 2064/65 to
2068/69. Chaudhary (2018), had done the topic Working capital management of
Nepal Telecom, researcher had analyzed the data of FY 2069/70 to 2073/74.

In this research, an attempt has been made to analyze the efficiency and effectiveness
of working capital management of Nepal Telecom. This research has tried to carry out
the distinct from these mentioned research in terms of years of data and research
methodology. In this research secondary data for fiscal years, 2066/67 to 2075/76 (i.e.
10 years) have been considered whereas the above mentioned research had considered
data for five years. Both financial, as well as statistical tools like ratio analysis,
turnover, mean, standard deviation, coefficient of variance, correlation and regression
analysis are used in this research which were not included in the research of K.C
(2010).IBM SPSS Version 25.0 is used for data analysis which was not used by K.C
(2010), Sharma (2014), and Chaudhary (2018). The independent variables included in
this research are also different from Sharma (2014), K.C (2010) and Chaudhary
(2018).

Almost all the ratios have been applied to cover the analytical part and fulfill the
objective of this study. Therefore, this research can be helpful for researchers,
students and academicians.
 32

CHAPTER III
RESEARCH METHODOLOGY

3.1 Introduction

The main objectives of this study are to analyze, examine highlight and interpret the
working capital management of Nepal Telecom and recommend suggestions for
improvements for the betterment of working capital management. The study covers a
period of 10 years for the fiscal year 2066/67 to 2075/76.

In the previous chapter, the researcher has discussed about working capital and the
review of related literature concerned with working capital management. In this chapter,
population and sample size, research design, research method, sources of data and
collection strategy, analysis of data and tools used and methods of data analysis are
included.

3.2 Research design

The selection of appropriate research design is necessary to meet the objective of any
research. To answer the research questions i.e. to fulfill the research objectives,
descriptive research design has been used and based mainly on this research to extract
more pertinent information. Descriptive research has been used to analyze the facts of
collection data, its classification and correlated data to describe the existence, even
though it does not predict and explain the phenomena behave as they do in the entire
process of planning and carrying out a research study. The research design asks what
approach the problem should be taken. What methods will be used? What strategies will
be most effective? Identification, selection, and formulation of a research problem may
be considered as the planning stage of research. The remaining activity refers to the
designs, operation, and completion of the research study.

3.3 Population and sample

There are six telecom companies in Nepal (www.nta.gov.np). Out of them, Nepal
Telecom is one. Therefore, the existing number of telecom companies in Nepal refers
to the population and Nepal Telecom is the sample. A sample has been chosen for the
study which represents the total population. Nepal Telecom has been selected due to
 33

its highest profit and largest telecom service provider. The research has taken only 10
years of data from the fiscal year 2066/67 to 2075/76 which is very important for the
study.

3.3.1 Brief introduction of Nepal Telecom

In Nepal, operating any form of telecommunication service dates back to 94 years in

B.S. 1970. But formally telecom service was provided mainly after the establishment
of MOHAN AKASHWANI in B.S. 2005. Later as per the plan formulated in the First
National Five-year plan (2012-2017); Telecommunication Department was
established in B.S.2016. To modernize the telecommunications services and to
expand the services, during the third five-year plan (2023-2028), Telecommunication
Department was converted into Telecommunications Development Board in B.S
2026. After the enactment of the Communications Corporation Act 2028, it was
formally established as a fully owned Government Corporation called Nepal
Telecommunications Corporation in B.S. 2032 to provide telecommunications
services to Nepalese People. After serving the nation for 29 years with great pride and
a sense of accomplishment, Nepal Telecommunication Corporation was transformed
into Nepal Doorsanchar Company Limited from Baisakh 1, 2061. Nepal Doorsanchar
Company Limited is a company registered under the Companies Act 2053. The
government of Nepal and Citizen Investment Trust have been the principal promoters
of the company. The company is known to the general public by the brand name
Nepal Telecom as a registered trademark. The company has its registered office at
Bhadrakali Plaza, Kathmandu with its branches spread throughout the country
(ntc.net.np).

According to the annual report (2075-76) of Nepal Telecom, Nepal Telecom has the
authorized capital of Rs 25 Billion allocated to 250 million shares of each Rs100 Par.
Issued and paid-up capital is Rs 15 Billion. The company at its topmost level has
seven members as Board of Directors (BOD). The Chairman is the secretary of the
Ministry of information and Communication; Members are representatives from the
Ministry of information and communication, Ministry of Finance, Ministry of Law,
Justice and Parliamentary Affairs and Citizen Investment Trust. Other members are
the Managing Director and representatives from employees (Article of memorandum-
 34

20). The total no of working manpower in Nepal Telecom at present is 4,179, out of
which 1,910 are Officers and 2,269 are of Assistant level (ntc.net.np).
Following figure no. 3.1 shows the organizational structure of Nepal Telecom:

Figure 3.1
Organizational Structure of Nepal Telecom

(Source: ntc.net.np)

Nepal Telecom (Nepal Doorsanchar Company Limited) is one of the main telecom
operators in Nepal. It has made all efforts for nationwide reach, from urban to most
remote locations in providing its valued customer a quality service that has assisted in
the socio-economic development of the urban as well as rural areas. The company has
been providing a range of telecommunication services like GSM, CDMA, PSTN and
data services like 3G, 4G, EVDO, WiMAX, ADSL, etc.

3.4 Nature and sources of data

This study is based on secondary data, which were published by the company for the
fiscal year 2066/67 to 2075/76. For the study purpose, 10 years of audited balance
 35

sheets, profit & loss accounts and other related documents were collected from the
company‟s website.

3.5 Data collection and processing procedures

To achieve the pre-determined objective of the study, some of the secondary data are
used which include audited Financial Statement (The balance sheets and income
statements) of Nepal Telecom for 10 years period from the fiscal year 2066/67 to
2075/76 are collected for the convenience of the study. Then all the raw data
(information and ideas) are properly arranged, synthesized, tabulated, processed and
presented in tabular form under the requirement of the study. Most of the data have
been compiled in one form, processed, and interpreted as per the need of the study.
The secondary data have been presented for the analytical purpose after the tabulation
of the data.

3.6 Data analysis tools and techniques

To achieve the objectives of the study, various financial and statistical tools have been
used in this study. A simple analytical statistical tool such as Karl Pearson‟s
coefficient of correlation and regression analysis is adopted in this study. The ratio
analysis is the major tool for the analysis of the study. They establish the quantitative
relationship between two variables of the financial statements.

3.6.1 Financial analysis

Ratio analysis
In financial analysis, the ratio is used as an index of yardstick for evaluating the
financial position and performance of the firm.

3.6.1.1 Composition of working capital

Our main focus of the research is working capital management. Thus we have to
discuss the management of funds and the relationship between them. Their relation can
be analyzed by the comparison of various individual assets to total assets and total
current liabilities. The comparison of individual assets to current assets and fixed assets
as follow:
 36

1. Current assets to total assets (CATA)

The ratio of current assets to total assets indicates the percentage of the company‟s
total assets invested in the form of current assets. The higher CATA ratio shows the
risk & decreasing the profitability and vice versa. It studies the proportion of current
assets to total assets of Nepal Telecom during the study period. It is calculated as
follows:

Total current assets

Current assets to total current assets = x 100%
Total assets

If this ratio increases, the risk and the profitability of the firm would decrease and
decreasing ratios indicate the higher risk and profitability.

2. Cash and bank to current assets (CBCA)

This ratio shows the relationship between cash and bank to the level of current assets.
It also indicates the percentage of current assets invested in form of cash and bank.
The working capital is directly affected by the level of cash and bank balance. As the
ratio decreases it causes an increase in efficiency and sound management of cash and
bank and vice-versa. It studies the proportion of cash and bank balances to current
assets of Nepal Telecom during the study period. It is calculated as follows:

Cash and Bank to Current Assets = x100%

A higher ratio indicates idle cash is collected in the firm. So, a higher ratio implies the
poor cash management of the firm.

3. Inventories to current assets (ICA)

This ratio shows the percentage of current assets in the form of inventory. Inventory
affects the working capital directly so an increase in this ratio indicates an increase in
working capital volume and the company is following a liberal inventory policy. If the
ratio is small the firm has a lower volume of working capital. It studies the proportion
of inventories to current assets of Nepal Telecom during the study period. It is
calculated as follow

Inventories to Current Assets = x100

A higher ratio indicates the liberal inventory policy followed by the firm and a lower
ratio indicates the tight inventory policy followed by the firm.
 37

4. Receivables to current assets ratio

This ratio shows the percentage of current assets in the form of receivables. A higher
percentage shows a higher opportunity cost of carrying the receivables. It is therefore
desired that a firm need to carry the least percentage of receivables as possible
without affecting the sales volume. It studies the proportion of receivables to current
assets of Nepal Telecom during the study period. It is calculated as follows:

Receivables to Current Assets = x100%

Increases in the ratio show the inability of the firm to collect the receivables quickly and
the decreasing ratio is preferable which shows the ability of the firm to collect
receivables quickly.
5. Current liabilities to total liabilities
The current to total liabilities ratio measures the percentage of total current liabilities
to total liabilities. An increasing current to total liabilities ratio is usually a negative
sign and vice versa. The proportion of Current Liabilities to Total Liabilities of Nepal
Telecom during the study Period is as follows It is calculated as follows:

Current Liabilities to Total Liabilities = x100

The low percentage indicates the greater working capital and vice-versa. If the
percentage is greater, the firm is unable to collect receivables promptly.

3.6.1.2 Activity/Turnover analysis

Turnover analysis measures the effectiveness with which a firm uses its available
resources in form of inventories. By calculating the following ratios, the firm‟s
efficiency is analyzed:

1. Current asset turnover ratio (CATR)

The current Asset Turnover ratio measures the firm‟s ability to generate sales through
its current assets (cash, inventory, accounts receivable, etc.). It indicates how
efficiently a firm is using its current assets to generate revenue. It is calculated as
follows:
N
Current Asset Turnover Ratio =
 38

As the CATR increase, it shows the utilization of CA. If the ratio is low, a greater
volume of working capital is there. A low ratio indicates greater working capital and a
high ratio indicates lower working capital.

2. Inventory Turnover Ratio (ITR)

The inventory turnover ratio measures how quickly inventory can be converted into
sales. It is calculated as:

Inventory Turnover Ratio=

This ratio shows the number of times inventory is replaced during the year. Higher
inventory turnover indicates good inventory management and lower turnover suggests
the management should manage its inventory properly

3. Receivable/Debtor turnover ratio (RTR)

This ratio establishes a relationship between credit sales and receivables. It is
computed by dividing net credit sales by average receivables to determine the
efficiency with which the debtors are managed. It is calculated as follows:

N
Receivable Turnover Ratio =

It indicates the number of times the receivables are turned over during the year. It
gives the general measure of the productivity of the receivables investment. The
higher ratio indicates the higher amount of working capital and lower ratio vice-versa.
A higher ratio is preferable than the lower ratio as it reflects better management of
debtors or receivables.

4. Payable turnover ratio

The payable turnover ratio measures how quickly a business makes payments to
creditors and suppliers that extend the line of credit. A high accounts payable ratio
signals that the company is paying its creditors and suppliers quickly, While a low
ratio suggests the business is slower in paying its bills. It is calculated as follows:
N
Payable Turnover Ratio =

5. Net working capital turnover ratio

The working capital turnover ratio measures how well a company is utilizing its
working capital to support a given level of sales. A high turnover ratio indicates that
 39

management is being extremely efficient in using a firm's short-term assets and

liabilities to support sales. It is calculated as follow:

Net Working Capital Turnover Ratio = N

A higher ratio shows the utilization of net working capital and vice-versa.

6. Inventory conversion period

The inventory conversion period is defined as the total time period required to convert
the entire inventory into sales. It can be defined as a relationship between the total
number of days in the financial period and the inventory turnover ratio. It measures
the length of time on average between the acquisition and sale of merchandise. It is
calculated as follows:

Inventory Conversion Period =

7. Average collection period

Average collection period is the time between the sale of the final product on credit
and cash receipts for the accounts payable. It measures the average number of days it
takes for the company to collect revenue from its credit sales. It is calculated as
follows:

Average Collection Period =

8. Payable deferral period

Payable Deferral Period (PDP) is a company's average payable period that measures
how long it takes a company to pay its invoices from trade creditors, such as
suppliers. The ratio depicts how well a company is managing its cash outflows during
an accounting period in paying the account payables. It is calculated as follows:

Payable Deferral Period =

3.6.1.3 Liquidity ratio

Liquidity ratios measure the ability of the firm to meet its current obligations. A firm
should ensure that it does not suffer from a lack of liquidity, and also that it is not too
highly liquid. The most common ratio, which indicates the extent of liquidity, is:
 40

1. Current ratio (CR)

The current ratio is calculated by dividing current assets by current liabilities. This
shows the solvency and financial strength of the firm. It is a basic yardstick of
measuring the solvency and liquidity position of the firm. It is determined by the
following way.
Current Assets(CA)
Current Ratio (CR) =
Current Liabilitie s (CL)
The higher ratio indicates the position of the company is in liquid and able to pay its
bills. Generally, the current ratio of 2:1 is considered to be satisfactory. A higher ratio
indicates the greater amount of working capital and less ratio vice-versa

2. Quick ratio
Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably
soon without a loss of value. Cash is the most liquid asset. Other assets that are
considered to be relatively liquid and included in quick assets are book debts and
marketable securities.
Quick Assets(QA)
Quick Ratio (QR) =
Current Liabilitie s (CL)

3.6.1.4 Profitability analysis

This ratio shows the result of business activities. The overall efficiency of business
concerned profitability if the main factor to measure how effectively a firm is operated
and have managed. Under this, the following ratio are analyzed.

1. Net profit margin ratio

Net profit margin is estimated after deducting all operating expenses and income tax
from gross profit. It shows the percentage of net profit out of total sales. This ratio
shows as an overall measurement of the company‟s ability to earn a net profit. It
computed by dividing net profit by sales and given by:
N
Net Profit Margin Ratio =

A higher ratio is an indication of the higher overall efficiency of the business and
better utilization of total resources. Poor financial planning and low efficiency is the
indication of a lower ratio.
 41

2. Return on equity
It measures how profitable a company is for the owner of the investment, and how
profitably a company employs its equity. It is calculated as follows:
N
Return on Equity =

3. Return on assets
Return on total assets explains the contribution of assets to generate a net profit. This
ratio indicates efficiency towards asset mobilization. This ratio helps the management
in identifying the factors that have a bearing on the overall performance of the firm. It
is calculated as follows
N
Return on Assets =

3.6.2 Statistical analysis

Under the secondary data analysis, the percentage, mean, median, standard deviation
maximum and minimum results i.e. each variable have been described in a clear way
for the detailed analysis about its significance. The help of statistical tools is essential
to measure the relationship of two or more variables. In this study, the following
statistical tools are used:

3.6.2.1 Arithmetic mean (Average)

The arithmetic mean is the most popular and commonly used measure of central
tendency, which represents the entire data by a single value. The arithmetic mean of
values of a variable is defined as the ratio of the total values to the number of values.
It can be calculated as follows:
∑

Where,
∑ = Sum of the values
= Mean value,
N= Number of the value.

3.6.2.2 Standard deviation (S.D)

The standard deviation is the square root of the average of the square distances of the
observation from the mean. The standard deviation enables us to determine, with a
 42

great deal of accuracy, where the values of a frequency distribution are located with
the mean.
It is the most popular and most useful measure of dispersion and gives uniform,
correct and stable results. The formula of Standard Deviation is as follow:

Standard Deviation () =

 (x  X ) 2

N
Where,
 = Standard Deviation
x= variables
= mean of the variable, N= No. of variables

3.6.2.3 Coefficient of variation (CV)

Standard Deviation is the absolute measure of dispersion. The relative measure of

dispersion based on the standard deviation is known as the co-efficient of Standard
Deviation which is defined as the ratio of the standard deviation to the mean
expressed in percent. It is used for comparing the variability of two series or set of
data with the same of different units and is expressed in percent since it is
independent of units. So, two distributions can bitterly be compared with the help of
coefficient of variance for their variability. Less the C.V. more will be the uniformity;
consistency etc. and more the C.V. less will be the uniformity, consistency, etc.

C.V. = X 100%


3.6.2.4 Correlation coefficient (r)

A correlation coefficient is defined as the association between the dependent variable

and an independent variable. It is a method of determining the relationship between
these two variables. If the two variables are so related to the change in the value of the
independent variable, it causes the change in the value of the dependent variable then,
it is said to have a correlation coefficient. The Correlation Analysis between Return
on Assets, Current Ratio, Receivables Turnover Ratio, Average collection period,
Inventory Conversion period, Inventory Turnover Ratio, Payable Deferral Ratio
Payable Turnover Ratio of Nepal Telecom, etc, are analyzed for the study period.
 43

To calculate the Pearson correlation analysis SPSS version 25.0 database is used for
tabulation and data analysis. Simple statistical tools like mean, standard deviation
were analyzed.
To interpret the value of correlation, the relationship between variables is positive if
the value of ' r ' is greater than 0 and it is negative if the relationship between
variables is less than 0. Similarly, if the value of ' r ' is +1, the relationship is perfectly
positive and if it is -1, the relationship is perfectly negative. If the value of „r‟ is 0, the
relationship between variables is zero.

3.6.2.5 Multiple regression analysis

Multiple regression analysis is a logical extension of the simple linear regression

analysis. Instead of single independent variable, two or more independent variables
are used to estimate the unknown values of a dependent variable. However the
fundamental concept in the analysis remains the same. Multiple regression is defined
as statistical device which is used to estimate (or predicts) the most probable value of
dependent variable on the basis of known value of two or more independent variables.
The following multiple regression equation is analyzed.
Multiple Regression Model
ŶROA = α + β1X1+ β2X2+ β3X3 + β4X4+ β5X5 + ei.
Where,
ŶROA = Dependent variable
X1 = ACP
X2 = CR
X3 =ICP
X4 =PDP
X5 = NWCTR
α = Constant
βi = Beta Coefficient of slope of regression model and
ei = Error term

3.7 Research framework and definition of variables

Working capital management refers to the proper management of a firm's current

assets and current liabilities. It is concerned with all decisions and acts that influence
 44

the determination of the appropriate level of current assets and their efficient use as
well as the choice of the methods of financing them, keeping because of liquidity. It is
needed to run the organizations, day to day in an efficient manner. Thus, working and
total current assets are synonymous. It is also called circulating capital since it keeps
on circulation, the course of business operation. Business starts with cash, which is
converted into inventory after some time. Inventory may be of raw materials, semi-
finished goods and finished goods. The inventory is converted into receivables and
receivables into cash again. Thus the cycle becomes complete. This kind of cycle
keeps on operating the organization

Working capital in common parlance is the difference between current assets and
current liabilities. Current assets usually consist of cash, marketable securities,
receivables and inventory. A major component of current liabilities, on the other
hand, is the payables. Management of working capital refers to the practices and
techniques designed to control all the items of current assets and current liabilities. In
the ordinary sense, working capital management is the function that involves effective
and efficient use of all the components of current assets and current liabilities to
minimize total cost. The study developed a conceptual framework to show the
relationship between the dependent and independent variables. The independent
variables are the components of working capital. These include receivables
management practices, cash management practices, payables management and
inventory management. The dependent variable is the firm's profitability. This is
determined in terms of the inventory holding period, accounts receivable period, the
payables deferral period, current ratio and working capital turnover ratio.
 45

Figure 3.2
Research Framework

Independent Variables

Receivables Management
Average Collection Period Dependent Variable

Cash Management Practices

Current Ratio Profitability

Return on Assets
Inventory Management
Inventory Conversion Period

Payable Management
Payable Deferral Period

Net Working Capital Turnover

Ratio

Adapted from (Mbakara, 2017)

The variables can be defined as:

Cash management
Cash is one of the important components of current assets. It is needed for performing
all the activities of a firm, i.e. from the acquisition of raw materials to the marketing
of finished goods. Therefore, a firm needs to maintain an adequate cash balance. One
of the important functions of the finance manager is to match the inflows and the
outflows of cash to maintain adequate cash. Shortage of cash put an obstruction in the
process production. The holding of excess cash contributes nothing to the profitability
of the firm because idle cash earns nothing.

Receivable management
The term receivable is defined as any claim for money owed to the firm from
customers arising from the sale of goods or services in the normal course of business.
The term account receivable represents sundry debtors of a firm. It is one of the
 46

significant components of working capital next to cash and inventories.

The total volume of accounts receivable depends on its credit sales and debt collection
policy- these two significantly influence the requirement of working capital. Liberal
credit policy increases the volume of sales but at the same time, it also increases the
investment in receivables. Therefore, examination costs and benefits associated with
credit policy is one of the important tasks of a finance manager. Receivable
management is that aspect of a firm‟s working capital management, which is
concerned with determining optimum credit policy associated with a firm as such that
the benefit from an extension of credit is greater than the cost of maintaining
investment in account receivable.

Inventory management

Inventory constitutes a major part of total working capital. Efficient management of

inventory results in maximization of earnings of the shareholders. Efficient inventory
management consists of managing two conflicting objectives: Minimization of
investment in inventory on the one hand and maintenance of the smooth flow of raw
materials for production and sales on the other. Therefore, the objective of a finance
manager is to calculate the level of inventory where these conflicting interests are
reconciled.

Investment in inventory should neither be excessive nor inadequate. It should just be

optimum. Maintaining an optimum level of investment in inventory is the basic issue
of inventory management. Excessive investment in inventory results in a higher cost
of funds being tied up so that it reduces profitability. Inventories may be misused,
lost, damaged and hold a cost in terms of more space and others. At the same time,
insufficient investment in inventory creates stock-out problems, interruption in
production and sales. Therefore, financial managers should always try to hold neither
excessive nor inadequate investment in inventory. S/he should maintain the optimum
level of inventory to run the production and sales operation smoothly.

Accounts payable management

Payables or creditors are one of the important components of working capital
management. Payables provide a spontaneous source of financing of working capital.
 47

Payable Management is very closely related to cash management. Effective payable

management leads to a steady supply of materials to a firm as well as enhances its
reputation.It is generally considered a relatively cheap source of finance as suppliers
rarely charge any interest on the amount owed. However, trade creditors will have a
cost as a result of the loss of enjoying cash discounts on cash purchases
(www.yourarticlelibrary.com).
 48

CHAPTER IV
RESULTS AND DISCUSSIONS

The main objective of this study is to analyze the working capital management of Nepal
Telecom. This chapter has been organized to present the results, analyze, and interpret
them accordingly. The presentation and analysis of the data in this study have been
done to evaluate the working capital position through the financial reports from the
fiscal year 2066/67 to 2075/76.

Efforts have been made to analyze working capital management in terms of the
composition of current assets, turnover position, liquidity position, and profitability
position of Nepal Telecom. The composition of current assets is analyzed by making a
relationship of each component of current with total assets, etc. The turnover position is
analyzed with the help of current assets turnover, net working capital turnover, turnover
of cash, receivables, and inventory. The liquidity position is analyzed with the help of
net profit margin, return on total assets, and return on equity.
Data collected for the analysis of working capital management are presented in tabular
form and they are analyzed with the help of financial tools and techniques and statistical
tools.

4.1 Position of current assets and current liabilities

The requirements of current assets vary as per the nature and size of the organization.
A firm needs cash to purchase raw materials, pay salary, wages and other clear
liabilities. This is because of not perfect matching between cash inflow and outflow.
The firm has to invest enough funds in current assets for the success of the business
activities. The stocks of raw materials are kept to ensure smooth production and to
protect the risk of non-availability of raw materials. To meet this obligation cash is
also needed. Every business organization aims to maximize return on shareholders'
investment. To accomplish this objective, the business organization should earn
sufficient returns for its operations. Earning a steady amount of profit requires
successful sales. As the sales do not convert into cash instantly, an extra amount of
working capital is needed. The major components of current assets are cash,
receivables, inventories, etc. Hence, the proper management of these current assets is
 49

necessary to achieve the principal objective of any business organization, to earn

maximum profit and ultimately to maximize shareholder's wealth.
Table 4.1
Position of Current Assets (NRS. In Millions)
Year Inventory Loan Receivables Cash and Miscellaneous Total
Advance Bank Current
Deposit Assets
2066/67 172.27 6959.84 4296 21611.54 1975.71 35015.36
2067/68 958.05 8747.04 3904.74 16769.2 0 30379.04
2068/69 1049.69 22421.6 4339.42 25220.62 224.82 53256.15
2069/70 1385.96 26822.42 3188.95 26774.79 812.15 58984.27
2070/71 508.86 4724.61 2923.14 41263.47 1072.05 50492.13
2071/72 562.82 1701.2 2621.81 43520.9 12775.55 61182.29
2072/73 400.42 1009.04 2930.81 35395.14 22385.7 62121.11
2073/74 459.03 592.43 2673.83 24255.21 35760.63 63741.11
2074/75 425 515.24 2711.49 23411 42964.31 70027.03
2075/76 278.05 341.39 2165.13 19007.03 44219.98 66011.58

Table 4.2
(NRS. In Millions)
Position of Current Liabilities and Working Capital
Year Current Assets Current Net Working Capital
Liabilities
2066/67 35015.36 13661.07 21354.29
2067/68 30379.04 14941.66 15437.38
2068/69 53256.15 30845.21 22410.94
2069/70 58984.27 36569.23 22415.04
2070/71 50492.13 15828.08 34664.05
2071/72 61182.29 15532.95 45649.34
2072/73 62121.11 16646.7 45474.41
2073/74 63741.11 15115.55 48625.56
2074/75 70027.03 17023.97 53003.06
2075/76 66011.58 21736.69 44274.89
Total 551210.07 197901.11 353308.96
Average 100220.01 35982.02 64237.99
Standard 12478.27 7360.85 13052.57
Deviation
Source: Annual Reports of the Company and IBM SPSS 25
 50

Net working capital is the difference between current assets and current liabilities.
The determinants of working capital management should be as accurate as possible. It
means money invested in working capital should be neither more nor less because the
position of working capital affects not only the liquidity but also the profitability of
the organization. The above table 4.1 and 4.2 presents the Net Working Capital
position and Net Investment trend in Current Assets of Nepal Telecom. The table
shows that investment in Net Working Capital trend is fluctuating during 2066/67 to
2068/69 but after that is in increasing trend up to F/Y 2074/75 but decreased in F/Y
2075/76 by Rs.8728.17 million. From the table, it can be concluded that current assets
are in fluctuating trend in increasing way. The current liabilities of Nepal telecom are
fluctuating in these ten years. The current liabilities of NT was highest in FY 2069/70
with 36569.23 million

Table 4.2 can also be shown in a diagram as follow:

Figure 4.1
Position of Current Assets, Liabilities and Net Working Capital

160000

140000

120000

100000

80000

60000

40000

20000

0
2066/67 2067/68 2068/69 2069/70 2070/71 2071/72 2072/73 2073/74 2074/75 2075/76

Current Assets Current Liabilities Net Working Capital

 51

4.2 Analysis of working capital

Working capital, also known as net working capital, is the difference between a
company‟s current assets and current liabilities. Working capital measures how many
liquid assets are available to a company to build its business. The composition of
working capital is analyzed with the help of ratios between various components of
working capital, which are as follows:

4.2.1 Current assets to total assets ratio

Most of the firms, invest a major portion of Total Assets in Current Assets. So it is an
integral part of the firm and has a greater impact on the maximization of owners‟
investment. As the requirement of the current assets depends upon the nature of the
business, it is required to run day-to-day activities. A higher percentage of current
assets in total assets denotes a greater liquidity position of the firm as well as lowers
the risk of being insolvent and vice-versa.
The following table 4.2 presents the ratio of Current Assets to Total Assets of Nepal
Telecom:
Table 4.3
Current Assets to Total Assets Ratio (NRS. In Millions)
Year Current Assets Total Assets Current Assets to
Total Assets
2066/67 35015.36 52504.65 66.69%
2067/68 30379.04 76021.56 39.96%
2068/69 53256.15 105918.33 50.28%
2069/70 58984.27 114225.13 51.64%
2070/71 50492.13 95574.9 52.83%
2071/72 61182.29 111305.51 54.97%
2072/73 62121.11 115258.67 53.90%
2073/74 63741.11 121606.82 52.42%
2074/75 70027.03 131892.18 53.09%
2075/76 66011.58 136074.42 48.51%
Average 52.43%
Std. Deviation 7%
Coefficient of 12.53%
Variation
Source: Annual Reports of the Company and IBM SPSS 25
 52

Figure 4.2
Current Assets to Total Assets Ratio

80.00%

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
0 2 4 6 8 10 12

Table 4.3 shows the current assets to total assets ratio of Nepal Telecom during the
fiscal year 2066/67 to 2075/76. The proportion of current assets of total assets of
Nepal Telecom is fluctuating. The ratio is highest in FY 2066/67 and lowest in FY
2067/68. The average ratio of Currents Assets to Total Assets is 52.43% and the
coefficient of variation is 12.53%

The relation between current assets and total assets is positive and uniform. The
higher level of current assets indicates a good liquidity position but it adversely
affects the profitability of the company because idle money earns nothing.

4.2.2 Cash and bank balance to current assets ratio

Cash and Bank balances are the liquid form of assets and a very important component
of Working Capital. Every business firm should hold cash to perform day-to-day
activities, to meet immediate payments and for precautionary as well as speculative
motives. Cash and Bank balance both are liquid assets, which assure the sale increase
or decrease.

The following table 4.4 presents the Ratio of Cash and Bank Balance to Current
Assets of Nepal Telecom:
 53

Table 4.4
Cash and Bank to Current Assets Ratio (NRS. In Millions)
Year Cash and Current Cash And Bank
Bank Assets to Current Assets
2066/67 21611.5 35015.4 61.72%
2067/68 16769.2 30379 55.20%
2068/69 25220.6 53256.2 47.36%
2069/70 26774.8 58984.3 45.39%
2070/71 41263.5 50492.1 81.72%
2071/72 43520.9 61182.3 71.13%
2072/73 35395.1 62121.1 56.98%
2073/74 24255.2 63741.1 38.05%
2074/75 23411 70027 33.43%
2075/76 19007 66011.6 28.79%
Average 51.98%
Std. Deviation 17%
Coefficient of 32.21%
Variation
Source: Annual Reports of the Company and IBM SPSS 25

Figure 4.3
Cash and Bank to Current Assets Ratio

90.00%
81.72%
80.00%
71.13%
70.00%
61.72%
55.20% 56.98%
60.00%
47.36% 45.39%
50.00%
38.05%
40.00% 33.43%
28.79%
30.00%

20.00%

10.00%

0.00%
0 2 4 6 8 10 12

Table 4.4 and figure 4.3 show the cash and bank to current assets ratio of Nepal
Telecom during the fiscal year 2066/67 to 2075/76. The cash and bank to current
 54

assets ratio of Nepal Telecom is in decreasing trends from the fiscal year 2066/67 and
ranged to 81.72 % in the fiscal year 2070/071 and decreased afterward to 28.79% in
the fiscal year 2075/76. The average cash and bank balance to current assets ratio is
51.98% with the coefficient of variation of 32.21%. Since this ratio is too high, it can
be stated that the company is facing situations of excess cash and bank balance held
idle which is unfavorable for a company.

4.2.3 Inventory to current assets ratio

Raw material, work in progress and spare parts are required to ensure smooth and
regular production while finished goods inventory is needed to facilitate sales.
Therefore, a firm should invest optional in inventory to ensure its production and
sales. The shortage of any kind of inventory results in irregular production, high
manufacturing costs, etc. On the other hand, excess inventory causes unnecessary
holding of working capital, which earns nothing. So, the level of inventory holding
should be optimum so that it arises to neither excess nor shortage of inventory
problem. The following table 4.5 presents the proportion of Inventory to Current
Assets of Nepal Telecom:
Table 4.5
Inventory to Current Assets Ratio (NRS. In Millions)
Year Inventory Current Assets Inventory to Current
Assets
2066/67 172.27 35015.36 0.49%
2067/68 958.05 30379.04 3.15%
2068/69 1049.69 53256.15 1.97%
2069/70 1385.96 58984.27 2.35%
2070/71 508.86 50492.13 1.01%
2071/72 562.82 61182.29 0.92%
2072/73 400.42 62121.11 0.64%
2073/74 459.03 63741.11 0.72%
2074/75 425 70027.03 0.61%
2075/76 278.05 66011.58 0.42%
Average 1.23%
Std. Deviation 0.93%
Coefficient of 75.95%
Variation
Source: Annual Reports of the Company and IBM SPSS 25
 55

Figure 4.4
Inventory to Current Assets Ratio

3.50%
3.15%

3.00%

2.50% 2.35%

1.97%
2.00%

1.50%
1.01%
0.92%
1.00%
0.64% 0.72% 0.61%
0.49% 0.42%
0.50%

0.00%
0 2 4 6 8 10 12

Table 4.5 and figure 4.4 shows the proportion of Inventories to its Current Assets. In
F/Y 20666/67, the ratio is 0.49% and reached 0.42% in FY 2075/76. The Average
ratio of Inventory to Current Assets is 1.23% with a coefficient of variation is 75.95%
which shows that portion of inventory in current assets is very low and is decreasing
every year. In general, the lower the ratio indicates good management of the
inventory.

4.2.4 Receivables to current assets ratio

Receivables as a percentage of current assets show the size of receivables in current

assets and the opportunity cost associated with it. A higher percentage shows a higher
opportunity cost of carrying the receivables. It is therefore desired that a firm need to
carry the least percentage of receivables as possible without affecting the sales
volume.

The following table 4.6 presents the proportion of Receivables to Current Assets of
Nepal Telecom:
 56

Table 4.6
Receivables to Current Assets Ratio (NRS. In Millions)
Year Receivables Current Receivables to Current
Assets Asset
2066/67 4296 35015.36 12.27%
2067/68 3904.74 30379.04 12.85%
2068/69 4339.42 53256.15 8.15%
2069/70 3188.95 58984.27 5.41%
2070/71 2923.14 50492.13 5.79%
2071/72 2621.81 61182.29 4.29%
2072/73 2930.81 62121.11 4.72%
2073/74 2673.83 63741.11 4.19%
2074/75 2711.49 70027.03 3.87%
2075/76 2165.13 66011.58 3.28%
Average 6.48%
Std. 3.48%
Deviation
Coefficient 53.63%
of Variation
Source: Annual Reports of the Company

Figure 4.5
Receivables to Current Assets Ratio

14.00% 12.85%
12.27%
12.00%

10.00%
8.15%
8.00%
5.41% 5.79%
6.00% 4.72%
4.29% 4.19% 3.87%
3.28%
4.00%

2.00%

0.00%
0 2 4 6 8 10 12

Table 4.6 and figure 4.5 show the proportion of Receivables to the Current Assets. In
F/Y 2066/67, the ratio is 12.27% and reached 3.28% in FY 2075/76. The average ratio
of Receivables to Current Assets is 6.48% with a coefficient of variation is 53.63%
which shows that the portion of receivables in current assets is low and it is
 57

decreasing every year. In general, the lower the ratio indicates good management of
the receivables.

4.2.5 Current liabilities to total liabilities

An increasing current to total liabilities ratio is usually a negative sign. A decreasing

current to total liabilities ratio is usually a positive sign, showing the company's
proportion of current liabilities is decreasing compared to its total liabilities.
The following table 4.7 presents the proportion of Current Liabilities to Total
Liabilities of Nepal Telecom:
Table 4.7
Current Liabilities to Total Liabilities (NRS. In Millions)
Year Current Total Liabilities Current Liability to Total
Liabilities Liability
2066/67 13661.07 19016.12 71.84%
2067/68 14941.66 22127.68 67.52%
2068/69 30845.21 56443.77 54.65%
2069/70 36569.23 60589.43 60.36%
2070/71 15828.08 38098.18 41.55%
2071/72 15532.95 30307.07 51.25%
2072/73 16646.7 29230.79 56.95%
2073/74 15115.55 30275.98 49.93%
2074/75 17023.97 32227.07 52.83%
2075/76 21736.69 44162.94 49.22%
Average 55.61%
Std. 9.00%
Deviation
Coefficient of 16.18%
Variation

Source: Annual Reports of the Company

 58

Figure 4.6
Current Liability to Total Liability

80.00%
71.84%
67.52%
70.00%
60.36%
56.95%
60.00% 54.65% 52.83%
51.25% 49.93% 49.22%
50.00%
41.55%
40.00%

30.00%

20.00%

10.00%

0.00%
0 2 4 6 8 10 12

Table 4.7 and figure 4.6 show that Current Liabilities to Total Liabilities are in
fluctuating trend. An increasing Current to Total Liabilities ratio is usually a negative
sign. The average ratio of Current Liability to Total Liability is 55.61% with a
coefficient of variation is 16.18%. Since the company's current to total liabilities are
fluctuating (i.e keep increasing and decreasing), the ratio for FY 2075/76 is 49.22%
which is relatively low than other fiscal years shows a good position of the company
than the previous FY.

4.2.6 Current assets turnover ratio

The current Asset Turnover ratio measures the firm‟s ability to generate sales through
its current assets (cash, inventory, accounts receivable, etc.). It indicates how
efficiently a firm is using its current assets to generate revenue. A high current assets
turnover ratio indicates the capability of the organization to achieve maximum sales
with the minimum investment in current assets. The following table 4.8 presents the
Current Assets Turnover Ratio of Nepal Telecom:
 59

Table 4.8
Current Assets Turnover Ratio (NRS. In Millions)
Year Revenue Current Assets Current Assets
Turnover Ratio
2066/67 27221.07 35015.36 0.78
2067/68 29849.16 30379.04 0.98
2068/69 36791.82 53256.15 0.69
2069/70 38858.26 58984.27 0.66
2070/71 39695.24 50492.13 0.79
2071/72 42638.37 61182.29 0.70
2072/73 44209.25 62121.11 0.71
2073/74 44588.99 63741.11 0.70
2074/75 45269.48 70027.03 0.65
2075/76 43839.04 66011.58 0.66
Average 0.73
Std. Deviation 0.10
Coefficient of 14%
Variation
Source: Annual Reports of the Company

Figure 4.7
Current Assets Turnover Ratio

1.20

0.98
1.00

0.78 0.79
0.80 0.69 0.70 0.71 0.70
0.66 0.65 0.66

0.60

0.40

0.20

0.00
0 2 4 6 8 10 12

Table 4.8 and figure 4.7 show the current assets turnover ratio of Nepal Telecom is in
decreasing trend during the study period. The ratio is highest at 0.98 in FY 2067/68
and lowest at 0.65 in FY 2074/75. The average current turnover ratio is 0.73 with a
 60

coefficient of variation of 14%. A low ratio indicates that the company can generate
more revenue from minimum investment in current assets.

4.2.7 Inventory turnover ratio

Inventory is the major and important component of Working Capital, which should be
maintained effectively and efficiently. Inventory comprises stock of raw materials,
work in progress, finished goods and materials required for the smooth operation of
the business. The stock of raw material should be adequate to meet the requirement of
optimum production level so that the company can meet its production and sales
target. Level of Inventory, production and sales are interrelated. The inventory
turnover ratio indicates the number of times inventory is replaced during the years. It
measures the relationship between sales and inventory level. The inventory turnover
ratio tests the efficiency of inventory management. It is a valuable measure of selling
efficiency and inventory quality.
The following table 4.9 shows the inventory turnover ratio of Nepal Telecom during
the study:
Table 4.9
Inventory Turnover Ratio (NRS. In Millions)
Year Revenue Inventory Inventory Turnover
Ratio
2066/67 27221.07 172.27 158.01
2067/68 29849.16 958.05 31.16
2068/69 36791.82 1049.69 35.05
2069/70 38858.26 1385.96 28.04
2070/71 39695.24 508.86 78.01
2071/72 42638.37 562.82 75.76
2072/73 44209.25 400.42 110.41
2073/74 44588.99 459.03 97.14
2074/75 45269.48 425 106.52
2075/76 43839.04 278.05 157.67
Average 87.78
Std. Deviation 47.80
Coefficient of 54%
Variation
Source: Annual Reports of the Company
 61

Figure 4.8
Inventory Turnover Ratio

180
158.01 157.67
160
140
120 110.41 106.52
97.14
100
78.01 75.76
80
60
40 31.16 35.05 28.04

20
0
0 2 4 6 8 10 12

Table 4.9 and figure 4.8 show the Inventory Turnover Ratio or the number of times
Inventory replaced during the ten years. The inventory turnover ratio is in increasing
during the study period. The ratio is minimum at 28.04 times in the fiscal year
2069/70 and highest 158.01 times in the fiscal year 2066/67. Inventory has
decreased in FY 2071/72 due to capitalization of inventory and written off. The
average total revenue to inventory ratio of Nepal Telecom is 87.78 times with 54% of
the coefficient of variation. Inventory turnover measures how fast a company is
selling inventory and is generally compared against industry averages. A low turnover
implies weak sales and, therefore, excess inventory. A high ratio implies either strong
sales and/or large discounts. The inventory turnover ratio of Nepal Telecom is very
high so that it is very good.

4.2.8 Receivable turnover ratio

Receivable Turnover Ratio is an accounting measure used to measure how effective a

company is in extending credit as well as collecting debts. The receivables turnover
ratio is an activity ratio, measuring how efficiently a firm uses its assets. It is the
relationship between net sales and average debtors. It measures how many times a
business can turn its accounts receivable into cash during a period. This ratio shows
how efficient a company is at collecting its credit sales from the customer. The
following table 4.10 shows the receivable turnover ratio of Nepal Telecom:
 62

Table 4.10
Receivable Turnover Ratio (NRS. In Millions)
Year Revenue Receivables Receivable
Turnover Ratio
2066/67 27221.07 4296 6.34
2067/68 29849.16 3904.74 7.64
2068/69 36791.82 4339.42 8.48
2069/70 38858.26 3188.95 12.19
2070/71 39695.24 2923.14 13.58
2071/72 42638.37 2621.81 16.26
2072/73 44209.25 2930.81 15.08
2073/74 44588.99 2673.83 16.68
2074/75 45269.48 2711.49 16.70
2075/76 43839.04 2165.13 20.25
Average 13.32
Std. 4.57
Deviation
Coefficient 34.33%
of Variation
Source: Annual Reports of the Company

Figure 4.9
Receivables Turnover Ratio

25
20.25
20
16.26 16.68 16.70
15.08
15 13.58
12.19

10 8.48
7.64
6.34

0
0 2 4 6 8 10 12

Table 4.10 and figure 4.9 shows the receivable turnover ratio of Nepal Telecom
during the study period. Receivable Turnover Ratio is found in increasing trend. In
the FY 2066/67, the ratio is 6.34 times and has increased to 20.25 times in FY
 63

2075/76. The Average Receivable Turnover Ratio is 13.32 times with 34.33% of the
coefficient of variation. Higher turnover ratios indicate a shorter collection period. In
conclusion, the company is able to collect its credit revenue in a short period of time.

4.2.9 Net working capital turnover ratio

The working capital turnover ratio measures how well a company is utilizing its
working capital to support a given level of sales. Working capital is current assets
minus current liabilities. A high turnover ratio indicates that management is being
extremely efficient in using a firm's short-term assets and liabilities to support sales.
Conversely, a low ratio indicates that a business is investing in too many accounts
receivable and inventory to support its sales, which could eventually lead to an
excessive amount of bad debts and obsolete inventory The following Table 4.11
presents the Working Capital Turnover Ratio of Nepal Telecom:
Table 4.11
(NRS. In Millions)
Net Working Capital Turnover Ratio
Year Revenue Net Working Net Working
Capital Capital Turnover
Ratio
2066/67 27221.07 21354.29 1.27
2067/68 29849.16 15437.38 1.93
2068/69 36791.82 22410.94 1.64
2069/70 38858.26 22415.04 1.73
2070/71 39695.24 34664.05 1.15
2071/72 42638.37 45649.34 0.93
2072/73 44209.25 45474.41 0.97
2073/74 44588.99 48625.56 0.92
2074/75 45269.48 53003.06 0.85
2075/76 43839.04 44274.89 0.99
Average 1.24
Std. 0.39
Deviation
Coefficient of 31.56%
Variation
Source: Annual Reports of the Company
 64

Figure 4.10
Net Working Capital Ratio

2.50

1.93
2.00
1.73
1.64

1.50
1.27
1.15
0.93 0.97 0.99
0.92
1.00 0.85

0.50

0.00
0 2 4 6 8 10 12

Table 4.11 and figure 4.10 show the net working capital turnover ratio of Nepal
Telecom is in decreasing trend from FY 2070/71. The ratio in FY 2066/67 is 1.27
times and increases in FY 2067/68. The Ratio keeps fluctuating during the ten years.
A low ratio indicates that a company is investing in too many accounts receivable and
inventory to support its revenue. The average working capital turnover ratio of Nepal
Telecom is 1.24 times with a coefficient of variation of 31.56% which shows that
company has invested most of the funds in the form of current assets like cash &
receivables. So the opportunity cost of cash and receivables for the company is
increasing. There is also a chance of bad debts due to an increase in receivables.

4.2.10 Inventory conversion period

It measures the length of time on average between the acquisition and sale of
merchandise. A high Inventory Conversion Period shows the blockage of money in
inventory whereas, a low ICP shows the improvement of blockage of money in the
inventory. Less Inventory Conversion Period is better because it shows the company
can convert its inventory into sales fastly and there will be less chance of
obsolescence and paying of overstocking cost. The following table 4.12 presents the
Inventory Conversion Period of Nepal Telecom:
 65

Table 4.12
Inventory Conversion Period (NRS. In Millions)
Year Revenue Inventory ICP
2066/67 27221.07 172.27 2.31
2067/68 29849.16 958.05 11.71
2068/69 36791.82 1049.69 10.41
2069/70 38858.26 1385.96 13.02
2070/71 39695.24 508.86 4.68
2071/72 42638.37 562.82 4.82
2072/73 44209.25 400.42 3.31
2073/74 44588.99 459.03 3.76
2074/75 45269.48 425 3.43
2075/76 43839.04 278.05 2.31
Average 5.98
Std. Deviation 4.09
CV 68%

Source: Annual Reports of the Company

Figure 4.11
Inventory Conversion Period

14.00 13.02
11.71
12.00
10.41
10.00

8.00

6.00 4.68 4.82

3.76 3.43
4.00 3.31
2.31 2.31
2.00

0.00
0 2 4 6 8 10 12

Table 4.12 and figure 4.11 show the average Inventory Conversion Period of Nepal
Telecom is in decreasing trend from FY 2069/70. A low conversion period indicates
that a company is converting its inventory into sales quite fastly. The ICP is highest at
 66

13.02 days in FY 2069/70 and lowest at 2.31 days in FY 2075/76. The average
Inventory Conversion Period of Nepal Telecom is 5.98 days with a coefficient of
variation of 68% which shows that the company has converted its inventory into
sales and there is less chance of paying the overstocking cost.

4.2.11 Average collection period

Average collection period is the time between the sale of the final product on credit
and cash receipts for the accounts payable. It measures the average number of days it
takes for the company to collect revenue from its credit sales.

The following table 4.13 shows the average collection period of Nepal Telecom:

Table 4.13
Average Collection Period (NRS. In Millions)
Year Revenue Receivables Average Collection
Period
2066/67 27221.07 4296 57.57
2067/68 29849.16 3904.74 47.77
2068/69 36791.82 4339.42 43.04
2069/70 38858.26 3188.95 29.94
2070/71 39695.24 2923.14 26.88
2071/72 42638.37 2621.81 22.45
2072/73 44209.25 2930.81 24.20
2073/74 44588.99 2673.83 21.88
2074/75 45269.48 2711.49 21.86
2075/76 43839.04 2165.13 18.02
Average 31.36
Std. Deviation 13.35
Coefficient of 42.56%
Variation

Source: Annual Reports of the Company

 67

Figure 4.12
Average Collection Period

70.00
57.57
60.00
47.77
50.00 43.04

40.00
29.94
26.88
30.00 22.45 24.20 21.88 21.86
18.02
20.00

10.00

0.00
0 2 4 6 8 10 12

The Average Collection Period of Nepal Telecom has been found fluctuating over the
period in decreasing trend caused by the change in volume of revenue and receivables
in different years. On average, the collection period of Nepal Telecom is 31.36 i.e. 31
days. A lower average collection period means the company is able to realize credit
revenue in a short period. The average collection period of Nepal Telecom is in
decreasing trend; hence we can say that the credit management of Nepal Telecom is
good.

4.2.12 Payable turnover ratio

The payable turnover ratio measures how quickly a business makes payments to
creditors and suppliers that extend the line of credit. A high accounts payable ratio
signals that the company is paying its creditors and suppliers quickly, while a low
ratio suggests the business is slower in paying its bills.
The following table 4.14 shows the average collection period of Nepal Telecom:
 68

Table 4.14
Payable Turnover Ratio (NRS. In Millions)
Year Revenue Payable Payable Turnover
Ratio (Times)
2066/67 27221.07 220.15 123.65
2067/68 29849.16 172.14 173.40
2068/69 36791.82 -9.88 -3723.87
2069/70 38858.26 309.01 125.75
2070/71 39695.24 482.16 82.33
2071/72 42638.37 426.44 99.99
2072/73 44209.25 549.69 80.43
2073/74 44588.99 -3.18 -14021.69
2074/75 45269.48 406.06 111.48
2075/76 43839.04 2722.95 16.10
Average -1693.24
SD 4264.99
CV -2.52

Source: Annual Reports of the Company

Figure 4.13
Payable Turnover Ratio

2000.00
123.65 173.40 125.75 82.33 99.99 80.43 111.48 16.10
0.00

-2000.00 -3723.87
-4000.00

-6000.00

-8000.00

-10000.00

-12000.00
-14021.69
-14000.00

-16000.00

Table 4.14 and figure 4.13 show the Payable Turnover Ratio of Nepal Telecom is in
fluctuating trend. A high accounts payable ratio signals that the company is paying its
 69

creditors and suppliers quickly, while a low ratio suggests the business is slower in
paying its bills. The ratio is highest at 173.40 times in FY 2067/68 and lowest at -
14021.69 times in FY 2073/74. The average Payable Turnover Ratio of Nepal
Telecom is -1693.24 times with a coefficient of variation of -2.52 times which shows
that the company is slowly paying its bills.

4.2.13 Payable Deferral Period

The ratio depicts how well a company is managing its cash outflows during an
accounting period in paying the account payables. An increase in accounts payable is
a source of cash as the company takes longer to pay its vendors and suppliers. A
decrease in accounts payable signifies the use of cash as whenever a company settles
its bills which reduces working capital.

The following table 4.15 presents the Payable Deferral Period of Nepal Telecom:

Table 4.15
Payable Deferral Period (NRS. In Millions)

Year Revenue Payable Payable Deferral Period

(Days)
2066/67 27221.07 220.15 2.95
2067/68 29849.16 172.14 2.10
2068/69 36791.82 -9.88 -0.10
2069/70 38858.26 309.01 2.90
2070/71 39695.24 482.16 4.43
2071/72 42638.37 426.44 3.65
2072/73 44209.25 549.69 4.54
2073/74 44588.99 -3.18 -0.03
2074/75 45269.48 406.06 3.27
2075/76 43839.04 2722.95 22.67
Average 4.64
SD 6.20
CV 133.64

Source: Annual Reports of the Company

 70

Figure 4.14
Payable Deferral Period

25.00 22.67

20.00

15.00

10.00
4.43 4.54
2.95 2.90 3.65 3.27
5.00 2.10
-0.10 -0.03
0.00
0 2 4 6 8 10 12
-5.00

The Average Payable Deferral Period is found fluctuating over the period. On
average, the payable period of Nepal Telecom is 4.64 i.e. 5 days. A higher average
payable deferral period means the company is settling its liabilities very delay. The
average payable deferral period of Nepal Telecom is in decreasing trend; hence it was
found that the company is trying to make payment on time.

4.3 Analysis of liquidity ratio

Liquidity position shows the ability to pay the bills. Liquidity fulfills the current need
for money. The most important objective of adopting appropriate and optimum
liquidity is to enable the company to meet current or short-term obligations when they
become due for payment. A firm should ensure that it does not suffer from a lack of
liquidity and also that it has not too much liquidity. The failure of a company to meet
its obligations due to lack of liquidity will result in bad credit ratings, loss of creditor's
confidence, or even in lawsuits resulting in the closure of the company. A very high
degree of liquidity is also bad as idle assets earn nothing. Therefore, it is necessary to
strike a proper balance between liquidity and lack of liquidity. The liquidity position
of the company can be analyzed based on the following ratios.

4.3.1 Current ratio

The current ratio shows the ability to pay the current debt from current assets. It
measures the liquidity position of the company. This ratio is calculated by dividing
 71

current assets by current liabilities. This ratio shows the availability of current assets
in Rupees for every one Rupee of current liabilities. As a conventional rule, a current
ratio of 2:1 is considered satisfactory. The higher the current ratio means greater the
margin of safety and the larger the number of current assets to current liabilities, the
more the firm‟s ability to meet its obligations and strong working capital position.
Table 4.15 presents the Current Ratio during the study period of Nepal Telecom:
Table 4.16
Current Ratio (NRS. In Millions)
Year Current Assets Current Liabilities Current Ratio
2066/67 35015.36 13661.07 2.56
2067/68 30379.04 14941.66 2.03
2068/69 53256.15 30845.21 1.73
2069/70 58984.27 36569.23 1.61
2070/71 50492.13 15828.08 3.19
2071/72 61182.29 15532.95 3.94
2072/73 62121.11 16646.7 3.73
2073/74 63741.11 15115.55 4.22
2074/75 70027.03 17023.97 4.11
2075/76 66011.58 21736.69 3.04
Average 3.02
Std. Deviation 0.99
CV 32.86%

Source: Annual Reports of the Company

 72

Figure 4.15
Current Ratio

4.50 4.22 4.11

3.94
4.00 3.73

3.50 3.19
3.04
3.00 2.56
2.50 2.03
2.00 1.73 1.61
1.50
1.00
0.50
0.00
2066/67 2067/68 2068/69 2069/70 2070/71 2071/72 2072/73 2073/74 2074/75 2075/76

Table 4.16 and figure 4.15 show that the highest ratio is 4.22 times in F/Y 2073/74
and the lowest ratio is 1.61 times in F/Y 269/070; however, ratios are fluctuating in an
increasing trend. From FY 2066/67 to 2075/76 ratio has been in increasing and
decreasing. The ratio has been decreasing from FY 2066/67 to FY 2069/70 and starts
to increase from FY 2070/71 to FY 2073/74 and have decreased to 3.04 times in FY
2075/76. The average Current Ratio is 3.02 with a 32.86% coefficient of variation. A
higher current ratio (more than 2:1) is good for the company and the current ratio of
Nepal Telecom is higher so, Nepal Telecom‟s solvency position is very good.

4.3.2 Acid-Test ratio/Quick ratio

Quick ratio mainly concentrates on cash, marketable securities and receivables

concerning current obligations and thus provides a more reliable measure of liquidity
than the current ratio does. The higher current ratio may not be regarded well because
the holding of more amounts of inventories may bring a shortage of cash and the
company may hinder paying current obligations. This ratio should be greater than one
for the sound liquidity position of the company. Table 4.14 presents the Quick Ratio
of Nepal Telecom:
 73

Table 4.17
Quick Ratio (NRS. In Millions)
Year Quick Assets Current Liabilities Quick Ratio

2066/67 34843.09 13661.1 2.55

2067/68 29420.99 14941.7 1.97
2068/69 52206.46 30845.2 1.69
2069/70 57598.31 36569.2 1.58
2070/71 49983.27 15828.1 3.16
2071/72 60619.47 15533 3.90
2072/73 61720.69 16646.7 3.71
2073/74 63282.08 15115.6 4.19
2074/75 69602.03 17024 4.09
2075/76 65733.53 21736.7 3.02
Average 2.99
Std. Deviation 1.00
CV 33.38%

Source: Annual Reports of the Company

Figure 4.16
Quick Ratio

4.50 4.19 4.09

3.90
4.00 3.71

3.50 3.16 3.02

3.00 2.55
2.50
1.97
2.00 1.69 1.58
1.50
1.00
0.50
0.00
0 2 4 6 8 10 12

Table 4.17 and figure 4.16 show that the quick ratio is in the increasing trend during
the study period. The highest ratio is 4.19 times in F/Y 2073/74 and the lowest ratio is
1.58 times in F/Y 269/070; From FY 2066/67 to 2075/76 ratio has been in increasing
and decreasing. The ratio has been decreasing from FY 2066/67 to FY 2069/70 and
 74

starts to increase from FY 2070/71 to FY 2073/74 and have decreased to 3.02 times in
FY 2075/76. The average quick ratio is 2.99 times with 33.38% of the coefficient of
variation. The quick ratios calculated above are observed more than the standard level
(1:1) each year. So the Quick Ratio of the company is very good. This is allowing to
the holding of more amounts of cash and bank balances.

4.4 Profitability position

The working capital component has affected the profitability position of the
enterprises. The strong profitability position fulfills the aims of wealth maximization
as well as profit maximization, which motivates the investor to invest.

Profit is an important factor that determines the firms‟ expansion and diversification.
A required level of profit is necessary for the firms‟ growth and survival in the
competitive environment. Various ratios can be developed upon the profit under
different circumstances. These different ratios are called profitability ratios, which are
required to support the purpose of the study:

4.4.1 Net profit margin ratio

Net Profit Margin Ratio is the percentage of net profit relative to the revenue earned
during a period. This ratio shows the ability of management to operate the business
with sufficient success. The ratio of net profit to sales essentially expresses the cost
price effectiveness of the operation. The operating expense mainly affects the net
profit of the company. Table 4.18 presents the Net Profit Margin Ratio of Nepal
Telecom:
 75

Table 4.18
Net Profit Margin Ratio (NRS. In Millions)

Year Net Profit After Revenue Net Profit Margin

Tax Ratio
2066/67 10775.15 27221.07 39.58%
2067/68 12120.3 29849.16 40.61%
2068/69 11605.27 36791.82 31.54%
2069/70 11299.18 38858.26 29.08%
2070/71 11553.72 39695.24 29.11%
2071/72 14556.34 42638.37 34.14%
2072/73 13681.16 44209.25 30.95%
2073/74 15372.76 44588.99 34.48%
2074/75 17483.8 45269.48 38.62%
2075/76 9757.58 43839.04 22.26%
Average 33.04%
Std. Deviation 0.06
CV 17.14%

Source: Annual Reports of the Company

Figure 4.17
Net Profit Margin Ratio

45.00%
39.58% 40.61% 38.62%
40.00%
34.14% 34.48%
35.00% 31.54% 30.95%
29.08% 29.11%
30.00%

25.00% 22.26%

20.00%

15.00%

10.00%

5.00%

0.00%
0 2 4 6 8 10 12
 76

Table 4.18 and figure 4.17 show the net profit margin of Nepal Telecom for FY
2066/67 to FY 2075/76. The net profit of the company is in fluctuating trends whereas
the revenue is in increasing trends. Net profit margin is the highest in the fiscal year
2067/68 as 40.61% and the lowest 22.26% in the fiscal year 2075/76. The average net
profit is 33.04% with a 17.14% coefficient of variation which is very good. Based on
the company's net profit margin ratio, it can be concluded that the company‟s overall
efficiency is very good.

4.4.2 Return on equity

Return on equity measures a corporation's profitability by revealing how much profit

a company generates with the money shareholders have invested. Return on equity is
one of the most important financial ratios and profitability metrics. It measures how
profitable a company is for the owner of the investment, and how profitably a
company employs its equity. Table 4.19 presents the Return on Equity during the
study period of Nepal Telecom:
Table 4.19
Return on Equity (NRS. In Millions)
Year Net Profit After Tax Equity Return on Equity

2066/67 10775.15 47149.6 22.85%

2067/68 12120.3 53893.89 22.49%
2068/69 11605.27 49474.56 23.46%
2069/70 11299.18 53635.69 21.07%
2070/71 11553.72 57476.73 20.10%
2071/72 14556.34 80998.44 17.97%
2072/73 13681.16 86027.88 15.90%
2073/74 15372.76 91330.85 16.83%
2074/75 17483.8 99665.12 17.54%
2075/76 9757.58 91911.48 10.62%
Average 18.88%
Std. Deviation 0.04

Coefficient of 20.89%
Variation
Source: Annual Reports of the Company
 77

Figure 4.18
Return on Equity

25.00% 23.46%
22.85% 22.49%
21.07%
20.10%
20.00% 17.97% 17.54%
16.83%
15.90%

15.00%

10.62%
10.00%

5.00%

0.00%
2066/67 2067/68 2068/69 2069/70 2070/71 2071/72 2072/73 2073/74 2074/75 2075/76

Table 4.19 and figure 4.18 show the return on equity of Nepal Telecom over the study
period 2066/67 to 2075/76. The table shows that the returns on equity of Nepal
Telecom are in decreasing trend. It is due to an increase in equity every year. Return
on Equity is the highest in the fiscal year 2068/69 as 23.46% and the lowest 10.62%
in the fiscal year 2075/76. The average return on equity ratio of Nepal Telecom is
18.88% and the variation on such ratio is 20.89%. The average return on equity ratio
is not so high so the overall performance of the company is not satisfactory

4.4.3 Return on assets

Return on Assets Ratios provides analysts with an indication of management

efficiency in utilizing company assets to create profits. It is a financial ratio that
shows the percentage of profit that a company earns from its overall resources (total
assets). Return on assets is a key profitability ratio that measures the amount of profit
made by a company per dollar of its assets. It shows the company's ability to generate
profits before leverage, rather than by using leverage. So, return on assets gives an
idea as to how efficient management use company assets to generate profit, but is
usually of less interest to shareholders than some other financial ratios such as return
 78

on equity. Table 4.20 presents the Return on Assets during the study period of Nepal
Telecom:
Table 4.20
Return on Assets (NRS. In Millions)
Year Net Profit After Total Assets Return on Assets
Tax
2066/67 10775.2 52504.7 20.52%
2067/68 12120.3 76021.6 15.94%
2068/69 11605.3 105918 10.96%
2069/70 11299.2 114225 9.89%
2070/71 11553.7 95574.9 12.09%
2071/72 14556.3 111306 13.08%
2072/73 13681.2 115259 11.87%
2073/74 15372.8 121607 12.64%
2074/75 17483.8 131892 13.26%
2075/76 9757.58 136074 7.17%
Average 12.74%
Std. Deviation 0.04
Coefficient of 28.02%
Variation
Source: Annual Reports of the Company

Figure 4.19
Return on Assets

25.00%

20.52%
20.00%

15.94%

15.00% 13.08% 13.26%

12.09% 12.64%
11.87%
10.96%
9.89%
10.00%
7.17%

5.00%

0.00%
0 2 4 6 8 10 12
 79

Table 4.20 and figure 4.19 show an analysis of the return on total assets of Nepal
Telecom over the study period 2066/67 to 2075/76. Return on Assets is the highest in
the fiscal year 2066/67 as 20.52% and the lowest 7.17% in the fiscal year 2075/76.
The average return on assets of Nepal Telecom is 12.74% and the variation on such
ratio is 28.02% respectively.

4.5 Correlation analysis

Correlation analysis deals with determining the degree of relationship between two
variables. This analysis describes not only the magnitude of the relationship but also
its direction. It is often misunderstood that correlation analysis determines cause and
effect; however, this is not the case because other variables that are not present in the
research may have impacted the results. The measure of correlation coefficient
summarizes in one figure, the direction and degree of correlation.

Thus, correlation analysis refers to the techniques used in measuring the relationship
between the variables. If there is a correlation found, depending upon the numerical
values measured, this can be either positive or negative. A positive correlation exists
if one variable increases simultaneously with the other, i.e. the high numerical values
of one variable relate to the high numerical values of the other. A negative correlation
exists if one variable decreases when the other increases, i.e. the high numerical
values of one variable relate to the low numerical values of the other.

Table 4.21 presents the correlation analysis between the independent and dependent
variables of working capital i.e. return on assets, current ratio, inventory conversion
period, average collection period, payable deferral period and working capital
turnover ratio of Nepal Telecom for the study period, which is as follow:
 80

Table 4.21
Correlation Matrix
Return Inventory Average Payable Current Working
on Conversion Collection Deferral Ratio Capital
Assets Period Period Period Turnover
Ratio
Return on 1
Assets
Inventory -0.122 1
Conversion
Period
Average .737* 0.344 1
Collection
Period
Payable -0.517 -0.383 -0.397 1
Deferral
Period
Current -0.016 -.776** -.650* 0.070 1
Ratio
Working 0.139 .897** .667* -0.291 -.921** 1
Capital
Turnover
Ratio
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
Source: IBM SPSS 25

To measure the firm profitability, ROA has been chosen as a dependent variable. It
equals net profit after tax divided by total assets. To measure the WCM's efficiency of
a company, the research chooses, current ratio, inventory conversion period, average
collection period, payable deferral period and working capital turnover ratio as
independent variables.

Table 4.21 shows that there is a negative correlation between Return on Assets and
Current Ratio (-0.016), Inventory Conversion Period (-0.122)& Payable Deferral
Period (-0.517) but there is a positive correlation between return on assets and average
 81

collection period (.737) & working capital turnover ratio (0.139) for the fiscal year
2066/67 to 2075/76. The negative correlation between return on assets and current
ratio, inventory conversion period and payable deferral period show that these
variables have an opposite and inverse relationship between them and the positive
relationship between ROA and Average Collection Period, Working Capital Turnover
Ratio shows the positive and the direct relationship between the variables.

The outcome shows there is a very low degree of negative correlation between
inventory conversion period, current ratio and ROA and a moderate degree of
negative correlation between payable deferral period and ROA. There is a low degree
of positive correlation between ROA and the working capital turnover ratio. There is a
high degree of positive correlation between ROA and the average collection period.

4.6 Model summary

Table 4.22
Model summary
R R Square Adjusted R Square Std. Error of the Estimate

.963a .927 .836 1.44644

(Source: SPSS Version 25)

a. Predictors: (Constant), ACP ,CR, ICP, PDP, NWCTR

b. Dependent Variable: ROA

Model summary indicates the R- square also known as coefficient of determination

which can help in explaining variance. The value of R-square in as evident from table
4.22 is 0.927 which means 92.7% variation in ROA of Nepal Telecom is explained by
ACP, CR, ICP, PDP and NWCTR. However, the remaining 7.3% (100% - 92.7%) is
explained by other factors which have not been explained in this study.
Similarly, adjusted R-square 0.836 which means 83.6% variation in ROA of Nepal
Telecom is explained by ACP, CR, ICP, PDP and NWCTR after adjusting degree of
freedom (df). This shows strong relationship between all independent variables and
dependent variables. This means ACP, CR, ICP, PDP and NWCTR have significant
impact in ROA of Nepal Telecom.
 82

Model summary also indicates the standard error of estimate is 1.44644 which shows
the variability of the observed value of factors influencing the working capital
management/Profitability from regression line is 1.44644units.

4.7 Regression Analysis

Table 4.23
Regression Model
Variables B Std. Error Beta t sig
(Constant) -10.516 10.266 -1.024 0.364
Average Collection 0.357 0.155 1.335 2.303 0.083
Period
Current Ratio 3.640 1.714 1.011 2.124 0.101

Inventory Conversion 0.194 0.816 0.223 0.238 0.823

Period
Payable Deferral 0.012 0.186 0.023 0.067 0.950
Period
Working Capital -0.106 9.455 -0.012 -0.011 0.992
Turnover Ratio
(Source: IBM SPSS Version 25)
a. Dependent Variable: ROA
Based on the coefficients, the regression equation for the working capital management
of Nepal Telecom can be written as:
ŶROA = -10.516 + 0.357X1+3.640X2 +0.194X3 +0.012 X4 –0.106 X5 + ei
Regression coefficient based on ACP, CR, ICP, PDP and NWCTR are 0.357, 3.640,
0.194, 0.012 and -0.106 respectively.

If p value is less than 0.05 then it has statistically significant impact on profitability.
In the above table p value is greater than 0.05 so that it has statistically insignificant
impact on profitability. The table 4.23 also shows that independent variables ACP,
CR, ICP, PDP and NWCTR do not have significant results since its p-value is greater
than 0.05.

This illustrates that 1 unit increase in ACP, CR, ICP, PDP and NWCTR lead to are
0.357, 3.640, 0.194, 0.012 and -0.106 increments in ROA of Nepal Telecom.
 83

4.8 Findings

Findings from the study and analysis of the above data of Nepal Telecom for ten years
are shown as follows:
i. The average ratio of current assets to total assets is 52.43% which indicates
that the investment in current assets is considerably high. A higher level of
current assets indicates a good liquidity position but it adversely affects the
profitability of the company because idle money earns nothing.
ii. The average cash and bank balance to current assets ratio is 51.98% with the
coefficient of variation of 32.21%. Since this ratio is too high, it can be stated
that the company is facing situations of excess cash and bank balance held idle
which is unfavorable for a company.
iii. The average ratio of inventory to current assets is 1.23% with a coefficient of
variation is 75.95% which shows that portion of inventory in current assets is
very low and is decreasing every year. In general, the lower the ratio indicates
good management of the inventory.
iv. The average ratio of receivables to current assets is 6.48% with a coefficient of
variation is 53.63% which shows that the portion of receivables in current
assets is low and it is decreasing every year. In general, the lower the ratio
indicates good management of the receivables.
v. The average current assets turnover ratio is 0.73 with a coefficient of variation
of 14%. A low ratio indicates that the company can generate more revenue
from minimum investment in current assets.
vi. The average inventory ratio of Nepal Telecom is 87.78 times with 54% of the
coefficient of variation. Inventory turnover measures how fast a company is
selling inventory and is generally compared against industry averages. A low
turnover implies weak sales and, therefore, excess inventory. A high ratio
implies either strong sales and/or large discounts. The inventory turnover ratio
of Nepal Telecom is very high so that it is very good
vii. The average receivable turnover ratio is 13.32 times with 34.33% of the
coefficient of variation. Higher turnover ratios indicate a shorter collection
period. In conclusion, the company is able to collect its credit revenue in a
short period of time.
 84

viii. The average working capital turnover ratio of Nepal Telecom is 1.24 times
with a coefficient of variation of 31.56% which shows that company has
invested most of the funds in the form of current assets like cash &
receivables. So the opportunity cost of cash and receivables for the company
is increasing. There is also a chance of bad debts due to an increase in
receivables.
ix. The average inventory conversion period of Nepal Telecom is 5.98 days with
a coefficient of variation of 68% which shows that the company has
converted its inventory into sales and there is less chance of paying the
overstocking cost.
x. The average collection period of Nepal Telecom is 31.36 i.e. 31 days. A lower
average collection period means the company is able to realize credit revenue
in a short period. The average collection period of Nepal Telecom is in
decreasing trend; hence we can say that the credit management of Nepal
Telecom is good.
xi. The average payable turnover ratio of Nepal Telecom is -1693.24 times with a
coefficient of variation of -2.52 times which shows that the company is
slowly paying its bills.
xii. The average Current Ratio is 3.02 with a 32.86% coefficient of variation. A
higher current ratio (more than 2:1) is good for the company and the current
ratio of Nepal Telecom is higher so, Nepal Telecom‟s solvency position is
very good.
xiii. The average quick ratio is 2.99 times with 33.38% of the coefficient of
variation. The quick ratios calculated above are observed more than the
standard level (1:1) each year. So the liquidity position of the company is very
good. This is allowing to the holding of more amounts of cash and bank
balances.
xiv. The average net profit is 33.04% with a 17.14% coefficient of variation which
is very good. Based on the company's net profit margin ratio, it can be
concluded that the company‟s overall efficiency is very good.
xv. An increasing Current Liability to Total Liabilities ratio is usually a negative
sign. The average ratio of current liability to total liability is 55.61% with a
coefficient of variation is 16.18%. Since the company's current to total
liabilities are fluctuating (i.e. keep increasing and decreasing), the ratio for FY
 85

2075/76 is 49.22% which is relatively low than other fiscal years shows a
good position of the company in present than the previous FY.
xvi. The average return on equity ratio of Nepal Telecom is 18.88% and the
variation on such ratio is 20.89%. The average return on equity ratio is not so
high so the overall performance of the company is not quite satisfactory
xvii. The average return on assets of Nepal Telecom is 12.74% and the variation on
such ratio is 28.02% respectively. The average return on total assets ratio is
not so high so the performance of the company is not quite satisfactory.
xviii. There is a very low degree of negative correlation between inventory
conversion period (-12%), current ratio (-2%) and ROA and a moderate degree
of negative correlation between payable deferral period (-52%) and ROA. The
negative correlation between return on assets and current ratio inventory
conversion period and payable deferral period show that these variables have
an opposite and inverse relationship between them.
xix. There is a low degree of positive correlation between ROA and the Working
Capital Turnover Ratio (14%). There is a high degree of positive correlation
between ROA and the Average Collection Period (73.7%). The positive
relationship between ROA and Average Collection Period, Working Capital
Turnover Ratio shows the positive and the direct relationship between the
variables.
xx. The results of model summary shows that ACP, CR, ICP, PDP and NWCTR
are responsible for 92.7% change in return on assets of Nepal Telecom rest of
change depends on other factors.
xxi. Adjusted R-square 0.836 which means 83.6% variation in ROA of Nepal
Telecom is explained by ACP, CR, ICP, PDP and NWCTR after adjusting
degree of freedom (df). This shows strong relationship between all
independent variables and dependent variables.
xxii. Independent variables ACP, CR, ICP, PDP and NWCTR do not have
significant results since its p-value is greater than 0.05. Therefore, the
regression analysis shows that there is a positive relationship between
independent and dependent variables.
 86

4.9 Discussion

The liquidity analysis of the company shows that the average Current Ratio is higher
than the standard level so, Nepal Telecom‟s solvency position is very good. The
average quick are observed more than the standard level (1:1) each year. So the
liquidity position of the company is very good. This is allowing to the holding of
more amounts of cash and bank balances. This outcome is consistent with the findings
provided in Chaudhary (2018), and K.C (2010), Madhavi (2014).

The Profitability analysis of the company shows that the average return on total assets
ratio is not so high so the performance of the company is not quite satisfactory. This
outcome is consistent with the findings provided in Chaudhary (2018) and Hoque,
Mia and Anwar (2015).The net profit margin is quite good which shows that the
company‟s overall efficiency is good. This outcome is consistent with the findings
provided in Chaudhary (2018), Maharjan (2018).

It can be advocated that the correlation analysis shows a low degree of positive
correlation between ROA and the Working Capital Turnover Ratio. There is a high
degree of positive correlation between ROA and the Average Collection Period. The
positive relationship between ROA and Average Collection Period, Working Capital
Turnover Ratio shows the positive and the direct relationship between the variables.
The results can be explained as an increase in Working Capital Turnover Ratio and
low Average Collection period will bring a significant increase in Return on Assets.
This outcome is consistent with the findings provided in Hoque, Mia and Anwar
(2015) where it has been observed that there exists a positive correlation between
working capital efficiency and profitability ratio and profitable industries either
accelerate their receivables from debtors or delay their payment towards their
creditors

Another empirical finding from correlation analysis shows that there is a very low
degree of negative correlation between Inventory Conversion Period, Current Ratio
and ROA and a moderate degree of negative correlation between Payable Deferral
Period and ROA. The negative correlation between Return on Assets and Current
Ratio Inventory Conversion Period and Payable Deferral Period show that these
variables have an opposite and inverse relationship between them. This outcome is
 87

consistent with the findings provided in Saghir, Mehmood and Nehal (2011) where it
has been observed the number of days in inventory and profitability suggests that in
case of a sudden drop in sales accompanied by mismanagement of inventory will lead
to tying up excess capital at the expense of profitable operations.

The inventory turnover ratio of Nepal Telecom is very high and good. It shows the
company is selling inventory fastly. A high ratio implies either strong sales and/or
large discounts. The average Inventory Conversion Period of Nepal Telecom is low
which shows the better performance of the company. It shows that the company has
converted its inventory into sales and there is less chance of paying the overstocking
cost. This outcome is consistent with the findings provided in Chaudhary (2018),
Maharjan (2018), and Hoque, Mia and Anwar (2015).
The Average Receivable Turnover Ratio of Nepal Telcom is high, Higher turnover
ratios indicate a shorter collection period. It shows the company can collect its credit
revenue in a short period of time. The average collection period of Nepal Telecom is
low. A lower average collection period means the company is able to realize credit
revenue in a short period. The average collection period of Nepal Telecom is in
decreasing trend; hence we can say that the credit management of Nepal Telecom is
good. This outcome is consistent with the findings provided in Chaudhary (2018),
Maharjan (2018). The average Payable Turnover Ratio of Nepal Telecom is very low
which shows that the company is slowly paying its bills.

The average working capital turnover ratio of Nepal Telecom shows that the
company has invested most of the funds in the form of current assets like cash &
receivables. So the opportunity cost of cash and receivables for the company is
increasing. There is also a chance of bad debts due to an increase in receivables.
This outcome is consistent with the findings provided in Chaudhary (2018), Hoque,
Mia and Anwar (2015).

The results of model summary shows that ACP, CR, ICP, PDP and NWCTR are
responsible for 92.7% change in return on assets of Nepal Telecom rest of change
depends on other factors and adjusted R-square 0.836 which means 83.6% variation in
ROA of Nepal Telecom is explained by ACP, CR, ICP, PDP and NWCTR after
adjusting degree of freedom (df). This shows strong relationship between all
independent variables and dependent variables. Independent variables ACP, CR, ICP,
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PDP and NWCTR do not have significant results since its p-value is greater than 0.05.
The regression analysis shows that the independent variables is statistically
insignificant at 5% level which means there exists positive relationship between the
independent and dependent variable. There is insignificant impact of working capital
ratios on profitability of Nepal Telecom. For each unit increase in Current Ratio,
Average Collection Period, Inventory Conversion Period, Payable Deferral Period and
Net Working Capital Ratio ROA also increase with the resulted units. The outcome
about Current Ratio is consistent with the findings provided in Chaudhary (2018) as
there were different independent variables considered for the study.
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CHAPTER V
SUMMARY AND CONCLUSIONS

This chapter targets to summarize the main content of the thesis and to draw a
conclusion based on empirical findings. This study is carried out to assess the working
capital management and profitability of Nepal Telecom. This chapter summarizes the
whole study, draws the major findings, conclusion and forwards the recommendation
for more efficient working capital management of Nepal Telecom.

5.1 Summary

Working capital is a financial metric, which represents the operating liquidity

available to a business. Along with fixed assets such as plants and equipment,
working capital is considered as a part of the company's operating capital, referring to
current assets. Both excessive and inadequate level of working capital is not desirable
because of excessive carrying costs and the risk of liquidity. An inadequate level of
working capital obstructs the flow of production as well as market operation. So both
situations should be avoided by maintaining the optimum level of working capital.
This study present and analyze the working capital position and shows the problems
this company faces by analyzing the queries like: What is the liquidity position of
Nepal Telecom? , What is the working capital position of Nepal Telecom?, What is
the relationship between working capital and profitability?, What is the level of
inventories, receivables, payables and working capital maintained by Nepal Telecom?
To serve the purpose of the study some specific objectives have been formulated; to
analyze the liquidity position, working capital position, relationship between working
capital and profitability and to determine the turnover ratios of Nepal Telecom.

Working capital management assists in identifying the major strengths and

weaknesses of a business enterprise. It indicates whether a firm has enough funds to
meet the obligation, reasonable accounts receivable collection period, an efficient
inventory management policy, sufficient plant property and equipment and adequate
capital structure, all of which are necessary if a firm is to achieve the goal of
maximizing shareholder's wealth. This study covers only the relevant data of ten years
i.e. from fiscal year 2066/67 to 2075/76. Due to time constraints, not all the related
areas are possible to cover in-depth. The data published in the annual reports have been
 90

assumed to be correct and true. This study is limited to the working capital management
of Nepal Telecom and ignores other managerial functions. Basically, the data and
financial statement provided is secondary in nature

To answer the research questions i.e. to fulfill the research objectives, descriptive
research design has been used and based mainly on this research to extract more
pertinent information. Descriptive research has been used to analyze the facts of
collection data, its classification and correlated data to describe the existence, even
though it does not predict and explain the phenomena behave as they do in the entire
process of planning and carrying out a research study. Various financial and statistical
tools have been used in this study. A simple analytical statistical tool such as Karl
Pearson‟s coefficient of correlation and regression analysis is adopted in this study.
The ratio analysis is the major tool for the analysis of the study. They establish the
quantitative relationship between two variables of the financial statements.

The findings of the study show that there is a low degree positive correlation between
ROA and working capital turnover ratio and a high degree of positive correlation
between ROA and average collection period. The study shows a low degree of
negative correlation between inventory conversion period, current ratio and ROA and
a moderate degree of negative correlation between return on assets and current ratio,
inventory conversion period and payable deferral period.

From the analysis, it is revealed that NT has an excess amount of working capital in
comparison to the revenue since the amount of working capital is exceeding net
revenue this cannot be considered as the sign of efficient working capital
management. The results of model summary shows that ACP, CR, ICP, PDP and
NWCTR are responsible for change in return on assets of Nepal Telecom rest of
change depends on other factors. It shows strong relationship between all independent
variables and dependent variables. This means ACP, CR, ICP, PDP and NWCTR
have significant impact in ROA of Nepal Telecom. Independent variables ACP, CR,
ICP, PDP and NWCTR do not have significant results and shows that there is positive
relationship between the independent and dependent variables.

The outcome of liquidity analysis of the company is consistent with the findings
provided in Chaudhary (2018), and K.C (2010), Madhavi (2014). The outcome of
 91

profitability analysis and average working capital turnover ratio is consistent with the
findings provided in Chaudhary (2018) and Hoque, Mia and Anwar (2015). The net
profit margin outcome is consistent with the findings provided in Chaudhary (2018),
Maharjan (2018). The outcome of correlation analysis between ROA and the working
capital turnover ratio, ROA and average collection period, is consistent with the
findings provided in Hoque, Mia and Anwar (2015). The outcome of correlation
analysis between inventory conversion period, current ratio and ROA and payable
deferral period and ROA is consistent with the findings provided in Saghir, Mehmood
and Nehal (2011). The inventory turnover ratio outcome is consistent with the
findings provided in Chaudhary (2018), Maharjan (2018), and Hoque, Mia and Anwar
(2015). The outcome of average receivable turnover ratio is consistent with the
findings provided in Chaudhary (2018), Maharjan (2018).

5.2 Conclusion

In conclusion, it can be said that working capital is an important part of every

company and it should not be neglected. The need for working capital to run day-to-
day business activities operations cannot be emphasized. Working capital
management has been looked upon as the driving seat of the finance manager.
Efficient management of working capital not only maintains proper liquidity but also
increases profitability. After the study and analysis of the working capital
management of Nepal Telecom following conclusions have been drawn:

The liquidity analysis of the company shows that the average Current Ratio is higher
than the standard level (2:1) so, Nepal Telecom‟s solvency position is very good. The
average quick are observed more than the standard level (1:1) each year. So the
liquidity position of the company is very good. An increasing Current to Total
Liabilities ratio is usually a negative sign and the company's current to total liabilities
are in an increasing trend so it is not good for the company.

The Profitability analysis of the company shows that the average return on total assets
ratio is not so high so the performance of the company is not quite satisfactory. The
net profit margin is quite good which shows that the company‟s overall efficiency is
good. Working Capital Management of Nepal Telecom is not good. The average
working capital turnover ratio of Nepal Telecom shows that the company has
 92

invested most of the funds in the form of current assets like cash & receivables. So
the opportunity cost of cash and receivables for the company is increasing. There is
also a chance of bad debts due to an increase in receivables. The investment in
Current Assets is considerably high. A higher level of current assets indicates a good
liquidity position but it adversely affects the profitability of the company because idle
money earns nothing. The average cash and bank balance to current assets ratio is too
high, it can be stated that the company is facing situations of excess cash and bank
balance held idle which is unfavorable for a company.

The Average Receivable Turnover Ratio of Nepal Telecom is high, Higher turnover
ratios indicate a shorter collection period. It shows the company can collect its credit
revenue in a short period of time. The average receivables to current assets ratio is
low which shows good management of receivables. The average collection period of
Nepal Telecom is low. A lower average collection period means the company can
realize credit revenue in a short period. The average collection period of Nepal
Telecom is in decreasing trend; hence we can say that the credit management of Nepal
Telecom is good. The average Payable Turnover Ratio of Nepal Telecom is very low
which shows that the company is slowly paying its bills.

The inventory turnover ratio of Nepal Telecom is very high and good. It shows the
company is selling inventory fast. A high ratio implies either strong sales and/or large
discounts. The average Inventory to current assets is very low which indicates good
management of inventory. The average Inventory Conversion Period of Nepal
Telecom is low which shows the better performance of the company. It shows that the
company has converted its inventory into sales and there is less chance of paying the
overstocking cost.

The correlation analysis shows a low degree of positive correlation between ROA and
the Working Capital Turnover Ratio. There is a high degree of positive correlation
between ROA and the Average Collection Period. The positive relationship between
ROA and Average Collection Period, Working Capital Turnover Ratio shows the
positive and the direct relationship between the variables. The results can be
explained as an increase in Working Capital Turnover Ratio and low Average
Collection period will bring a significant increase in Return on Assets.
 93

There is a very low degree of negative correlation between Inventory Conversion

Period, Current Ratio and ROA and a moderate degree of negative correlation
between Payable Deferral Period and ROA. The negative correlation between Return
on Assets and Current Ratio Inventory Conversion Period and Payable Deferral
Period show that these variables have an opposite and inverse relationship between
them. The results can be explained as an increase in Inventory Conversion Period,
Current Ratio and Payable Deferral Period will bring a significant decrease in Return
on Assets and vice-versa.

The results of model summary shows that ACP, CR, ICP, PDP and NWCTR are
responsible for change in return on assets of Nepal Telecom rest of change depends
on other factors. Adjusted R-square shows variation in ROA of Nepal Telecom is
explained by ACP, CR, ICP, PDP and NWCTR after adjusting degree of freedom
(df). This shows strong relationship between all independent variables and dependent
variables. This means ACP, CR, ICP, PDP and NWCTR have significant impact in
ROA of Nepal Telecom. Independent variables ACP, CR, ICP, PDP and NWCTR do
not have significant results since its p-value is greater than 0.05 and shows that there
is positive relationship between the independent and dependent variables.

5.3 Implications

Based on findings of the study, and taking into considerations of the relevant issues,
the following appropriate recommendations have been carried out:

Implications for Improvements

i. Maintain optimum current assets variables and current liabilities every year.
Study showed that besides cash and bank, other variables of current assets and
current liabilities also fluctuate moderately. Optimization of this variable is
therefore recommended which would maintain sound liquidity. NTC, being a
service-oriented firm, does not need so higher liquidity position. Thus it is
recommended to stabilize its current ratio near 2:1. It is better for NTC to
invest such excess amounts of current assets in fixed assets to increase its
capacity rather than tying up a large amount in current assets.
ii. The proportion of current assets of total assets of Nepal Telecom is fluctuating
and it is increasing trend. So, that company should form and implement a
 94

suitable working capital management policy. The company should keep the
optimum size of investment in current assets and current liabilities and regular
review of working capital.
iii. Determine the optimum level of cash balance to hold every year applying cash
management techniques. The study also revealed that a large portion of current
assets is being unproductive by lying in absolute liquid form in NT. This
indicates the inefficiency of the management of cash. The major portion of
current assets is held by cash. Therefore, it is recommended to determine the
optimum level of cash and bank balance to hold each year. It should invest its
excess cash and cash equivalents in short-term investments which would earn
a return till the funds can be utilized in the firm. The function of investment in
money assets is to meet operational requirements in day-to-day business, to
provide a reserve of liquidity for major schedule outflows of cash, to exploit
opportunities, to avoid unexpected drains of cash and so on. There are many
ways of effective management of excess cash in such as investment in
marketable securities, new technological projects, etc. If cash appears more
than the requirement, the company can invest such ideal fund in a different
service area such as hydropower plant, spare parts production company for
portfolio diversification to minimize the risk of being uncompetitive in the
market
iv. There should be neither over investment nor lower investment in receivable.
These policies involving receivable management involve a trade-off between
risk and return. The main determinants of the size of investment are terms of
sale, the selection of customers to give credit, efficiency in collecting
receivables and so on. Collection of the excess bill of customer who left the
service and take new number or line should be cross-checked.
v. Extensive knowledge and use of financial tools can enhance the situation of
the organization. Likewise, use of statistical tools for forecasting purposes
may be used wherever applicable.
vi. Manage optimum liquidity in the firm. The study revealed that the NT is
holding more than enough liquid assets to meet their current payment which
indicates mismanagement of liquid assets since optimum liquidity is the
necessity of a firm. There is an inverse relationship between profitability and
 95

liquidity since there is a negative correlation between liquidity and

profitability. Hence, it is recommended NT to maintain optimum liquid assets.
vii. From the analysis, it is revealed that NT has an excess amount of working
capital in comparison to the revenue since the amount of working capital is
exceeding net revenue this cannot be considered as the sign of efficient
working capital management. Hence it is recommended to NTC to maintain an
optimum level of working capital.

Implications for future researchers

i. This research is conducted on Nepal Telecom and the data were collected for
ten years only. Future research can be done by taking latest data of more than
ten years.
ii. Further research can be done by taking other telecom companies as sample or
by being specific to analyze the financial position of particular telecom
company.
iii. For the future study in the same research, the researcher are recommended to
focus more on financial analysis tools rather than statistical analysis tools. The
more use of financial analysis tools on the sample will provide more accurate
findings in the working capital management.
iv. The future study can be conducted by using more sample size, advanced,
methodology.
v. Analysis of working capital management of organization in different sectors
could also be conducted to know the impact of working capital management
on performance of the company.
vi. This research study is concerned only with the working capital management
function of the Nepal Telecom. Future research can be conducted considering
other managerial functions.
vii. This research has been conducted based on secondary data. Future research
could be conducted based on primary data.
 96

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