Profitability Analysis of

Nepal Electricity Authority

A Project work proposal

Submitted By:

BINDU PATHAK

T.U Registration No.7-2-53-54-2018

Dhaulagiri Multiple Campus, Baglung

B.B.S 4Th Years

Submitted to:

Management Research committee

Faculty of Management

Tribhuvan University

Kathmandu

In partial fulfillment of requirement of the Bachelor Degree of

BACHELOR OF BUSINESS STUDIES [B.B.S]

Baglung, Nepal
 TABLE OF CONTENTS

Contents Page no

1 .1 Background of the study………………………………………………………………………………………………..1

1.1.1 Background …………………………………………………………………………………………………….. 1

1.1.2 Brief of Introduction of NEPAL ELECTRICITY AUTHORITY …………………………………. 1

1.2 Statement of Problems ………………………………………………………………………………………………… 2

1.3 Objectives of the study …………………………………………………………………………………………………. 4

1.4 Significances of the Study …………………………………………………………………………………………….. 4

1.5 Review of Literature ……………………………………………………………………………………………………… 5

1.6 Research methodology ………………………………………………………………………………………………… 5

1.6.1 Research Design ……………………………………………………………………………………………… 5

1.6.2 Population and Sample …………………………………………………………………………………... 5

1.6.3 Sources of Data ………………………………………………………………………………………………….5

1.6.4 Data collection procedure ……………………………………………………………………………….. 5

1.6.5 Tools & Techniques of analysis …………………………………………………………………………. 5

1.7 Limitations of the study ………………………………………………………………………………………………… 6

1.8 Organization of the study ……………………………………………………………………………………………… 6

1.1 Background & brief introduction of the study:

The primary goal of any organization is profit maximization and providing good services.
Profitability is one the financial topics among the studies of researchers and scholars.
Profitability is a ability of the firm to use its resources to generate revenues in excess of its
expenses. A business that is not profitable cannot survive in the competitive market. Conversely
a business that is highly profitable has the ability to reward it owners with a large return on
their investment. Thus “profitability analysis may be an appropriate subject matter for project
report writing. Profitability is measured with income and expenses. Income is money generated
from the activities of the business however; purchase of fixed assets repayment of loan is not
an expenses. Profitability analysis measures the amount of profit earned due to the efficiency
of any operation in a business. Among the components of financial statements income
statement shows the profitability of the corporation. Gross profit margin, net profit margin,
return on assets, return on equity etc. are the main indicators of corporation’s profitability. The
main objective of this study is to analyze the profitability of Nepal Electricity Authority.

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

Nepal Electricity Authority popularly known as NEA was created on August 16 1985 (Bhadra, 1
2042) under the electricity authority Act.1984, through the merger of the department of
Electricity of Ministry of water resources, Nepal Electricity corporation and related
Development Boards and is the parent generator and distributor of electric power under the
supervision of the Government of Nepal. The primary objective of NEA is to generate, transmit
and distribute adequate, reliable and Affordable power by planning, constructing, operating
and maintaining all generation transmission and distribution facilities in Nepal’s power system
both interconnected and isolated.

1.2 Statement of Problems

The major problems of the study are presented by raising the following research question:

 What is the profitability position of Nepal Electricity Authority?

 How has profitability of Nepal Electricity Authority changed over the period of Time?
 What are the factors of profitability of Nepal Electricity Authority?

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1.3 Objectives of the Study

The primary objective of the study is to analyze the profitability situation of Nepal Electricity
Authority. The specific objectives for the study are as follows:

 The measure the profitability position of Nepal Electricity Authority.

 To find the trend of profitability of Nepal Electricity Authority.
 To determine factors of profit ability of Nepal Electricity Authority.

1.4 Significances of the study

The study has a focus mainly a profitability analysis of Nepal Electricity Authority and the
researcher has been carried out of the partial fulfillment of academic requirement of bachelor
degree of business studies (BBS).

The main significance of the study is pointed out as bellow

 To the Researcher: This study is an important part of fulfillment of academic

requirement of the researcher.
 To the Society: As Nepal Electricity Authority is the sole distributor of electricity within
the country. The society will get to know about the financial performance of their
electricity supplier.
 To the Shareholders: Nepal Electricity Authority is fully owned by Nepal Government till
the date but, recently NEA has decided to 25% of its share to public. Thus, the
profitability analysis shall play a significant role as the shareholders wants to know
about the financial performance and profitability of the corporation.
 To the Management: The corporate depends upon the management and management
depends upon the corporation. The managers area major decision makes thus they
need to know to about the profitability of the corporation and how strengthen it.
 To the Government: Nepal Electricity Authority is government owned entity. Also is a
large tax payer of the government. The revenue of government of Nepal is also
depended to the profitability of NEA.
 To other Researcher: This study will help as a literature to others researchers who seek
to find out research problems of same situation.

1.5 Review of Literature:

Review of literature in one of the most significant parts of research. I will be better to review
some fundamental aspects of relevant literature before doing analysis. Review means thinking
again, studying the documents published or unpublished related to the field of research. The
review of literature is a crucial aspect of planning of the study.

 Conceptual reviews

Profit is necessary to survive in any business field for its successful operation and further
expansion. It measure managements overall effectiveness as shown by the returns generated
on investment. The financial analyst must attempt to understand whether the firms profit is in
the rising trend. In the initial years of established to the firm, the profit will be the lower side.
But slowly year by year, profit gradually starts to rise.

Profitability analysis indicates the efficiency with which to operations of the business are
carried; it measures the managements effectiveness and shown by the returns on sales or
investments. The profitability ratio gives answer to how effectively the corporation is being
managed. The measurement of profit can be given greatest weight since it is probably the best
indicator of overall efficiency. Also the profitability ratio mainly studies the earning power of
any corporation, which depicts the financial performance of the corporation. Profitability ratio
also shows how well companies used their existing assets to generate profit and value for
shareholders.

The analyst must make an attempt to answer the following questions:

 What is the Gross profit Margin?

 What is the Net Profit Margin?
 What is the Return on Assets?
 What is the Return on Equity?

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

1.6 Research methodology

this chapter deals the following titles:

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1.6.1Research design
The research design tells us about the mode with which the entire project is prepared. The
present study is based on secondary sources of data and information and follows the
descriptive cum analytical research design. This study aims at portraying accurately upon the
service and profitability analysis of NEA.

1.6.2 Population and sample

There are two major generation institutions that can generate electricity in Nepal namely:
Nepal Electricity Authority and Independent power producer. The researcher selected Nepal
Electricity Authority fulfill purpose of this study using judgmental sampling basis for analysis
purpose, financial statements only from preceding five years area used.

1.6.3 Sources of data

The sources of data can be primary or secondary. This study is based in secondary sources if
data. The annual reports of Nepal Electricity Authority in newspaper, library books, NEA web
sides and internet research were used to elicit secondary data.

1.6.4 Data collection procedure:

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

1.6.5 Tools and techniques of analysis

Simple statistical tools applied are:

 Mean
 Pie charts
 Bar diagram & charts

The financial tools applied are:

 Gross profit margin

 Net profit margin
 Return on assets
 Return on equity
 Earnings per share
1.7 Limitation of the study:

This study, a part from its numerous advantages and benefits to various stockholders with
genuine data, has its own exceptions and limitations which can be listed as follows:

 The study is made within limited data,

 The study is limited to a firm among various firms in the industry i.e. only profitability of
Nepal Electricity Authority is analyzed.
 Data of past five years will only use in this study.(2075/076 to 2079/080)
 The study will primary is based on secondary data source which may lack reliability.
 The study is based on past data.
 Data are collected from websites of the organization and others web side. Thus, they
might lack reliability.
 Research may not be free human errors.

1.8 Organization of the study

The study report is designed into three chapters which are as following:

Chapter I introduction:

Chapter I deal with introductions part. It includes background of the study, objectives,
statement of problems, limitations, organization of the study, and review of literature and
research methodology.

Chapter II Results and Findings:

In this chapter, we deal with data collection from various sources, presentation and analysis of
relevant data and major findings from the study.

Chapter III Summary and conclusion:

The last chapter is summary and conclusion. This chapter of the study presents summary
conclusion extracted from the study.

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