Working Capital Management and Profitability of Commercial Banks in Nepal

Abstract

This thesis aims to analyze the factors of the working capital management and its impact on the profit of Nepalese commercial banks. The first research question poses questions on the effects of current ratio, cash ratio and bank size on profitability. The research will be useful in that it will present useful recommendations to enhance financial decision making in the Nepalese banking industry.

This research employs secondary data that has been obtained from six commercial banks from the fiscal years 2018/19 to 2023/24. A cross-sectional panel design is used for the study, and all relevant data are collected from the Nepal Rastra Bank’s annual report and other publications. Methods of data analysis include descriptive statistics, correlation analysis, and the multiple linear regression models to determine the link between working capital components and business performance indices represented by ROA and ROE.

The findings on the relationship aspects reveal that the current ratio and cash ratio are negatively related to one another with profitability, but bank size does not impact profitability. The results of this study support the hypothesis that effective management of working capital can improve the financial performance of the commercial banks in Nepal.