FINANCIAL ANALYSIS AND ITS IMPACT ON PROFITABILITY OF MICROFINANCE COMPANIES IN NEPAL

Abstract

Examining the effect of financial indicators on the profitability of Nepali microfinance companies is the aim of this study. The financial institution's management of liquidity must adhere to a decision-making framework for managing liquidity risk, as well as a suitable funding plan, exposure limitations, and a set of guidelines for allocating liquidities in an emergency. The public stake and the day-to-day operations of businesses are both aspects of liquidity. Lack of cash or inadequate liquidity sends a bad message to individuals and corporate entities about the severity of the financial crisis and other issues within the financial institution. It also provides the structure of the terms price earnings ratio (PER), cash reserve ratio (CRR), return on assets (ROA) of microfinance enterprises, total assets (TA), dividend payout ratio (DPR), and price earnings ratio (PER). The experiment variables in this study include the cash reserve ratio, dividend payout ratio, price earnings ratio, total assets, and ROA and ROE as the dependent variables. The secondary data was gathered over a nine-year period, from 2070/71 to 2078/79, from permitted companies' annual reports. Using SPSS version 24, a descriptive, casual, and explanatory research design is employed to analyze and evaluate the data. Using the convenience sampling technique, a sample of four microfinance companies—First Microfinance Laghubitta Bittiya Sanstha Limited, Sana Kisan Bikas Laghubitta Bittiya Sanstha Limited, Rural Microfinance Development Center Limited, and RSDC Laghubitta Bittiya Sanstha Limited—was drawn from a population of sixty-three. We have utilized secondary data for this investigation. One important analytical approach in panel data analysis is ordinary least square regression (OLS). While CRR and ROA also have a strong positive link, total assets and ROE have a considerable positive correlation. There is little correlation between ROE and the cash reserve ratio, dividend payout ratio, and price earnings ratio. The study's findings may facilitate the implementation of efficient measures by legislators and bankers to increase the profitability of financial organizations.