Sindhuli Dairy General Background

Dairy is one of the significant occupations. Milk is the best food for each stage of life to keep healthy body. Milk and milk products are considered very important for health. It is found that dairy products are in high demand in domestic and foreign markets. There is big market potentiality of milk products in Maldives and Bangladesh according to SAARC Statistics. According to ‘Ujjyalo 90 Network’ a news F.M. station, 50% of Nepalese are out of proper reach of milk. The existing Dairy industries are not able to meet even the demand of domestic markets.

Dairy also represents the basic agricultural industry products. Agro-based country like Nepal must focus an Agro-based industry. Dairy sector plays a vital role in Agro-based industry. In our country Nepal "Dugdha Bikas Sansthan" Harihar Bhawan lalitpur is promoting Dairy industries. The dairy development activities in Nepal started from Tusal village of Kavre District in 2009 B.S on experimental basis with a small scale milk processing plant under the development of agriculture. The central dairy plant was established in year 2010 B.S by Dairy Development Board. It started milk collection, processing and marketing activities from the year 2014 B.S.

There are many dairy firms established and owing as sole proprietorship, partnership, private ltd. company and public ltd. company, registered under Company Act and Co-operative Act. In Nepal, Dairy Development Corporation is a leader firm in dairy industries. Sole proprietorship firms are that firms which are invested and operated by a firm, the firms which are invested as many sole proprietorship Dairy centers in Nepal. Among them Siddhababa Dairy Industry, Sindhuli is the one. Siddhababa Dairy Industry is located in 1 No. bazar Kamalamai-06, Sindhuli District. It was established in 2060 B.S. as a sole proprietorship firm in register office. It has been operating smoothly since its establishment. Its proprietor is Mrs.Bimala Kafle. It has made improvement in production, processing, sales and distribution of milk and milk products like ghee, butter, curd, cheese, paneer,ice-cream,lassi etc. in Sindhuli since its establishment.

Siddhababa Dairy Industry is one of the biggest dairy industries of Sindhuli. It has been collecting raw milk from farmers of rural and urban areas of Sindhuli district. Mainly raw milk for the industry is collected from jarayotar, lamapantar, Bahuntilpung, Ambote, Belghari, Bhimasthan ,Ranichuri ,Ranibas, Hatpate etc. Siddhababa Dairy Industry has fair price and supplied  hygienic pasteurized milk and other standard dairy product to the rural and urban customers and also has supplied to the cities like Bardibas, Khurkot and Kathmandu etc. since its establishment. It has  helped a lot to the unemployed rural and urban people to raise their living standard and to solve the hand to mouth problem by making them involve in cows and buffaloes farming.

Cost Volume Profit Analysis of Siddhababa Dairy Industry is defined as the supplementary tool used by the industry in developing strategies in the sales planning and cost estimation for short period of time. It was initially established with a fixed capital of 70 lakhs with an aim to produce and promote dairy products in Sindhuli district. The cost of production of the industry is calculated as Rs. 60-70 lakhs with the sales volume of 70-80 lakhs annually. The profit for the industry varies according to seasons. The profit margin of the industry is not in a level of satisfaction. However, it is planning to establish its own cows and  buffaloes farm in the near future.

Statement of the Problem In Nepal

Statement of the Problem In Nepal

Banking plays a significant role in the economic development of the country by extending credit to the people. Although banking industry in Nepal is making remarkable progress and growth, it’s not without the problems. At the present context, the main problem faced by the business sector as well as bank is the unstable political and economic condition of the country.

Another problem faced by the banking industry is the lack of optimal capital structure in the commercial banks. The success and prosperity of a bank relies heavily on maximization of the wealth of the shareholders or return on equity. Nepalese banks do not take the capital structure concept seriously. The combination of debt and equity used in the capital structure is not proportionate which in turn affects the value maximization of the bank.

The present study will try to analyze and examine the practice of capital structure in the commercial banks in Nepal. This study specially deals with the following problems.

Whether or not the capital structure affects the growth of the bank?

To what extent the capital structure policy is followed by the commercial banks?

What are the main problems faced by the commercial banks in developing and implementing the capital structure policy?

Background of the Project

Background of the Project

Every business firm or Bank requires the initial funds for its sound operation. Capital is the blood of the business. A business firm or enterprises cannot run their business without capital. Enterprises whether they are government owned or privately owned have to make pertinent capital structure decision in identifying exactly how much capital is needed to run their operation smoothly.

The fund required are generated usually by two means: equity and debt. Equity provides the ownership of the firm to the shareholders. On the other hand, debt is a fund borrowed with fixed charges to be paid periodically to the debtor. The term capital structure refers to the proportion of debt and equity capital or the composition of long-term sources of finance, such as preference capital, debentures, long-term debt and equity capital including services and surpluses (i.e. retained earnings) and excluding short-term debts.

The term capital structure refers to the mix of different types of funds a company uses to finance its activities. Capital structure varies greatly from one company to another. For example, some companies are financed mainly by shareholders funds whereas others make much greater use of borrowings.

Firstly, we must decide what we mean by a good capital structure. This would be a capital structure, which results in a low overall cost of capital for the company. that is, a low overall rate of return that needs to be paid on funds provided. If the cost of capital is low, then the discounted value of future cash flows generated by the company is high, resulting in a high overall company value. The objective is therefore to find the capital structure that gives the lowest overall cost of capital and, consequently, the highest company value.

The capital structure decision affects the total value of the firm. The proper balance between debt and equity is necessary to ensure a trade off  between risk and return to the shareholders. The capital structure of the bank should be such that leads to the value maximization. The optimal capital structure, i.e. the capital structure with reasonable proportion of debt and equity, minimizes the opportunity cost of capital and maximizes the shareholders’ wealth.