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Vol.
2 :: No. 09 |
Stockmarket
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Stockmarket |
| It is a worldwide practice among
companies to influence general public by publishing such information, which seems to be
right, but is actually twisted. If it is practised with prudence and to limited extent,
such manipulations are condoned. But if the limit is crossed, it is condemned. Companies
in Nepal are no exception in twisting the information when serving it for public
consumption. Some most recent examples serve to prove the point. The Chairman of NIC Bank in a newspaper interview said that his Bank is in profit of about Rs. 6 crore and is in a position to pay dividend ‘in this current year.’ Both the information seem to be correct but are misleading.By the word profit he meant operating profit, not a net profit, but the word ‘profit’ is generally |
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| accepted by the readers to mean ‘net profit’. The statement was printed in the newspaper on the third week of July 2000 when the financial year 1999-2000 had just completed. So it can be assumed that the dividend the NICB chairman was talking about was for the accounting year 2000-2001. But the impression created in the mind of the readers by the report was that the company was going to pay dividend for the accounting year 1999-2000 itself. The clarification was not provided. Many individuals might have bought some shares of the company in the third or fourth week of July just because of this statement. | |
Operating profit is a word widely used in reporting financial performance of a company. And there are certain formulas assigned to calculate it. But for the general public the word is difficult to understand. That is why, the various financial results published in Indian newspapers do not use such words like ‘operating profit’ or ‘gross profit’. Rather they use more familiar words like:
1. Profit before depreciation, bonus, provisions and taxes
2. Profit before provision for contingencies and taxes
3. Profit before interest and taxes
4. Profit before taxes
5. Profit after tax or net profit
The general public can more easily understand these terms.
The fourth quarter financial report of Bank of Kathmandu, was published with a note that "Out of the operating profit of NRs. 142.95 Mio, NRs. 20.50 Mio has been transferred to other reserves." Which reserve is being talked about here? Is it the loan loss reserve, general reserve, reserve for bonus and dividend or any other reserve? The incomplete information creates misunderstanding in the mind of the readers and several divergent interpretations can be made.
Let us turn to analyse the financial results of the fourth quarter (1999-2000) of Nepal Bangladesh Bank Ltd. The per month average operating profit during the fourth quarter of the financial year comes to Rs. 36 Mio, whereas the third quarter results showed the figure to be Rs. 21 Mio per month. It shows an increase of about 15 Mio in per month average and it is not an ordinary figure. Consider the total increase in the credit and investment during the quarter, which is merely Rs. 414 Mio. This additional credit can not add more than Rs. 1 Mio per month in interest income. The operating profit figure of the bank may be correct but it is only possible if there is certain abnormal situation, which should have been informed to the public as an integral part of reporting the financial result.
Another instance of limited disclosure practice in Nepal is illustrated by the initial public offering (IPO) of Oriental Hotels Limited (Radisson Hotel) which was closed early as it was oversubscribed. The prospectus of the company said that the authorized capital of the company was Rs. 1500 Mio of which Rs. 750 Mio was issued. The promoters have held shares of Rs. 350 Mio and the public offering was of Rs. 125 Mio. Thus the total issued capital comes to be Rs. 475 Mio (Rs. 350 + 125 Mio).
The major information, which may influence the public opinion, that is, why and for whom is such issued capital of Rs. 275 Mio reserved, was not provided to the prospective subscribers. The public was kept in the dark.
Existence of such practices means a lack of true and fair information. These are information that influence the price of the shares of the companies. If they are kept secret, there is no control over insider trading.
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