Financial Analysis of the business models of CBA and ANZ | Assignment Help
Executive Summary
This report analyzes and gives a brief on the business models of CBA and ANZ. The analysis of the financial statements is necessary to know the financial performance of the company. This will help investors consider the development of the company and, based on that, make their own decisions. This report analyzed Commonwealth Bank and ANZ Bank for the time period of 2013-2018. Both banks are located in Australia and are known for their performance. The financial analysis of these two banks was performed based on the financial ratios relevant to the assessment of liquidity, profitability, efficiency, and return on capital employed by CBA and ANZ.
This report is a test of factors that allow CBA and ANZ to repay their debts over a certain period. For this purpose, thorough analysis is conducted to assess the current performance and compliance with financial obligations, as well as the financial arrangements of two entities to determine their performance. The audit of financial ratios is calculated using liquidity, productivity, profitability and risk ratios. It is commonly used to test performance in both financial sectors that undermine corporate success, disappointment, and progress. Thus, this report calculated that both CBA and ANZ resistance options are one of the best ways to invest or prioritize.
Return on equity measures the difference between CBA and ANZ to generate income on their assets. Also, revenue indicators shown that business is profitable. Additionally, overall performance assessment is used to test organizational performance, based on current performance and previous records. It includes gross income, net gross income, dividend yield, and earnings per share.
Net comprehensive income shows how much these companies can achieve in terms of gross profit. Total revenue depends on the cost of the item sold but does not include several costs. The recipe for determining the total gross income, equivalent to the net income of the proposals, is 100%, taking into account the cost of the proposed product. The comparative financial analysis illustrates the concern and long-term strategic performance of both institutions and also identifies investment decisions. Based on the analysis, it was found that CBC is well managed firm as it has maintained fourth position among financial institutes of Australia and thus it might be considered as a feasible option for investment. However, the liquidity ratios of ANZ were much better than CBC and it also needs consideration prior to making investment decisions.
Introduction to the Company
Commonwealth Bank
Commonwealth Bank Australia is an Australian bank that provides retail and corporate clients in a variety of countries, offering a variety of banking and financial products and services. The banking products and services are offered to; Australia, New Zealand, Asia Pacific and the United Kingdom. The types of banking products and services include merchant accounts, savings accounts, time deposits, credit cards, personal and home loan financial planning services, pension products, youth and student products, home, car and life credit and credit protection, income protection and insurance products. The company is also known for offering commercial banking products such as merchant accounts and credit cards; overdraft on Business Services and its customers. In addition, , the company offers products and services that help corporations and corporate customers to generate cash flows and liquidity.
Australia & New Zealand Banking Group Limited
Bank Group Limited in Australia and New Zealand is known for offering a wide variety of banking and financial products to its customers. The bank currently has 1,273 branches and is known for providing the best financial products and services to its customers. The company engages in regular customer reviews, credit, structure, performance and control analysis. Banking Group Limited was founded in 1835 and is headquartered in Melbourne, Australia. Bank targets retail customers, small businesses, corporations and companies in Australia, New Zealand, Asia Pacific, the Middle East, Europe and the United States. Moreover, the company provides financing for individual customers such as vehicles, equipment, investment products and regional commercial banking services (Harorimana et al., 2012). In addition, the company offers proposed capital contracts, including; deposit products, cash management, trade finance, international payments and payment services and customer risk management services.
Financial Statements of CBA and ANZ
Analysis of Income statement and Balance Sheet
The Comparison of financial position of two banks is carried out based on the investigation of income statement and balance sheet of these two institutes. The Commonwealth Bank’s liquidity position is not very strong and has received more foreign loans than existing assets. It can be seen in table 1, that the Bank of the Union has a current commitment of 0.180 of all current liabilities, indicating that the Bank may be facing a shortfall in financing its day-to-day operations (Kedia et al., 2017). The quick ratio, another indicator of short-term liquidity position, also shows a similar position showing that bank has quick ratio of 0.06 (see table 2). This value is far less than the desired value, showing that quick assets of banks are not enough to help it repaying its current liabilities. By comparing the current and rapid rate of bank bathing, it can be said that ANZ holds more current assets than Commonwealth banks. This indicates that ANZ Bank is better able to finance the short-term current asset requirement compared to the Commonwealth of Independent States Bank.
When looking at the profitability of the two banks, it can be said that the two banks have achieved the same profit in the last three years. Operating profit indicators show that between 2011 and 2013, Commonwealth Bank and ANZ Bank achieved average annual operating revenues of 50% to 54%. The equity ratio of both banks is less than 1%, as shown in table 3, which implies that banks retain high asset levels. Such small profits can be achieved. Moreover, the net margins of both banks are almost, as shown in table 5 and 6, which are not very much good. This implies that the profit level of the two banks is not enough to pay investors high returns.
The analysis clearly shows that liquidity position of ANZ is much better than that of CBA, which indicates that ANZ is in a better position to offer return on investment for its investors. In addition to financial analysis, it is also addressable that recently, it was noted that the CEO of Commonwealth Bank was found guilty of millions of dollars in financial scandals (Janda, 2014). This Commonwealth of Independent States (ADB) financial planning places investor funds in high-risk investments without the use of any safeguards. Therefore, Union Bank’s major investors have suffered huge losses as the bank’s investment is wasted or not repaid. This all happened without the permission of investors and clearly shows how irresponsible the bank is.
Financial Ratios Analysis
Liquidity Ratios
Table 1. Current Ratio
|
|
CBA |
ANZ |
|
Current Assets |
130177 |
250541 |
|
Current Liabilities |
745504 |
755222 |
|
Current Ratio |
0.174616099 |
0.331744838 |
Table 2. Quick Ratio
|
|
CBA |
ANZ |
|
Cash + Cash equivalent + AR |
47127 |
84904 |
|
Current Liabilities |
745504 |
775222 |
|
Quick Ratio |
0.063215 |
0.109522 |
Profitability ratios
Table 3. Return on equity
|
|
CBA |
ANZ |
|
Profit/ net income |
9329000 |
6400000 |
|
Shareholders’ equity |
67306000 |
59243000 |
|
Return on Equity |
0.138605771 |
0.108029641 |
Leverage Ratios
Gearing Ratio
This ratio is calculated by debt-to-equity ratio
Table 4. Gearing Ratio
|
|
CBA |
ANZ |
|
Debt |
907305000 |
883241000 |
|
Shareholder’s equity |
67306000 |
59243000 |
|
Gearing Ratio |
13.48029893 |
14.90878247 |
Efficiency ratios
Table 5. Commonwealth Bank efficiency ratio
|
Financial Year |
2018 |
2017 |
2016 |
2015 |
|
|
Return on Assets % |
0.96 |
1.04 |
1.02 |
1.09 |
|
|
Return on Equity % |
14.3 |
16.09 |
16.38 |
17.9 |
|
Net Margin % |
|
||||
|
37.59 |
40.34 |
38.63 |
38.87 |
|
|
Table 6. Efficiency ratio of ANZ
|
Financial Year |
2018 |
2017 |
2016 |
|
Return on Assets % |
0.67 |
0.92 |
0.78 |
|
Return on Equity % |
10.76 |
14.91 |
15 |
|
Net Margin % |
31.4 |
34.79 |
36 |
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