Financial Statement Analysis: Equity, Liabilities, Cash Flows, Other Comprehensive Income, And Corporate Income Tax

Owners’ Equity

The company Bendigo, was engaged in the selling of the financial products via 900 outlets in Australia before the merger. The chief headquarters of the bank are located in the city of Bendigo, with the main branches at the Victoria and Queensland, and the location of the main office is at city of Adelaide.  The revenue of the entity for the year 2016 was AU$1.551 billion. At present, the company as a whole is chiefly managed by Robert Johanson and Marnie Baker (Bendigo and Adelaide Bank, 2017).

The Bank of Queensland is considered as one of the oldest banks, comprising of about 252 branches across the globe. These include the 166 owner managed branches and the 78 corporate branches. The company was established in the year 1863 that is after the formation of the Bendigo and Adelaide bank. The entity received its official banking license on the year 1942 (Bank of Queensland, 2017). Roger Davis and Jon Sutton are key people responsible for managing the affairs of the bank.

The entity Westpac Bank received its name from the combination of the words Western and Pacific. The Westpac Bank is regarded as the first bank of Australia and is a popular entity in the financial sector of Australia. As per the reports of the entity, in March 2018, Westpac had record of 14 million customers and approximately 40000 employees as the part of the entity (Westpac Bank, 2017).  

Bendigo Adelaide Bank
Shareholder’s Equity Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2017	2016	2015
Share Capital
	Ordinary Share capital	4448	4288	4355
Reserves			110	43	134
Retained profits		254	240	205
			4812	4571	4694

The shareholders equity is regarded as one of the essential components of the financial statements of any entity. The term shareholders equity is comprised of share capital, the retained profits and the reserves. The shareholder capital is further bifurcated into ordinary share and treasury shares. The overall shareholders equity in the year 2015 was recorded to be the $ 4694 million which further reduced to $ 4571 million in the year 2016 and increased to $ 4812 in the year 2017. The chief reason for the increase in the shareholders equity in the year 2017 can be stated to be the reserves and the retained profits. Thus, it can be stated that share capital of the Bendigo and Adelaide bank has been fluctuating over the years (Dorn Katz, Patterson and Van Reenen, 2017).

The ordinary share capital refers to the sum that has been brought by the promoters of the business in the association for the organisation. The said amount is called by the organisation as an offer for the capital contribution of the entity. The allotment of the said shares is done after the applications have been received for the shares.

Bank of Queensland
Shareholder’s Equity	2017	2016	2015
Share Capital
	Ordinary Share capital	3367	3250	3128
Reserves			48	18	75
Retained profits		347	223	166
			3762	3491	3369
Westpac Bank
Shareholder’s Equity	2017	2016	2015
Share Capital
	Ordinary Share capital	34889	33469	29280
	Treasury Shares	-437	-369	-385
Reserves			858	790	1031
Retained profits		16871	15311	23172
			52618	49570	53483

Ordinary Share capital

There is an upward trend in the in the period of three years starting from 2015, in terms of the shareholder’s equity of the entity, the Bank of Queensland. While the reserves of the bank reduced for the year 2016, the greater pace in the retained profits can be attributed towards the overall increase in the shareholder’s equity for the year 2016. The same increasing trend continues for the year 2017 for the retained profits. The reserves have contributed in the payment of the expenses, leading to an overall increase in the share capital. The share capital has increased from $3128 to $3367 from 2015 to 2017. It is evident that the performance of the bank has improved from the year 2015 to 2017 (Stiglitz and Rosengard, 2015).

The reserves are displayed as a part of the shareholders equity. These depict a credit balance and are comprised of various range of profits accumulated in the entity for the various specific purposes. Some of the instances of the purposes for which the reserves are used by the entity are the payment of the bonuses, purchasing the furniture, paying for the legal settlement and others. Among the three entities as stated above, the reserves of the Westpac bank depict the highest balance and the lowest reserves are that of the Bank of Queensland in the year 2016, amounting to $18 million (Stiglitz and Rosengard, 2015). 

Another essential component of the balance sheet and the shareholder’s equity are the retained profits. These refer to the surplus balance of profits of the entity, which have been earned for the sale of the services to the customers. The said amounts are primarily used by the enterprise towards the payment of the future liabilities and the dividends to the shareholders. It must be noted that the balances of the reserves have fallen for that of the Westpac Bank from $23172 to $16871. These are in addition to the highest overall equity amount of the Westpac bank, as compared to the data of the two other banks. The said high can be attributed towards the trust and the brand name earned by the company for the customers, over the years (Westpac Bank, 2017).

The following table displays the amount of the total debt and equity of all the three banks.

Basis	Bendigo and Adelaide Bank	Bank of Queensland	Westpac Bank
Debt	66941	44692	842688
Equity	4812	3762	52181

The fact that the all the three entities possess the debt higher than then the equity, is descriptive that the entities are less willing to take the risks. In addition, the higher debt component is also yielding the leverage against the income earned, in terms of the tax advantage over the finance costs paid (Bank of Queensland, 2017).

Reserves

As per the discussions conducted in the previous parts, it can be concluded that there is an overall increasing trend in the shareholder’s equity of the all the three entities. The comparative analysis as conducted above depicted the comparison and the contrast of the financial position in terms of the shareholder’s equity, of the all the three banks. The current shareholder capital of Banks of Queensland, Bendigo Adelaide Bank and the Westpac Bank are $3762, $4812 and $52618 respectively. The same depicts the amount of investment made by the promoters and the shareholders of the companies.

The cash flow statement tool aids to get an insight of the cash inflow and the cash outflow of the organisation concerning a financial year. The tool is a measure of the management of the cash position of an entity. This is in addition to the evaluation of the company’s ability to pay off the expenses and the obligations of the organisation. The preparation of the cash flow statement is done under the three major heads that are the operating, investing and financing activities.

The operating activities refer to those activities that are directly attributable to the chief operations of the business enterprise. Thus, there exists an explicit relationship between the core objectives of the enterprise, the overall administration and the revenues of the entity. The results of the core activities like manufacturing and trading are dealt in this section of the statement of cash flow.

The working capital refers to the difference between the amounts of the current assets and the current liabilities of the entity. The calculation of the working capital is done in order to evaluate the existence of balance of assets to cover the payment of the liabilities.

Net Operating Cash Flow

In terms of the banking activities, the net cash flow from the operations refers to the money needed by the bank to grow its financing operations, which is the core activity of the banks. In addition, the segment also aids in the reporting of the whether there are any external requirements of cash to finance the expansion of the business operations.

Investing Activities

The investing activity segment of the cash flow statement evaluates the amount invested by an entity for the purchase of the assets and the benefits derived from the same. The benefit of the use of the asset is described in the form of generation of the realizable value after the usage of the assets. It must be noted that these benefits share a direct relationship with the efficient use of the assets.

Capital Expenditures

The capital expenditure in relation to the assets refers to the amount utilised for the acquisition of the fixed assets like plant and apparatus, building, capital speculation and others. The fact that the fixed assets hold the potential to generate the future benefits and revenues for the business, the same needs to be recorded.  

The sales of the fixed assets are descriptive of the facts that the capital fixed assets have either become obsolete nature or are in the non-working conditions and the same are sold. In addition, the assets fully or in part may have been sold in exchange of another assets in part or the full payment in cash. The machinery and the fixed assets are essential components of the business operations of the entity, and the same generate beneficial outcome in the form of cash flows to the business.

Net Change in Cash

The figure of the net change in cash is the sum of the amounts of the cash flows from operating activities, cash flows from financing activities, and the cash from investing activities. This gives an insight of the change in the increase or decrease of the money the varied stages of the technique of the cash flow statement.

Free Cash Flow

The free flow income is referred to as the income that is earned by the banks by selling their products and services to the customers. The same is also regarded as the leftover with the entity, after the payment for its operations and the expenses to carry out the said operations (Free cash flow, 2017).

The cash flow statements of the company reflect the inflow and the outflow of the cash. The entire position of the cash is dependent on the basis of the cash flow statement. From the overall analysis certain things can be derived from the overall study of the cash flow statements of all the three banks. The cash from operating activities in case of the Westpac bank is negative 235 whereas as compared to the previous year the net cash flow from the operating activities is 3443. The net cash form the investing activities were (6094) in the year 2016 whereas it resulted to only 1604 in the year 2017. The redemption of the loan capital is 2188 in the year 2017 and the purchase of shares are the major reason for the decrease in the net cash from the financing the activities. On the other hand the net cash and cash equivalents of the bank of Queensland were 703 in the year 2015 whereas the same reached to 537 in the year 2017. This indicates that the position of the bank of Queensland is in danger. Finally the position of the Bendigo and Adelaide bank is (Ayers, Call and Schwab, 2018).

The close evaluation of the figures dealing with the banks namely Bendigo and Adelaide bank, Bank of Queensland and Westpac Bank, the comparison in general is done to identify which bank is performing better and what are the reasons of the variance (Ahiadorme Gyeke-Dako and Abor, 2018).  The cash flow experts are not only interested in the amount of the salary or the wages or rent rather than they are also interested in the several activities such as the salary form the working activities, contribution from different areas and the funds from the different pockets. Moreover the creation of the balance between the different years can show the connection with the previous year. The cash dealing will reflect the ultimate comparison of how the banks shall improve the performance and work upon the reduction in the cash and the cash equivalents. It is required to maintain a certain level of the cash (Miao, Teoh and Zhu, 2016).

In financial accounting the comprehensive income is broken down into the multiple ways and the firms have some grip on when to recognise and report the earnings. In order to compensate the process the Financial Accounting Standards Board the incomes are bifurcated into the comprehensive income and the other comprehensive income.  The other comprehensive income for the banks has been showcased in the table above. Generally there is a separate statement for the comprehensive income in the annual reports of the organisation. The core reason for the change in the interest of the owner can be measured with the help of this statement. The expenses which are not realised in the normal income statement are presented in the comprehensive income statement such as charge in the company’s net assets from non-owners sources, including all expenses and incomes that by pass the income statement (Black, 2016). Currently the comprehensive income of the Westpac bank is 7991 for the year 2017 for the consolidated group whereas for the bank of Queensland the comprehensive income is 447 which have been increased from the previous year at 329. Analysing the comprehensive income of Bendigo ad Adelaide Bank the performance improved in comparison to the previous year that is from 231.1 to 386.4.

The specifications of the Comprehensive income are not included into the profit and loss account because there are certain items in the comprehensive income that are not included in the income statement. The statement of the comprehensive account is the special account which accounts for the different category of expenses such as gain and losses on the derivative instruments, debt security, unrealized gains and foreign currency adjustments, Availability for the securities.  These incomes cannot be included due to the separate identification of the incomes and the expenses, the inclusion will not determine the correct amount of profit (Edinger, Moore, Wang and Berger, 2018).

In the present scenario the comprehensive income statement reflects the special incomes and the expense and also it helps in producing the tax on the items belonging to the equity of the firm and thereafter the certain adjustments are made and the real profit or loss is booked. The comparative analysis of all the three banks will give a deeper outlook of the situations. There are certain items like actuarial loss, foreign currency transactions for which the proper heads are not categorised in the income statement and hence to avoid the situation of the materiality, the firms shall form the two different statements (Khan and Bradbury, 2016).

The performance of the managers is basically based on how well they manage the work of the entire department. The profit and loss account reflects the true evaluation of the profits exclusive of the comprehensive income statement. The managers are also responsible for supervising the work done by the accountants and they are truly responsible for the same. Hence the managers are responsible for the preparation of the comprehensive statement at the secondary level but the main responsibility lies in the hands of the accountants and the preparatory of the financial statements.

Accounting for Corporate Tax	Westpac bank	Bank of Queensland	Bendigo and Adelaide Bank
Tax Expense	2620	126	148
Income tax expense	2620	126	148
Earnings before Tax	10463	542	460
Effective Tax rate	25%	23%	32%
Deffered Tax Assets/Liabilities (17)	1053	52	43
2016	1399	81	28
Deferred tax assets increase
Increase/ Decrease	346	29	-15
Income tax provision	1295	33	21.5
Increase/Decrease in Deffered Tax	346	29	-15
Total taxes	1641	62	6.5
Other income	6131	347	237.6
Tax paid on other Income	15	1	1
Unlevered Taxes	1626	61	6
Earnings Before Income tax	10463	542	460
Cash Tax Rate	16%	11%	1%
Income Tax Provision	1295	33	21.5
Deffered Tax	1053	52	43
Total Taxes	2348	85	64.5
Interest Income	17765	2015	2298
Tax paid	44.5	4.7	7.4
Cash Tax Amount	2304	80	57

There is a certain item called tax expense which is presented in the balance sheet as well as the income statement. The tax expense is the amount of the tax owned in the given period. The tax provisions are shown in the balance sheet whereas the tax expense is shown in the income statement. The tax expense of the three banks is 2620 for the Westpac bank, 126 for the bank of Queensland and 148 for the Bendigo and Adelaide Bank.

Following table reflect the effective tax rate calculation of the Bank of Queensland, Westpac Bank and Bendigo and Adelaide Bank. The rates are 23%, 25% and 32% respectively.

There are two items present in the balance sheet one is the deferred tax assets and the other thing is the deferred tax liability. The deferred tax asset is the process of creation of an account where the tax payable amount is much more than the income tax actually paid by the company. The deferred tax assets are created in case of Bank of Queensland. Also the Bendigo bank showcases the deferred tax liability which is created when the company actually has paid more income tax to the government (Balakrishnan Blouin and Guay, 2018).

The movement in the deferred tax assets as well as the deferred tax liability is visually presented in the form of the table. The figure of the negative 15 reflects the reduction in the deferred tax liability whereas the figure of 346 and 29 are the sharp height in the deferred tax assets of the Westpac Bank and Bank of Queensland (Guenther Matsunaga and Williams, 2016).

The cash tax amount as calculated can be seen from the table above can be observed that the cash tax amount of the three banks are $2304, $80 and $57 respectively, for the Westpac Bank, the Bank of Queensland and Bendigo and Adelaide bank (Edwards, Schwab and Shevlin, 2015).

There is a distinction between the pre taxable income and the pre taxable book value. Therefore there is a slight variation between the change rate and the effective tax rate. The core reason is due to the change in the value. The difference is bifurcated into two main scenarios. The primary and the secondary manner, whereas under the primary manner suggests that the regular transactions are calculated at the cash tax rate and the permanent transactions recorded at effective tax rate (Dyreng, Hanlon, Maydew and Thornock, 2017).

References

Ahiadorme, J.W., Gyeke-Dako, A. and Abor, J.Y., 2018. Debt holdings and investment cash flow sensitivity of listed firms. International Journal of Emerging Markets, 13(5), pp.943-958.

Ayers, B.C., Call, A.C. and Schwab, C.M., 2018. Do Analysts’ Cash Flow Forecasts Encourage Managers to Improve the Firm’s Cash Flows? Evidence from Tax Planning. Contemporary Accounting Research.

Balakrishnan, K., Blouin, J. and Guay, W., 2018. Tax Aggressiveness and Corporate Transparency. The Accounting Review.

Bank of Queensland, 2017 Annual Report [Online] Available from https://www.boq.com.au/content/dam/boq/files/reports/annual-report/annual-report-2017.pdf [Accessed on 31st January 2019]

Bendigo and Adelaide Bank, 2017 Annual Report [Online] Available from https://www.bendigoadelaide.com.au/shareholders/pdf/annual_reports/2017-Annual-Financial-Report.pdf [Accessed on 31st January 2019]

Black, D.E., 2016. Other comprehensive income: a review and directions for future research. Accounting & Finance, 56(1), pp.9-45.

Dorn, D., Katz, L.F., Patterson, C. and Van Reenen, J., 2017. Concentrating on the Fall of the Labor Share. American Economic Review, 107(5), pp.180-85.

Dyreng, S.D., Hanlon, M., Maydew, E.L. and Thornock, J.R., 2017. Changes in corporate effective tax rates over the past 25 years. Journal of Financial Economics, 124(3), pp.441-463.

Edinger, T., Moore, J., Wang, D. and Berger, D., 2018. Other Comprehensive Income and the Market’s Processing of Earnings Information.

Edwards, A., Schwab, C. and Shevlin, T., 2015. Financial constraints and cash tax savings. The Accounting Review, 91(3), pp.859-881.

Gordon, E.A., Henry, E., Jorgensen, B.N. and Linthicum, C.L., 2017. Flexibility in cash-flow classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2), pp.839-872.

Guenther, D.A., Matsunaga, S.R. and Williams, B.M., 2016. Is tax avoidance related to firm risk?. The Accounting Review, 92(1), pp.115-136.

Hsu, L. and Lawrence, B., 2016. The role of social media and brand equity during a product recall crisis: A shareholder value perspective. International journal of research in Marketing, 33(1), pp.59-77.

Khan, S. and Bradbury, M.E., 2016. The volatility of comprehensive income and its association with market risk. Accounting & Finance, 56(3), pp.727-748.

Lin, S., Martinez, D., Wang, C. and Yang, Y.W., 2017. Is other comprehensive income reported in the income statement more value relevant? The role of financial statement presentation. Journal of Accounting, Auditing & Finance, p.0148558X16670779.

Miao, B., Teoh, S.H. and Zhu, Z., 2016. Limited attention, statement of cash flow disclosure, and the valuation of accruals. Review of Accounting Studies, 21(2), pp.473-515.

Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the public sector: Fourth international student edition. WW Norton & Company.

Westpac Bank, 2017 Annual Report [Online] Available from https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2017_Westpac_Annual_Report_Web_ready_&_Bookmarked.pdf [Accessed on 31st January 2019]