Discuss about the Commonwealth Bank and ANZ Bank.
At present driving profitability by aligning the finances helps in achieving business goals by having a deep insight. Financial metrics since ages has been a part of assessing the performance of firms and its role is to measure and monitor specific goals. These are strategic in nature that helps in coordinating by working on the firm effectiveness and efficiency (Paramasivan and Subramanian, 2009). Finance plays an important role by providing benefits in three aspects- controlling environment, lower cost and supporting business.
Banking plays a major role in developing and enhancing nation’s economy as it provides a link between the money deposited and investors. Commonwealth bank in Australia is a leader in providing financial services by recognizing the financial industry prevalent. The financial objective associated with the group over a period of five years with the objective to be in the quartile of other Australian banks. The strengths in strategic nature are diversified business, scale and brand with 1,100 branches worldwide. The shareholders are staff of the bank that constitutes around 78.5% and on 30 June it was reported that the financial institution has $933,078m (Commbank, 2016).
ANZ bank in Australia is serving around 6m commercial and retail customers with 115 centers, 2,700 ATMs, 800 branches and having its own mobile applications. The organization has around 5,000 employees by having its presence felt for 180 years by being fourth largest bank standing alone in Australian market. The financial year ended with Common Equity Tier 1 by having a capital ratio of 9.6% and its branch in Australia is having cash profit that is up to 75 by gaining from the market segments. The profit after income tax accounted to $7,493m with a rise of 3% in the prior year and having a growth in operating income at 5% i.e. $1bn (shareholder, 2015).
The research is having a check on analyzing the financial performance of Commonwealth Bank and ANZ Bank two leading banks of Australia. The study is based up on understanding the financial performance of banks as it will help in knowing the profitability and loss of the company. This would help in enhancing the performance by grabbing the market share.
The aim of the study is to analyze the financial performance of Commonwealth and ANZ Bank Australia in the market
The objectives of the research established by the researcher are given below:
What can be concluded about the financial condition of the banks from a trend analysis of the financial statements?
What is the effect of the dividend policies on the stock market position of the banks?
How have the profitability ratios influenced the market share of the banks?
How have the capital structures of the banks changed over the years and what has caused the change?
Ho1: Financial condition of the banks helps in generating financial statements by analysing the trend
Ho2: Do position of stock market have any effect on dividend policies
Ho3: Is there any affect of profitability ratios influencing banks market share
Ho4: Is there any change in the capital structure of banks and the reason binding it
As per the studies conducted by Johnson, (2007), it is important to analyze the financial performance of the organizations and in this context, there are various parameters that are analyzed to gain an understanding of the financial performance of the business organizations. The different parameters include the following:
The financial statements of an organization facilitates in assessing the financial well being of the organization as a whole. The information that is collected about the financial results of the business organization and the physical assets proves to be beneficial for the decision making on the part of the management of the organization. However, it is also the fact that these information are also not adequate for taking certain decisions since it does not provide an overall information about the whole business (Paramasivan and Subramanian, 2009). Moreover, in order to gain an understanding of overall organizational financial position and the enterprise relations, there are three financial documents that need to be evaluated. They are:
The balance sheet tends to summarize the values of the assets and the liabilities that are owned by the business organizations and the difference between the total assets and total liability of the business is termed as the net worth i.e. the owner’s equity.
The income statement of the business organization provides relevant information regarding the profit that is generated by the business. The organizations prepare their income statement on an yearly basis and it is also the fact that the accrual income statement of the company is considered to be an effective measure to gain an understanding of the performance of the business and its profitability (Sharma et al., 2016). This is because it takes into consideration the changes that are taking place in the inventory rather than simply taking into consideration the changes that are taking place in the cash transactions.
The cash flow statement provides relevant information regarding the sources and the ways in which the cash resources of the business are utilized (Van Horne, 2006). So, it not only provides information regarding the changes that are taking place in the cash resource of the business within a period of one year, rather it also takes into consideration when the cash has been received and when it has been spent. This is important because relevant information in context to the cash expenditures and cash receipts is beneficial in efficiently managing the business.
The studies conducted by Van Horne, (2008) have put forward the fact that the measures that facilitate in financial analysis of the business can be categorized into liquidity, solvency, profitability, financial efficiency and solvency.
The liquidity of the business provides relevant information regarding the ability on the part of the business to meet its financial obligations without making any impact on the normal operations of the business that is being carried out. The two measures of liquidity include the working capital and the current ratio. Where current ratio analysis facilitates in measuring the relationship that exist between the total assets of the business and its total liabilities, working capital facilitates in measuring the amount of the funds that are available to the business so that it can purchase its inputs and inventory after selling its current assets and paying out all the current liabilities (Cetina and Gleason, 2007).
Solvency facilitates in analyzing the amount of the borrowed capital that has been used by the business in comparison to the equity capital of the owner that has been invested in the business (Kotane, 2015). So, it can be said that solvency measures ted to provide relevant information regarding the ability of the business to repay its liabilities and the ability of the business to operate as a major financial adversity.
The profitability measures facilitates in gaining an understanding of the degree to which a business can generate profit by making effective utilization of the different factors of production that include the management, labor and capital. So it can be said that the profitability measures helps in analyzing the relationship that tends to exit between the expenses and the revenues of the company.
The analysis of the repayment capacity measures of the business facilitates in analyzing the ability of the business to repay its debt and thus it provides an in depth information regarding capacity of the business to sere additional debt and its ability to makes investments in additional capital after its all cash commitments have been met (Kotane and Kuzmina-Merlino, 2012).
The analysis of the financial efficiency of the business organization facilitates in measuring the degree and extent to which the business is capable of making an effective utilization of the management, capital and labor and it also tends to analyze the relationship that exist between the inputs and the outputs of the firm (Tate and McLinden, 2008). The different measures of the financial efficiency of the business include the operating expense ratio, the asset turnover ratio, the interest expense ratio, depreciation expense ratio and it also provides an in depth insight into the size of the credit reserve of the business.
Research methodology helps the researcher in identifying suitable and appropriate research process by working on the research subject. In simple terms it is the technique and tools that helps in conducting the research effectively (Welman et al., 2005). It helps in setting the time-period for conducting the research efficiently.
Research philosophy incorporates knowledge development by acting as the guiding force for the study undertaken. The three types of philosophies are interpretivism, realism and positivism whereas; realism is based up on reality that exists that helps in interpreting the research process. Positivism refers to verifying the research process on the information collected and interpretivism is dependent on external elements in the world of non-objectivity. In this study, the researcher would choose positivism philosophy.
The two types of approach are inductive and deductive will help the researcher in progressing by having a definite pattern (Kumar, 2005). The inductive approach is established by the researcher when no researcher has been done previously and the subject matter needs to be understood. Deductive approach refers to gathering information that is based up on observation generated via various sources. The researcher would choose deductive approach for generating the knowledge about financial performance of banks. In this outcome will be in-depth by achieving the research objective.
Research design contains the documentation of research process as it is nothing but, blueprint of how the research can be conducted. The various types of research design are- exploratory, descriptive and explanatory design. Descriptive design takes into account the logic behind implementing the theories in the research process (Kothari, 2004). Exploratory design is combination of descriptive and explanatory research process by understanding the ethnography that helps in performing data analysis. Explanatory design is termed as pre-planned process for conducting the research according to the approaches and ideas formulated by researcher. The researcher would implement descriptive design as it helps in analyzing in details the subject matter.
The researcher would only incorporate research that is taken here from the annual report, results published by the two banks on public forum. Similarly, related books, magazine, journal articles, reports, bulletins and data from Australian Securities Exchange (ASX).
The research process is mainly divided into four basic steps. The first step is data collection where financial data as mentioned above will be collected from 2013 to 2016. This data will then be analysed as per the research questions by conducting ratio analysis, majorly along the line of profitability. This will be used to find out the factors of financial performance of the two banks. Then the final conclusion will be made on discussing the analysis with respect to the hypotheses.
The sample would be collected for four years financial data selected from 2013 to 2016 of Commonwealth bank and ANZ which forms the sample size of the study. The study uses a Non-Probabilistic sampling technique. Here, the sample chosen for the research does not involve a random selection (Jha, 2008). Since, the entire financial statements of the four years is being considered, it is a non-probabilistic sampling technique. Also, it is a secondary data study; hence, judgemental technique will be where the research questions will be answered on the basis of the ratio analysis of the banks. (McMurray, 2004).
In order to suffice the major objective of the study, which is to determine the financial position of Commonwealth Bank and ANZ and its impact on the overall performance and repute of the bank; the financial statements of both the banks will be analysed through different ratios. The data used in this study will include the Balance Sheet where the Equity, Assets and Liabilities of the banks. Many of the profitability ratios described above will be based upon the data received from the balance sheet. The next financial statement that will be analysed here is the Profit & Loss Statement where the net income of the organizations can be seen that will serve to be numerators for the profitability ratios mentioned above.
The higher the value obtained from these financial statements, the better would be the performance of the banks. The dividend policies of the banks will also be determined with the help of the Profit & Loss statements, where earnings and number of shares will be used as determinants. The trends analysed through the financial statements and its subsequent ratio analysis will then be compared with the market share of the two banks year on year, to find out the relation between the two and the level of impact they have on the financial strength of the banks are perceived by the market. The data would be analysed through SPSS software.
In order to collect secondary data from two banks ANZ and Commonwealth Bank Australia is incorporated for conducting quantitative analysis. The access to financial data for two banks would be generated upon extensive literature by reviewing them correctly. With this time is also a factor in order to collect secondary data for being more accurate and formulating up on research objectivity (Welman et al., 2005). The process of undertaking the research is a major component faced by the researcher.
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Objective Setting for the Research |
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Data-Secondary Collection Plan |
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Reviewing the Literature |
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Research Methodology Development |
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Secondary Data Collection |
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Interpreting and Analyzing the Secondary Data |
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Final Business Research |
The research has to be conducted by taking into account the ethical consideration by following the code of ethics. The research conducted has to consider that the data collected will take into account the consideration in ethical manner by using techniques and tools. The information confidentiality has to be maintained by collecting the data only for academic purpose. The data analysed will be kept confidential in all nature and aspect (Kumar, 2005).
Organization profitability is governed by financial strength that can be determined from various sources. It involves balance sheet that has been a part for many years by expecting the researchers to understand the aspects of both banks. ANZ and Commonwealth Bank Australia are banks present in Australia that is highly potential for proving the profitability ratios. The time period 2013-2016 in banks have to be evaluated effectively. This would help in generating the outcome by evaluating reason for two banks on their performance. It helps in analysing the financial strength of the banks.
References
anz.com. (2016). Australia Zealand Bank. [online] Available at: https://www.anz.com/about-us/our-company/ [Accessed 27 Sep. 2016].
Brigham, E. and Houston, J. (2004). Fundamentals of financial management. Mason, Ohio: Thomson/South-Western.
Cetina, J. and Gleason, K. (2007). The Difficult Business of Measuring Bankss Liquidity: Understanding the Liquidity Coverage Ratio. SSRN Electronic Journal.
Commbank.com.au. (2016). About Us – Commonwealth Bank overview – CommBank. [online] Available at: https://www.commbank.com.au/about-us/our-company/overview.html [Accessed 27 Sep. 2016].
Jha, N. (2008). Research methodology. Chandigarh: Abhishek Publications.
Johnson, R. (2005). Financial management. 3rd ed. Boston: Allyn and Bacon.
Johnson, R. (2007). Financial management. 2nd ed. Boston: Allyn and Bacon.
Kotane, I. (2015). Evaluating the importance of financial and non-financial indicators for the evaluation of company’s performance. Management Theory and Studies for Rural Business and Infrastructure Development, 37(1), pp.80-94.
Kotane, I. and Kuzmina-Merlino, I. (2012). ASSESSMENT OF FINANCIAL INDICATORS FOR EVALUATION OF BUSINESS PERFORMANCE. European Integration Studies, 0(6).
Kothari, C. (2004). Research methodology. New Delhi: New Age International (P) Ltd.
Kumar, R. (2005). Research methodology. London: SAGE.
McMurray, A., 2004. Research: A Commonsense Approach. Australia: Cengage Learning.
Paramasivan, C. and Subramanian, T. (2009). Financial management. New Delhi: New Age International (P) Ltd., Publishers.
Paramasivan, C. and Subramanian, T. (2009). Financial management. New Delhi: New Age International (P) Ltd., Publishers.
shareholder.anz.com. (2015). ANNUAL REPORT. [online] Available at: https://shareholder.anz.com/sites/default/files/2015_annual_report.pdf [Accessed 27 Sep. 2016].
Sharma, S., Shebalkov, M. and Yukhanaev, A. (2016). Evaluating banks performance using key financial indicators – a quantitative modeling of Russian banks. The Journal of Developing Areas, 50(1), pp.425-453.
Tate, D. and McLinden, D. (2008). Performance Indicators in Business Decision Making. Performance Improvement Quarterly, 5(1), pp.25-34.
Van Horne, J. (2006). Financial management and policy. 2nd ed. Englewood Cliffs, N.J.: Prentice-Hall.
Van Horne, J. (2008). Fundamentals of financial management. 3rd ed. Englewood Cliffs, N.J.: Prentice-Hall.
Welman, C., Kruger, F., Mitchell, B. and Huysamen, G. (2005). Research methodology. Cape Town: Oxford University Press.
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