Analysis Of Commonwealth Bank Of Australia’s Annual Report For The Year

Brief of the Company

Commonwealth bank of Australia is an Australian multinational manage an account with organizations crosswise over New Zealand, Asia, the United States and the United Kingdom. The assortment of the budgetary administrations are given by the bank, for example, retail, business and institutional keeping money, administration of assets and superannuation, office of the protection a venture and broking administrations. The bank was subsidized in the December 1911, having central station at Darling harbor, Sydney and Australia. The present income of the bank is $26.004 billion. The bank was recorded on the stock trade in the year 1991 (Commonwealth Bank, 2014).

Dominant Section

The most dominant section of the report is the sustainability and the CSR policies which are followed by the Commonwealth bank of Australia and the financial statements which reflect the financial position of the company in comparison to its previous year and therefore, these two areas rule the entire annual report. However the director’s report and the auditor’s report are also beneficial from the point of view of the stakeholders and the investors (Abbott, 2018).

Director’s Report

The director’s report is basically divided into the different major sections which determine the principal activities, consolidated profit, dividends and review of the operations. Furthermore, the director’s report also talks about the changes in the state of affairs and the environmental reporting and also throws the light on the business strategies and the future developments (Brzezinski, 2016).

The major Directors of the Commonwealth Bank of Australia are outlined below

Catherine Livingstone, who was appointed on January 1^st 2017, Ian Narev the chief executive, Shirish Apte, Sir David Higgins and Launa Inman the futher board of the directors (Commonwealth Bank, 2014).

Auditor’s Report

The auditors of the Commonwealth Bank of Australia are the Price Waterhouse and Cooper’s firm. 

In the opinion of the auditor and to the best of their knowledge and belief, according to the PWC in the position of the auditor believes to have

1. No problems in terms of the independence of the auditor under the Corporations Act 2001 in the motion of the audit and
2. No contravention of the codes and the ethics of the professional conduct in association of the audit (Leyland, 2016). 

The Auditors report determines the view of the auditor on the fact that the company has complied with all the necessary accounting standards which needs to be implemented and followed correctly and that the financial statements are in accordance with the schedules and the accounting policy.

Sales Analysis 

The sales of the Commonwealth Bank of Australia have been increased from A$55668600 to A$56965000.

The major reasons for the increase in the sales is the utilisation of the conventional marketing schemes and the sales channels like email and the mobile phones applications that are in the prevalence continuously. The considerable focus on the retailers and the distribution channels not only help in enhancing the revenue of the company but also placed it at the platform of profitable level and ultimately help to improve the customer engagement which fosters the loyalty factor of the customer and the increase the convenience (Marume, et al 2016).

Dominant Sections of the Report

Net cash flow Analysis 

The net cash inflow of the Commonwealth Bank of Australia is A$23117 in the financial year 2017 from A$14447. In terms of the money the net cash flow changed by A$8670.  In terms of the percentage the net cash flow changed by the 60.01 % as it can be seen from the below table (Barkan, Bintliff and Whisner, 2015).

Net cash flow 2017	23117
Net cash flow 2016	14447
Difference	8670
% changes	60.01246

The retained profits for the year are A$26330.

The company has Payables due to other financial institutions worth A$28432 and Deposits and other public borrowings A$626655 (Commonwealth Bank of Australia, 2018).

Analysis of Ratios

				2017	2018
Profitability Ratios
Return on total assets
EBIT				6.47%	7.11%
Total Assets
Rate of return on ordinary equity
Net income – preferred dividends	8.05%	8.22%
Average ordinary shareholders equity
Operating profit Margin
EBIT * 100				3.83%	4.20%
Sales
Gross profit margin
Gross profit				28.61%	29.33%
Sales

The above table and the below graph can showcase how the profitability of the Commonwealth has shown an increase in the year 2018 from 6.47% to 7.11% in terms of the Return on total assets which determines how much return a company can generate while using the existing assets. Further, the gross profit margin and the net profit margin have increased from 28.61% to 29.33% and 3.83% to 4.20% respectively (Abel, 2014).

From the below table it can be analysed that the operating efficiency in overall terms has decreased from the financial year 2017 to 2018 from 0.34 to 0.26 in terms of the fixed asset turnover ratio and 1.44 to 1.41 in terms of the total asset turnover ratio (Olson, 2015).

Operating Efficiency		2017	2018
Fixed Assets Turnover Ratio
Fixed Assets				0.34	0.26
Sales
Total Assets Turnover Ratio
Total assets				1.44	1.41
Revenue

The liquidity ratios determine the position of the company and states how well the company can perform and what assets and liquid assets the company possess. From the graph it can be analysed that the Commonwealth Bank of Australia the current ratio needs to be improved by the company as the lower current ratio determines the low current assets and more liability on the head of the Commonwealth Bank.

Liquidity Ratios			2017	2018
Current Ratio
Current assets				0.79	0.78
Current Liabilities
Quick Ratio
Quick assets				0.15	0.18
Current Liabilities

The table of the leverage ratios shows the debt to the total assets ratio and the interest coverage ratio. The debt to asset ratio is decreased and that of the interest coverage ratio increased. The former policy is a good step towards the improvement of the ratio whereas in case of the later ratio the company has performed outstandingly as the company has the ability to pay the interest expenses (O’Malley and Capper, 2015).

Leverage Ratios
Debt to assets ratio
Debt				0.13	0.12
Total assets
Interest coverage ratio
EBIT				11.01	15.55
Interest Expense

Conclusion

From the above analysis it can be concluded that the financial health of the company needs to be improved. Though the sales of the company increased the operating cost also increased and therefore the company needs to reduce the bar of costs. Moreover, the fixed assets turnover ratio has decreased and therefore the company needs to purchase the assets to get more capital benefits.

References

Abbott, M., (2018) Markets and the State: Microeconomic Policy in Australia. California: Routledge.

Abel, R.L. ed., (2014) The Politics of Informal Justice: Volume 2: Comparative Studies (Vol. 2). Netherlands: Elsevier.

Barkan, S.M., Bintliff, B. and Whisner, M., (2015) Fundamentals of legal research. United States: John and Wiley sons.

Brzezinski, Z.K., (2016) Russia and the Commonwealth of Independent States: documents, data, and analysis. Routledge.

Commonwealth Bank of Australia, (2018) Annual Report 2018[online] Available from https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf [Accessed on 12th September 2018]

Commonwealth Bank, (2014) Our Strategy [online] Available from https://www.commbank.com.au/content/commbank-neo/2014shareholderreview/strategy.html [Accessed on 21st August 2018]

Leyland, P., (2016) The constitution of the United Kingdom: a contextual analysis. United States: Bloomsbury Publishing.

Marume, S.B.M., Jubenkanda, R.R., Namusi, C.W. and Madziyire, N.C., (2016) The Principles of natural justice in public administration and administrative law. New York: Springer.