Australia and New Zealand Banking Group Ltd is the largest company in Australia and New Zealand. It is the major international banking group listed in top 100 banks of the world. ANZ started its business in 1830s and its headquarters are located in Melbourne. In 1835, ANZ commenced its business in London when The Bank of Australasia was established. Later in 1970, the bank got merged with the English, Scottish and Australian Bank in order to form an organization which is now named as Australia and New Zealand Banking Group Ltd. This is usually considered as the largest merger in the banking industry of Australia (ANZ.com. 2018).
Being the largest group, it serves over 5 million customers and have assets worth AUD$ 247 billion. More than 28,000 people are employed in the primary markets of Australia and New Zealand, United States, UK and Asia Pacific. ANZ is counted in the list of 10 largest companies in Australia having a price of AUD $27.91 per share (Reuters.com. 2018). ANZ key business is to provide banking products and services to every type of customer whether individual, corporate or rural customers. The company also deals in accepting term deposits, current and savings account, foreign currency accounts and many more. Services offered by ANZ include personal and business loans, credit cards, financing solutions, overdrafts, mortgages, insurance services and products, financial advisory and other banking services.
ANZ is listed on ASX and is traded with a ticker symbol of ASX: ANZ. It has the largest market capitalization and is a dominator in retail and commercial banking business. The CEO of the group is Shayne Elliott and the chairman is David Gonski. The company is operating well and is focused towards future growth (Bloomberg.com. 2018).
Financial statement analysis is the critical review of company’s financials in order to make appropriate and suitable business and economic decisions. The analysis is done with the help of various ratios which are calculated later in the report. In order to raise the finance for the group’s operation, ANZ mainly relies on the loans and advances it provides to its customers. These are the main source and the interest earned on them is the income of the bank. Instead of relying more on borrowings, the company finance its business operations through equity. The same is reflected in its debt ratio and debt to equity ratio.
As per the recent annual report of ANZ, the current financial performance of the bank has increased in the year 2017. Its performance is as follows:
It can be seen that its ROE rises in 2017 to 11.9% whereas its cost to income ratio reduces to 46.1% in the same year. This indicates the increased profitability of the bank. Along with this, the EPS of the bank increase and its liquidity coverage ratio also rises to some extent. The same can be seen from the below figure. Overall, the financial performance of the ANZ has improved during the year (ANZ.com. 2017)
The forecasts made in the ANZ’s outlook publications stated that the economy will grow broadly around the coming years and the unemployment rate will remain below. The global growth forecast made reflected a steady and on balance positive picture. The US fiscal policy will support the global trade and the export prices will remain high. ANZ is expecting that the local short-end rates will fall in the near future for lending funds to the domestic and international markets (Anz.co.nz. 2018). A summary of the economic outlook for ANZ is as below:
|
2017 |
2016 |
Industry average |
|
|
Return on assets |
0.71% |
0.63% |
0.85% |
|
Return on equity |
11.90% |
10.30% |
11.46% |
|
Net profit margin |
32% |
28% |
Result % |
|
Net Interest Income |
1.99% |
2.07% |
2.00% |
|
Expense ratio/Cost to Income ratio |
46.10% |
53% |
Result % |
|
Cash return on sales |
118% |
53% |
Result % |
|
Earnings per share |
$2.20 per share |
$1.97 per share |
n/a |
|
Price earnings ratio |
13.5 times |
14.2 times |
15.19 times |
|
Earnings yield |
7.43% |
7.13% |
Result % |
|
Dividends per share |
$0.80 per share |
$0.80 per share |
Result % |
These are those ratios which help in determining the profitability position of the company. By critically analysing them, one can easily identify the financial position of a company in terms of profits (Zainudin, Zainudin, Hashim & Hashim, 2016). Some of the key profitability ratios include:
ANZ’s ROA was 0.63% in 2016 which increase to 0.71% in 2017. This increase is due to the overall reduction in total assets of the company last year and upsurge in the net profits. The cash balance of the group increases which indicates that the company has utilized its assets very well. However, the ratio was less than the industry average of 0.85%.
The same trend follows in ROE of ANZ. It has increased during the period of 2016 to 2017. The ROE of ANZ was 10.30% in 2016 which was increased to 11.90% in 2017. Reason being, rise in the net income of the group from $5720 million to $6421 million. Also the ratio was more than the industry average of 11.46%.
In 2016, ANZ’s NPR was 28% which rise to 32% in 2017. An increase of 4% was there last year which anyhow enhances the profitability position of the company. This was due to the ongoing improvement in the credit quality of the bank.
The ANZ’s net interest margin was 2.07% in 2016 which reduces to 1.99% in 2017, less than the industry average of 2%. This is because of the increase in the average interest earning assets which stimulates a slower growth environment.
ANZ’s ratio is reduced from 53% to 46.10% in 2017. This implies that the cost of running the business is reduced and the bank has generated more operating income last year.
The ROS of ANZ was more than double in 2017 as compare to that of in 2016. It was 53% in 2016 and the same rises to 118% in 2017. Such huge increase is due to the rise in amount of cash balance which makes the bank more efficient.
These ratios evaluate the current share price of the company. In other words, they measure the overall share performance of a corporation. They are generally preferred by investors for taking relevant decisions (Jindal & Jain, 2017). Some of the key market ratios are as follows:
In 2016, ANZ had an EPS of $1.97 per share and the same increase to $2.20 per share. The first reason is the increase in overall net profit and the second is the increase in the number of outstanding shares issued by the bank. Issue of shares boosted up the EPS of ANz.
ANZ had a declining P/E ratio in 2017 as in 2016, the ratio was 14.2 times which reduces to 13.5 times in the year. Also less than the industry average of 15.19 times. Despite of having a high EPS, the P/E of ANZ reduces due to the fluctuation the economic conditions and slow growing environment.
ANZ’s Earnings yield has increased from 7.13% to 7.43% in 2017. This was due to increase in EPS and market price per share of the bank.
ANZ has a stable DPS for the years 2016 and 2017. In both the years, it has a DPS of $0.80 per share. This indicates that bank follows a stable dividend policy and has offered same amount of dividend in the past two years.
|
2017 |
2016 |
Industry average |
|
|
Asset turnover |
2 % |
2 % |
Result times |
|
Cash return on assets |
3 % |
1 % |
Result times |
|
Fixed Asset turnover |
28 % |
12 % |
Result times |
These are those ratios which measures the efficiency of a firm in terms of utilizing its assets. In other words, it basically shows how well a company utilizes its assets and liabilities to generate more revenue or sales (Penman, Reggiani, Richardson & Tuna, 2017). The key efficiency ratios are:
ANZ’s ATR remains same for both the years that is 2%. This implies that the bank has employed same amount of assets in the business to generate same amount of profit. This is due to the same percentage change in the revenue and total assets of ANZ.
The cash return on assets of ANZ has increased from 1% to 3% in 2017. A 2% increase in the ratio indicates that assets has generated a high amount of real cash. However, the same figure can be different when return on assets formula is applied.
From the calculation done, it was observed that the FATR of ANZ has increased to a great extent in 2017. In 2016, the ratio was 12% and the same rises to 28% in 2017. This indicates that the bank has less money tied up in fixed assets. The ratio was more than double, making ANZ more efficient.
|
2017 |
2016 |
Industry average |
|
|
Current ratio |
106% |
123% |
XX:1 |
Liquidity ratios
These ratios reflects the financial health of a company and tells about its liquidity position. The main liquidity ratios include current ratio and quick ratio. Both the ratios are used to measure the capability of the company to meet its short term obligations.
It measure the potential of an enterprise in paying off its current liabilities with use of its current assets. As per the calculations, the ANZ’s CR was 123% in 2016 which falls to 106% in 2017. This shows a reduction in the capability of a company and also reflects poor financial health. This is due to the increase in the borrowings of the bank worth $595,611 million.
|
2017 |
2016 |
Industry average |
|
|
Debt to equity ratio |
316.45% |
439.38% |
314.11% |
|
Debt ratio |
21% |
28% |
24.09% |
|
Equity ratio |
7% |
6% |
Result% |
|
Cash debt coverage |
3% |
1 % |
Result% |
|
Interest cover ratio |
0.67 times |
0.55 times |
Result times |
These ratios basically evaluate the capital structure of the company and measures the debt and equity portion. Some of them are:
ANZ’s D/E ratio in 2016 was 439.38% and in 2017 was 316.45%, though slightly more than the industry average. However, it can be observed that a significant reduction was there in the debt equity ratio of the bank. This means that bank relies more on equity financing rather than borrowings.
The same trend follows in debt ratio of ANZ also. It reduces from 28% to 21% in 2017 and also less than the industry ratio of 24.09%. This means that the less assets of the bank are financed through debt in 2017 which also reduces the financial risk for the group.
It has been increased from 6% to 7% in case of ANZ over the years. This indicates that the bank relies more on its shareholders’ equity for financing its assets.
ANZ’s coverage ratio has been increased from 1% to 3% in 2017. This indicates a better liquidity position of the bank and reflects that it has enough cash from its operations to pay its short term debt.
The ICR of ANZ was 0.55 times in 2016 and 0.67 times in 2017. This is due to the decreased interest expense of the bank. It also reflects that ANZ is now more capable for paying off its interest liabilities with its operating profit.
From the above report it can be recommended that Australia and New Zealand Bank has performed well in 2017. Its performance was much better in this year as compare to 2016. Its financial performance has improved last years with increasing profitability, liquidity and efficiency. Along with this the debt portion of the bank has reduced in 2017 making it less risky and desirable for the investment.
As per the forecast made for the economic outlook, ANZ is expecting positive trends in future and an increase in the global growth rate. Yes, as per its performance and economic trends the banking group will succeed in future. In order to attain more success, the bank needs work upon improving the quality of its credit facilities, increasing the deposits and establishing more trust among its customers. Along with that it need to focus on its efficiency.
In case the business become insolvent, it has to follow the principle of integrity, objectivity, confidentiality, professional competence and behavior. All these are required to be followed by an insolvent company.
However, the financial performance of ANZ will be highly affected by the changes in the political environment and some external factors. Changes in the government policies or regulations will somehow affect the economy which may influence the inflation or interest rates. Such factors directly impact the functions of banks and hinder their performance. According to the financial aspect and forecasted economic outlook, one can easily invest in the company or group because it has low financial risk.
References/Bibliography
Anz.co.nz. (2018). NEW ZEALAND ECONOMIC OUTLOOK. Retrieved from https://www.anz.co.nz/resources/d/9/d9a3584e-9fc3-4cf2-9375-9bad4980a872/ANZ-EO-20180329.pdf?MOD=AJPERES
ANZ.com. (2017). 2017 ANNUAL REPORT. Retrieved from https://shareholder.anz.com/sites/default/files/2017_anz_annual_report.pdf
ANZ.com. (2018). Company Profile. Retrieved from https://www.anz.com/australia/aboutanz/corporateinformation/company.asp
Barman, A.N. & Sengupta, P.P., (2017). DETERMINANTS OF PROFITABILITY IN INDIAN TELECOM INDUSTRY USING FINANCIAL RATIO ANALYSIS. International Journal of Research in Management & Social Science, p.25.
Bloomberg.com. (2018). ANZ Bank New Zealand Limited: Private Company Information – Bloomberg. Retrieved from https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=5487644
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Fraser, L.M., Ormiston, A. & Fraser, L.M. (2010). Understanding financial statements. Pearson.
Jenter, D. & Lewellen, K. (2015). CEO preferences and acquisitions. The Journal of Finance, 70(6), pp.2813-2852.
Jindal, D. & Jain, S. (2017). Effect of Receivables Management on Profitability: A Study of Commercial Vehicle Industry in India. Management, 2(2), pp.246-255.
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Penman, S.H., Reggiani, F., Richardson, S.A. & Tuna, A., (2017). A Framework for Identifying Accounting Characteristics for Asset Pricing Models, with an Evaluation of Book-To-Price.
Reuters.com. (2018). Australia and New Zealand Banking Group Ltd (ANZ.AX). Retrieved from https://in.reuters.com/finance/stocks/company-profile/ANZ.AX
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