BOQ and WBC are some of the largest banks in Australia. Basically, WBC is amongst the second largest banks in terms of market cap (Westpac Banking Corp 2017). It is second in terms of the market cap and is the chief credit card producers within the country. On the other hand, BOQ is the oldest banking operating in Australia headquartered in Queensland. It employs a total of 48,556 staff who are said to operate across its 200 branches (Bank of Queensland 2017). The bank offers form of the financial services comprising of retail banking, insurance, credit insurance, accident insurance, motor vehicle insurance, small business loans and saving accounts (Morningstar 2017).
Item of equity reported in BOQ and Westpac Banking Group
Based on Westpac statement of the changes in the equity, it is evident that some of the items included in this statement were reserves, share capital, retained profits as well as the non-controlling interests. In the case, of the reserves, there were several items reported under this single item. Some of these items comprised of net other comprehensive incomes which was around 98 million, share based payments as well as other income of around 1 million. Further, items reported under share capital included dividend reinvestment plan of around 1,452 million, exercise of the employees share rights and options of around 11 million, the purchase of the shares or around -43 million and acquisition of the treasury shares of amount -40 million. On the other hand, the items reported on the retained profit section included dividends on the ordinary shares of around 6,291 as well as other investments contributing to -4 million (Westpac Banking Corp 2017). On overall, the amount of equity attributable to the shareholders included dividend on the ordinary share of around -6,291 million, dividend reinvest plan of around 1,452 million, share based payment of 98 million exercise of the employees share rights and options of around 11 million. Additionally, there purchase of the shares of around -43 million, acquisition or disposal of the treasury shares of around -40 million as well as other amount of around -3 million (Morningstar 2018).
The total amount share capital is found to have increased over the years moving from 33,041 million in the year 2016 to around 34,394 million by 2017. Besides, amount for reserves increased from 727 million to 794 while amount for the retained earnings or profit increased from 24,379 to 26,100. On overall, Westpac total equity increased from 58,181 at 30th September 2016 to 61,342 million at year end 30th September 2017. The increase was attributable to increase in most of the items reported in the statement. Basically, increase in its share capital from 33,014 million to 34,394 million in 2017 and increase in its retained profit from 24,379 million to 26,100 million in 2017 (Morningstar 2018).
On the other hand, based on BOQ statements of the changes in the equity, it is evident that there were a number of items reported. Some of these items included employees benefits reserves, cash flow hedge reserve, ordinary shares, equity reserves for the credit losses, retained profits as well as available-for-sales reserves. Some of the figures included in the ordinary shares included balance at the start of the year of around 3,243 million, issues of the ordinary shares of around 12 million, as well as dividend reinvestment plan of 105 million (Bank of Queensland 2017). Further, figures attributable to employees benefits reserves included balance at the start of the year, as well as equity settled transactions of around -1 million. Cash flow hedge reserves comprised of balance at the start of the year, of about -153 million, net gains moved to equity of 13 million as well as net losses that was transferred to the income statement of 23 million. Equity reserves comprised of balance at the year start of 81 million. On the other hand, retained income comprised of balance at the start of the financial year of 311 million, profit generated within the year of 352 million, and dividends to the shareholders of -292 million. Finally, Available-for the sales reserves comprised of balance at the beginning of the financial period of around 78 million, net variation in the fair value for the financial assets of 3 million and net gains transferrable to the income statement of -14 million.
Furthermore, based on the statement, value for the ordinary shares increased over the past two years moving from 3,243 million to 3,360 million in 2017. Nonetheless, employees benefits reserves decreased from 27 million reported in 2016 to 26 million which was reported in 2017. Further, equity reserves for the credit losses remained constant over the past two years at 81 million. Cash flows hedge reserves increased decreased from -153 million to – 117 million while its available-for the sale reserve decreased from 78 million to 67 million. Retained earnings for BOQ on the other hand, increased from 311 million to 371 million by 2017. On overall, BOQ total equity increased from 3,587 million to 3,788 million in the year 2017.
Comparative Analysis of the debt and equity position of BOQ and Westpac
Based on the above highlights, it is evident that Westpac Banking Corp had high level of shareholders’ equity compared to BOQ. In fact, despite the two banks recording significant increase in their total equity over the last two years, Westpac reported total equity of 58,181 at 30th September 2016 and 61,342 million at year end 30th September 2017. This marks an increase in its total equity of around 3,161 million or 5.4%. On the other hand, BOQ reported total equity of 3,587 million at 2016 3,788 million at September 2017. This marks an increase in the bank’s total equity with around 201 million or 5.6%. In reality, BOQ experienced significantly high increase in its total equity as compared to its counterpart. On the other hand, Westpac reported total liabilities of 765,216 at 30th September 2016 and 772,867 in 2017. This marks a 7,651 million or 1% increase in its total debts. On the other hand, BOQ total liabilities increased from 47,266 million to 47,870 million. This means that BOQ experienced an increase of 604 million or 1.28% in its total debts. This implies that BOQ was at higher financial risk compared to Westpac.
Item reported in Westpac Banking Corp and BOQ the cash flows statement
From BOQ cash flow statements there are a number of items that have been listed. These items have been listed based on the three categories; that is, cash from the operations segment, cash used in the investment activities segment and cash from the financing operations segment. The items reported in the cash flow from operations category included interest received which is said to have decreased over the years from 2,156 million in 2016 to 1,990 million in 2017. There were also fees and other income that increased from 130 million to 137 million and dividends received which remained constant at 1 million over the past three years. Interest paid was another items repowered in this section which is said to have decreased from 1,263 million to 1,066 million by 2017 (Bank of Queensland 2017).
Items that are reported in the cash from the investment section include acquisition of the BOQF cash flow Finance Ltd costing 14 million, disposal of the vendor finance firm of 19 million, and receipt of the third party repayment of loan of 95 million. Other items are payments for the PPE of 18 million an increase from 16 million from previous year, payments of the intangible assets of 46 million a decrease from 67 million in the previous year (Morningstar 2018).
Items that were reported in the cash from the financing operations section comprised of proceeds from the issues of the ordinary shares of 12 million a decrease from 20 million in the previous year. There is also the proceeds from the borrowing of around 4,090 million an increase from 3,515 million reported in the previous year, repayments of the borrowings of 3,963 million an increase from 2,818 million from the amount reported in the year 2016. Further, there was payments for the treasury shares of 12 million which was a decrease from 20 million reported in 2016 and finally dividends paid of 188 million which was an increase from 180 million reported in 2017.
Based on Westpac Banking Corp, it is evident that the items reported in the cash flow statement were classified into three categories; that is, the cash from the operation section, cash used in investment and cash from the financing operations section. Items listed in the cash from the operations sections include interest received of 31,133 million, interest paid of -15,415 million and dividend received in in exclusion of the life business of 27 million as well as other non-interest income received. Other items reported in this section are operating expenses paid of 7,966 million, income tax paid of 3,388 million, receipts from the policyholders as well as customer of 2,239 million, interest and the other items of same nature of 24 million, payment to the suppliers and policyholders of 1,861 million, dividend received of 433 and income tax paid of 164 million (Morningstar 2018). There was also items on the net decrease in the trading securities and the financial assets which were designated at the fair value of 5,054 million, decrease in loans of 26,815 million, increase in receive due from the other banks of 2,653 million, increase in the life insurance assets of 219, increase in the regulatory deposits with foreign central banks, increase in other assets of 200 and decrease in derivative financial instruments of 5,042 million. Additionally, there were items on net decrease in the other financial liabilities at the fair value of 681, net increase in deposits as well as other borrowings of 23,062 million, increase in payables due to the other banks of 3,859 million as well as decrease in the other liabilities of 15 million. Amount reported in 2017 was a decrease from the previous year amount of 31,817 million resulting from increased interest rate used in offering loans.
Items reported in the cash from investment sections included proceeds from the available-for-sale stocks of 25,717 million, purchases of the available-for-sale stocks of 27,028 million, purchases of the intangible assets of 766 million and proceeds from the disposal of PPE of 65 million (Westpac Banking Corp 2017). In addition, there was item on purchase of the PPE of 264 million as well as proceeds from the sale of the associates of 630.
Items reported on Westpac cash used in financing operations section included issues of the loan capital of 4,437 million, redemption of the loan capital of 2,188 million, net increase in the debt issues of 3,249 million, proceed from the exercise of the employee options, share purchased for the delivery of the employees share plan of 27 million and purchases of the shares on the exercise of the employees options and rights of 17millon (Morningstar 2018). There were also purchases of the RSP treasury stocks, of 7 million, payments of the dividends of 4,839 million and payments of the distributions to the non-controlling interests of 13 million.
Comparative Analysis of BOQ and Westpac Banking Based on the Three Broad Classes of the Cash Flows
Westpac cash flow from its operations increased from -541 million in 2015 to 5,497 million in 2016 but later decreased to 2,820. On the other hand, cash used in investment operation by Westpac decreased over the past three years from 18,715 million in 2015 to 7,245 million in 2016 and later to 1,698 million in 2017 (Morningstar 2018). Further Westpac cash provided by its financing operations decreased in the past three years from 5,513 million in 2015 to 4,573 million in 2016 and later to 552 million in 2017.
On the other hand, BOQ cash outflow from the operations decreased from 875 million in 2015 to 381 million in 2016 and later to 302 million in 2017. Its cash from the investment increased from 56 million to 68 million in 2016 but in 2017, BOQ generating some cash income from its investment of around 49 million. It cash from the financing activities decreased in the last three years from 765 million to 574 million and further to -61 million in 2017 (Morningstar 2018).
By looking at the two companies based on the three broad levels of the cash flows, it is evident that Westpac was able to generate positive income from its operations and from its financing activities unlike BOQ instead incurred some negative amount from operations and its financing operations. Therefore, Westpac Banking seems to be financially healthy in terms of cash flow generation unlike its counterpart.
Items Reported In Westpac Banking Corp and BOQ’s Other Comprehensive Income Statements
As per BOQ statement of the comprehensive income, it is evident that a number of items were reported in the financial year 2016/2017. Basically, some of the items reported included cash flow hedges which comprised of net losses transferred to the income statements and net losses to equity. In this case, the bank reported net gains taken to the equity of around 13 million in 2017 while it reported net losses that were transferrable to income statements of around 23 million (Morningstar 2018). The net gains taken to the equity for BOQ increased as from -75 in the year 2016 to 13 million in the year 2017 while its net losses that were transferable to the income statements increased from 12 million to 23 million by 2017. Other items reported in this statement were foreign currency translation alterations on the foreign operations and net variation in the fair value of the financial assets which was available-for sale of around 3 million. Foreign currency translation variations on the foreign operations for BOQ increased from -1 to a positive figure in 2017. Nonetheless, the net variations in fair value of the financial assets recorded a significant decrease from 24 million in the year 2016 to around 3 million in 2017 (Morningstar 2018). Further, there were net gains which were transferable to the income statement for the financial assets which were available-for-sale. The net gains transferable to the income statement for the bank decreased from -10 million in 2016 to -14 million by 2017.
On the other hand, items reported in Westpac Banking Corporation other comprehensive statements were categorized into two, those items which might be reclassified concurrently to the income statements as well as those one that would never be reclassified to the income statements. Items that were classifiable subsequently to Westpac’s income statement comprised of gains on the available-for-sale stocks recognized in the equity of around 75 million which was an increase from the previous year where the amount was 56 million. The other item was losses on the available-for-sales stocks transferable to the income statement of -3 million, an increase from the previous year where the amount was at -8 million (Morningstar 2018). Thirdly there was losses on the cash flow hedging recognized in the equity which is said to have declined from -304 million in 2016 to -91 million in 2017. Another item was gains on the cash flow hedging transferable to the income statement of 115 million, an increase from 21 million in 2016. In the statements there were income tax on the items transferred from or taken to the equity which included available-for-sale stock reserves and cash flow hedging reserves. Other items were share of the associates recognized in the equity and item transferable to the income statement.
Items which were not classifiable subsequently to income statements comprised of the own credit adjustment on the financial liabilities which was designated at the fair value as well as re-measurement of the defined benefits commitment recognized in the equity. Re-measurement of the defined benefit obligations recognized in the equity increased from negative 47 million to 190 million in 2017 (Morningstar 2018).
The items in the other comprehensive incomes are not reported in organizations’ profit/loss accounts as they are yet to be realizable. In essence, items are only reported only if they are realized and therefore ready to be considered as income or losses.
Comparative analysis of items reported in other comprehensive income statement
The items reported in other comprehensive income for BOQ were relatively lower in comparison to the amount of the items reported in Westpac statement. This is evidenced by the fact that the overall amount for these items increased for the Westpac from 6,941 million in 2016 to 7,991 million in 2017. On the other hand, the overall amount of items reported in BOQ other comprehensive income statements increased as from 288 million to 377 million in 2017 (Morningstar 2018). In case, such items were included in income statements for the two companies, the net income attributable to the shareholders would increase from its current value to a higher value which would be good for the shareholders.
Evaluation on whether the other comprehensive income ought to be included in assessing performance management of the company
The other comprehensive income should not be included in assessing performance of an organization’s management. This is because by including the items, one would end up using untrue figures which would yield favourable report about the managers’ performance unlike when the amount was excluded.
Tax expenses reported by BOQ and Westpac
The tax expenses indicated in BOQ and Westpac latest financial statements are income tax expense of 155 million for BOQ and income tax expense of 3,518 million for Westpac Banking Corp (Morningstar 2018).
Effective tax rate of BOQ and Westpac Banking Corp
In this case, it is good to first understand the formula of getting effective tax rate. This is usually equals to income tax expenses divided by the organization’s EBIT
Effective tax rate for the companies was as follows;
Effective tax for Westpac in 2017 = 3,518/11,515 * 100% = 30.55%
Effective tax for BOQ in 2017 =155/507 * 100% = 30.57%
Based on the above computations, BOQ had the highest effective tax rate compared to Westpac Banking Corp. This implies that BOQ is more effective in settling its tax expenses compared to its counterpart.
Deferred Tax Assets/Liabilities
According to Westpac 2017 balance sheet statement, it is evident that the company reported deferred tax assets of around 1,112 million in the year 2017. On the other hand, Westpac Banking Corp reported deferred tax liabilities of 10 million in 2017. Based on BOQ balance sheet statement, the bank reported deferred tax assets of 55 million in the year 2017. Nonetheless, the bank did not have any deferred tax liabilities over the period. These are reported in the balance sheet since they have not year been realized to be able to be reported in the companies’ income statements.
Comment on any increase or decrease in the deferred tax liabilities or assets
Westpac Banking Corp deferred tax assets experienced a slight decrease over the past two years from 1,351 million to 1,112 million in 2017. On the other hand, a similar trend was observed in the bank deferred tax liabilities, where the amount moved from 36 million to 10 million. In another case, BOQ deferred tax assets decreased from 80 million in the year 2016 to 55 million in 2017. Nonetheless, no increase or decrease in deferred tax liabilities was reported for this bank since for the last two years BOQ did not report any deferred tax liabilities.
Cash amount = the book tax plus the upsurge in organization’s deferred tax liabilities minus an upsurge in its deferred tax assets. Therefore, cash tax amount for the firms would be as follows:
Westpac cash tax amount = 3,518 + (10-36) – (1,112-1,351) = 3,731
BOQ cash tax amount = 155 +(0) – (55-80) = 180
Cash tax rate for BOQ and WBC
Cash tax rate = cash amount / EBIT
In this case, cash tax rate for WBC = 3,731/ 11,515 * 100% = 32.40%
Cash rate ta for the BOQ is = 180/507 * 100% = 35.50%
Based on the above computations, BOQ has relatively high cash tax rate compared to its counterpart.
Explanation of the difference cash tax rate between book tax rate
Cash tax rate tend to differ from the book tax rate as its calculation is usually based on book tax value unlike the book tax rate which is based mainly the original tax expenses for computation.
Conclusion
To conclude, WBC and BOQ are amongst the leading banks in Australia. Furthermore, from the cash flow, owner equity, other comprehensive income and income tax income. WBC seems to do better than its counterpart. The WBC seems to enjoy high cash flow over the period unlike BOQ which is currently experiencing relatively low cash flows. Further, by looking at their equity and debt ratios, it is evident that both companies would offer relatively good investment opportunity for existing and potential investors.
List of References
Bank of Queensland 2017, Bank of Queensland annual report 2017: Viewed from: https://www.boq.com.au/content/dam/boq/files/reports/annual-report/annual-report-2017.pdf (Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from: https://financials.morningstar.com/balance-sheet/bs.html?t=BOQ®ion=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from: https://financials.morningstar.com/ratios/r.html?t=BOQ®ion=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from: https://financials.morningstar.com/income-statement/is.html?t=BOQ®ion=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from: https://financials.morningstar.com/cash-flow/cf.html?t=BOQ®ion=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Westpac Banking Corp (WBC): Viewed from: https://financials.morningstar.com/ratios/r.html?t=WBC®ion=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Westpac Banking Corp (WBC): Viewed from: https://financials.morningstar.com/balance-sheet/bs.html?t=XASX:WBC®ion=AUS (Accessed 22nd September 2018)
Morningstar 2018, Westpac Banking Corp (WBC): Viewed from: https://financials.morningstar.com/income-statement/is.html?t=WBC®ion=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Westpac Banking Corp (WBC): Viewed from: https://financials.morningstar.com/cash-flow/cf.html?t=XASX:WBC®ion=AUS (Accessed 22nd September 2018)
Reuters.com 2018, Bank of Queensland annual report 2017: Viewed from: https://www.reuters.com/finance/stocks/companyProfile/BOQ.AX (Accessed 22nd September 2018)
Westpac Banking Corporation 2017, Westpac Banking Corp annual report 2017: Viewed from: https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2017_Westpac_Annual_Report_Web_ready_&_Bookmarked.pdf (Accessed 22nd September 2018)
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