Discuss about the Corporate Finance Capital and Funding.
The corporate finance is defined as a particular area of finance that deals with the funding source and the capital structure of the organization and the activities that the managers take for enhancing the value of the business to the shareholders (Brealey et al. 2012). In addition to this, the corporate finance is used as the instrument that helps in analyzing and allocating the financial resources (Damodaran 2016). Therefore, the consulting firms generally provide the financial advice by using the concepts of corporate finance.
In this assignment, the organization named National Australia Bank has been selected in order to provide financial advice regarding the financial condition and financial position of the firm in the current competitive market. In order to provide financial service to the firm, the background of the particular firm, its current financial standing including the information regarding its share value, market value and debt to profit ratio have been analyzed. In addition to these, the most recent capital raising activity like debt financing and equity financing have also been studied in detail.
Lastly, depending on the financial strategy of the particular organization, the methods of raising the company funds have also be analyzed and accordingly advice has been provided to National Australia Bank regarding raising funds and its financial position in the market.
The organization National Australia Bank is a public company that is enlisted in the Australian Stock Exchange as NAB. The particular firm belongs to the banking and financial services sector that was founded in the year 1982 as “National Commercial Banking Corporation of Australia Limited” (Capital.nab.com.au 2016). The specified firm is headquartered at Melbourne in Australia and serves across Australia, Asia and New Zealand. Andrew Thorburn is the CEO of the organization, whereas, Kenneth R Henry AC is the Chairman of the firm. The main products served by the firm National Australia Bank include – Business banking, Wholesale banking, Consumer Banking and Wealth management insurance.
As per the annual report of the firm for the year 2015, the revenue was A$ 20.176 billion, the net income was A$ 6.357 billion and the total assets were around A$ 945.0 billion (Capital.nab.com.au 2016). On the other hand, as per the year 2016, the total numbers of employees are 35,063 (Capital.nab.com.au 2016). It has been found that the particular firm is considered as one of the four largest monetary institutions of the country based on its market capitalization and consumers. In the year 2014, National Australia Bank was ranked “21st largest bank” across the world based on its market capitalization and was ranked “41st largest bank” across the world based on its total assets (Capital.nab.com.au 2016).
The particular firm has a total of 1590 service centers and branches and about 4412 ATMs throughout Australia, Asia and New Zealand that provides services to around 12.7 million clients (Capital.nab.com.au 2016).
The analysis of the financial condition of a firm helps an analyst to understand the present situation of the firm and also helps to estimate its future (Coles, Lemmon and Meschke 2012). Depending on the historical performance and the present financial condition of the firm, the future can be predicted and analyzed. Based on this analysis, a company should invest in long term or short term goal accordingly. Moreover, this financial analysis will also help the firm to proof its stability regarding both its financial and economical status (Roberts and Whited 2012). Additionally, a positive result of the analysis will also help the firm to attract more investors. Therefore, in order to better understand the present financial condition of the organization National Australia Bank, its market value, share value and debt to profit ratio have been analyzed.
The market value is also known as market capitalization of a publicly traded organization. It is generally attained by the multiplication of the number of outstanding stocks with the present price of the share. The market value of an organization acts as a good indicator of the perception of the investors regarding the prospects of the business. The higher market value implies the firm has a greater valuation. It has been found that the market capitalization for the organization National Australia Bank is AUD 71.151 billion (Bloomberg.com 2016). This implies that the particular firm has a higher valuation in the present market.
On the other hand, from a detailed historical study, it can be said that the share price of the firm National Australia Bank remained constant for a whole year that is from September 2015 till today (September 2016). During September 2015, the share price was around AUD 26.17 then it started to increase constantly till December, 2015 and reached to AUD 27.72 (In.finance.yahoo.com 2016). However, the stock price decreased certainly to 25.39 in January 2016, but it again started to increase spontaneously and as per today, the stock price of the particular firm is AUD 26.78 (In.finance.yahoo.com 2016). From this, it can be said that the financial condition of the firm is constant and due to its both economical and financial constancy, more investors will put their fund and invest in this firm National Australia Bank for earning a more return. In other words, it can also be said that due to its constantly increasing share price, the valuation of the firm also enriches with the passage of time.
Generally, the debt to profit ratio indicates the amount of debt of a firm in respect to its profit percentage. Thus, it can be said that the lower the ratio will be it is better for the firm. However, for the banking sector, the debt to profit ratio is comparatively more than the other industries. It is about 3.1, but for the firm National Australia Bank, this ratio is equivalent to 2.62 (Markets.ft.com 2016). This implies that the particular firm has a better financial condition than any other banks in the present competitive market.
It is an essential factor for every firm to raise or increase its capital, as it is the key element that helps the business to operate and regulate successfully. There are various activities that help an organization to raise its capital, however, the most useful activities include – equity financing and debt financing. Therefore, it has been found that the firm National Australia Bank also implements this method for raising its capital. It has been found that the particular firm has implemented both the methods. Thus, the total liabilities of the organization increased from $ 48197 million in the year 2014 to $ 55217 million in the year 2015 (Nab.com.au 2016). Moreover, from detailed analysis, it can be said that firm’s “deposits and other borrowings” have certainly increased from $ 374538 million in the year 2014 to $ 391785 million in the year 2015 (Nab.com.au 2016). This indicates that National Australia Bank has opted for debt financing. Additionally, it has been found that the equity of the firm has also increased from $ 48197 million in 2014 to $ 55217 million in the year 2015 (Nab.com.au 2016). Moreover, the “contributed equity” of National Australia Bank has certainly increased from $ 27856 million to $ 34407 million in the year 2015 (Nab.com.au 2016). From this it can be said that National Australia Bank also implements the equity financing.
It has been found that there are various financial strategies that most of the banks use in order to raise the funds of the particular organization. These include – raising venture and growth capital, merger and acquisition, divestitures, buyouts by the financial sponsors, spin-offs, private placements and distressed debt (Flannery and Hankins 2013). The other financial strategies include – mezzanine financings, capital restructuring, buy outs, right issues, debentures and structured investment and convertible products. However, it has been found that the specified firm National Australia Bank implements the following financial strategies including – trading derivatives, financial liabilities at fair value, hedging strategies, demerger, acquisitions, divestments, raising venture, financial sponsors, debentures and convertible products (Nab.com.au 2016). Thus, it can be said that by implementing all these financial strategies within the firm National Australia Bank, the organization can maximize the value of its shareholders. This also characterizes the performance of the firm and determines the ways to raise its operating funds by increasing the return on investments (Vernimmen et al. 2014).
On the other hand, the financial strategies analysis helps the business to draw a clear picture regarding the goals and objectives of the organization. This also helps to identify the targets of the organization and helps to keep focus on the profitability of the firm. However, the focus of the monetary strategies guides to understand the sales margin of the firm that is expressed in terms of percentages of profit. The increased amount of profit helps the particular firm to earn more shareholders as the valuation of the company increases (Waegelein and Finance 2014). All these help to increase the market capitalization of the firm and therefore, it can be said that the implementation of the financial strategies in the overall operations of the firm help to enhance its operations. Moreover, the increased valuation also helps the specified firm National Australia Bank to run better in the competitive market as the high value of the firm helps to assess the possibility of success and real outcomes. Furthermore, the incorporation of the financial strategies in the firm helps to reduce the overall costs by eliminating the low-value product and by putting focus on the high-value products (Fracassi 2016). It has been found that the implementation of the financial strategies help to reduce the financing costs by decreasing the interest paid and also by accelerating the due payments. The mentioned financial strategies help the organization National Australia Bank to put focus on the trends of interest rates and the exchange rates. In addition to these, the financial strategies also guide the firm to prepare a strategic plan that helps to make plan regarding short-term and long-term investment depending on the financial situation of the organization (Hillier et al. 2014).
Conclusion
Therefore, it can be concluded that the firm National Australia Bank is in a relatively better financial and economical condition. The reason behind this is that the particular firm has a high market capitalization or market value. In addition to this, it has been found that the share price of the company is constantly increasing for over one year, thus it attracts more investors. Moreover, the debt to profit ratio is also relatively healthier in case of the firm National Australia Bank than the other organizations of the similar sector. It has been found that the organization has implemented various financial strategies for raising its funds in the present competitive market. However, the liabilities of the firm has increased with the passage of time, thus, it should reduce its total liability in order to run the organization successfully in future.
References
Bloomberg.com. 2016. NAB:ASE Stock Quote – National Australia Bank Ltd. [online] Available at: https://www.bloomberg.com/quote/NAB:AU [Accessed 15 Sep. 2016].
Brealey, R.A., Myers, S.C., Allen, F. and Mohanty, P., 2012. Principles of corporate finance. Tata McGraw-Hill Education.
Capital.nab.com.au. 2016. Capital and Funding – The National Australia Bank Group – NABGroup home. [online] Available at: https://capital.nab.com.au/ [Accessed 15 Sep. 2016].
Coles, J.L., Lemmon, M.L. and Meschke, J.F., 2012. Structural models and endogeneity in corporate finance: The link between managerial ownership and corporate performance. Journal of Financial Economics, 103(1), pp.149-168.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.
Flannery, M.J. and Hankins, K.W., 2013. Estimating dynamic panel models in corporate finance. Journal of Corporate Finance, 19, pp.1-19.
Fracassi, C., 2016. Corporate finance policies and social networks.Management Science.
Hillier, D., Clacher, I., Ross, S., Westerfield, R. and Jordan, B., 2014.Fundamentals of Corporate Finance. McGraw Hill.
In.finance.yahoo.com. 2016. NAB.AX Historical Prices | NAT. BANK FPO Stock – Yahoo! India Finance. [online] Available at: https://in.finance.yahoo.com/q/hp?s=NAB.AX&a=08&b=1&c=2015&d=08&e=15&f=2016&g=m [Accessed 15 Sep. 2016].
Markets.ft.com. 2016. National Australia Bank Ltd, NAB:ASX financials – FT.com. [online] Available at: https://markets.ft.com/data/equities/tearsheet/financials?s=NAB:ASX [Accessed 15 Sep. 2016].
Nab.com.au. 2016. Nab.com.au. [online] Available at: https://www.nab.com.au/content/dam/nabrwd/About-Us/shareholder%20centre/documents/annual-financial-report-2015.pdf [Accessed 15 Sep. 2016].
Roberts, M.R. and Whited, T.M., 2012. Endogeneity in empirical corporate finance.
Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014.Corporate finance: theory and practice. John Wiley & Sons.
Waegelein, J.F. and Finance, C., 2014. The Influence of Long-Term Performance Plans on Corporate Performance & Investment.
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