Business Profile
ANZ amongst the largest financial or banking institutions in Australia by market capitalization. It is also one of the largest bank in New Zealand. Further, ANZ is one of the best connected and the most respected financial bank across Asia Pacific that assist in delivering prosperity for its clients and communities where they live, provide stockholders sustainable earnings growth as well as develop it people (The Australian 2017). These strategies are mainly aimed at strengthening its core franchises in New Zealand and Australia. The bank provide a wide range of the financial and banking products and services to small business, institutional, corporate and retail clients. It operates in New Zealand, United Kingdom, Australia, United States as well as Asia Pacific region. Its main business divisions comprises of the Institutional Banking Division, Retail, Global Wealth and International Division as well as Corporate and Commercial Banking (Reuters 2017).
On the other hand, Commonwealth Bank is the Australian leading supplier of the combined banking and financial services plus premium, institutional and superannuation banking, business and retail banking, insurance, fund management, sharebroking as well as investment products (Commonwealth Bank 2017). Its objective is to have its total shareholder’s return being at the top of the quartile of its competitors (Reuters 2017). With these considerations, this report aims at presenting comparison of financial analysis of the two companies. This would assist in providing a conclusion and recommendation as to which of the two firms is stronger financially and which one would offer better investment opportunity for potential investors.
This is the most widespread or common accounting tool used in analysing an organization’s financial standing. In addition, ratio analysis are crucial in comparing financial performance between companies operating in different sectors (Walton 2000). Basically, financial ratio analysis is a crucial management tool which would assist in improving ones understanding of the financial trends and results over a specific time and offer key signals of the organizational performance (Bull 2007). They help in pinpointing weaknesses and strengths in different organizations from which initiatives and strategies could be formed. Some of the most common ratios that would be used in comparising financial performance of Commonwealth Bank and ANZ would include profitability, solvency, efficiency, share market performance as well as liquidity ratios. Further, share market performance of the two firms would also be compared in order to assess which of the two firm is performing better in terms of shares.
These are financial ratios used in comparing an organization’s income statements accounts in order to display an organization’s capacity to generate income from operations. It focuses more on an organization’s return on investment and other assets (Walton 2000). They shows hos well organizations could accomplish income from their main operations. Some of the common profitability ratios that would be applied in comparing the two firm are net profit margin, ROA as well as ROE.
It measures amount of net income that is earned with every unit of sales. It is computed by dividing net income by total sales (Walton 2000).
|
Net profit margin |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
33.97 |
36.23 |
35.56 |
|
Commonwealth Bank |
31.91 |
33.5 |
33.56 |
Figure 1: Net income margin for ANZ and Commonwealth
This shows or help in measuring amount of net income that is produced by an organization’s total assets (Fridson & Alvarez 2011). Basically, it measures efficiency of an organization in utilizing its assets to generate income. It is derived by dividing the firm’s net income by its assets.
|
Return on Assets % |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
0.93 |
0.99 |
0.9 |
|
Commonwealth Bank |
1.04 |
1.12 |
1.09 |
This ratio measure the capacity of an organization to generate incme from equity. It is derived by dividing the firm’s net profits by its equity (Walton 2000).
|
Return on Equity % |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
14.75 |
15.62 |
14.19 |
|
Commonwealth Bank |
18.05 |
18.41 |
17.9 |
Based on the above analysis of both ANZ and Commonwealth Bank profitability ratios, it can be indicated that Commonwealth Bank profitability level was better as compared to ANZ bank. In essence, for the last three years, Commonwealth Bank earned more return from its equity as compared to ANZ banks. This trend is also observed on Commonwealth Bank ROA which shows that the bank was making more earnings from its assets as compared to ANZ Bank.
These are financial ratios used in measuring how well organizaitons use their assets in generating profit (Fridson & Alvarez 2011). Some of the most common ratios under this category that would assist in comparing the two firms are assets turnover and inventory turnover.
This is the efficiency ratio used in measuring an organization’s capacity in generating sales from assets or by comparing the net sales with its average assets. It is computed by dividing net sales by total assets (Fridson & Alvarez 2011).
|
Asset turnover |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
0.029 |
0.029 |
0.029 |
|
Commonwealth Bank |
0.032 |
0.033 |
0.031 |
Based on the above analysis, it can be revealed that Commonwealth Bank was more efficient in utilizing its assets to generate income as compared to ANZ Bank which had relatively lower values in asset turnover for the past three years.
These are financial ratios used in analysing capacity of an organization to repay or settle its current obligatios as they are due with its current assets (Drake & Fabozzi 2012). It shows cash levels of an organization and capacity in turning other assets into cash in paying off its liabilities as well as other current debts. The most common ratios that would be utilized in this case are quick and current ratios.
This ratio help in measuring an organization’s capacity in settling its short-term obligations with its current or short-term assets (Drake & Fabozzi 2012). It is derived by dividing an organization’s current assets by its current liabilities.
|
Curret ratio |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
0.25 |
0.26 |
0.31 |
|
Commonwealth Bank |
0.19 |
0.17 |
0.19 |
This is used in measuring capacity of an organization in settling its current obligations with its most liquid assets. It is computed by dividing liquid assets by its current liabilities (Drake & Fabozzi 2012).
|
Quick Ratio |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
0.25 |
0.26 |
0.31 |
|
Commonwealth Bank |
0.19 |
0.17 |
0.19 |
Based on the liquidity analysis above, it can be revealed that Commonwealth is in a poor position in terms of current assets as compared to ANZ Bank. This is evidence by relatively lower quick and current ratios for the past three years for Commonwealth as compared to ANZ Bank.
These are financial ratios used in evaluating an organization’s capacity in sustaining its operations indeterminately by comparing an organization’s debt level with either its assets, equity or its earnings. They usually assist in identifying the going concern issues as well as an organization’s capacity in paying or settling its bills in long-term (Bull 2007). Debt ratio and debt to equity ratios will be analysed in this case in order to compare the two companies level of leverage.
This is the financial ratio used in comparing an organization’s debt to its equity (Bull 2007). It shows percentage of an organization financing which came from creditors and the one which came from investors. It is computed by dividing an organization’s total liabilities with its equity.
|
Debt/equity |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
0.15 |
0.28 |
0.3 |
|
Commonwealth Bank |
15.77 |
15.21 |
15.66 |
This measures an organization liabilities as percentage of total assets (Bull 2007). It shows an organization’s capacity of settling its obligations with assets. It is computed by dividing total debts by total assets.
|
Debt ratio |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
0.935 |
0.936 |
0.936 |
|
Commonwealth Bank |
0.940 |
0.938 |
0.940 |
Based on the above analysis of solvency ratios, it can be revealed that for the past three years Commonwealth Bank was more dependent on debt financing in financing its key operations as compared to ANZ. This is evident by huge values in debt to equity ratio as well as huge debt ratios for the past three years as compared to ANZ Bank.
These are financial ratios used in measuring or assessing current market price of the shares versus signal of an organization’s capacity to generate income (Bull 2007). They provide a signal of how different investors perceive an organization, its previous performance as well as its future prospects.
This is a financial ratio that measures percentage of the share prices to the total earnings. It is usually to price of the shares divided by the per share earnings (Drake & Fabozzi 2012). It usually measures amount a potential investor is willing to repay for every amount of an organization’s earnings. It also presents investors’ expectations in regard to an organization’s future prospects.
|
P/E ratio |
|||
|
Bank Name |
2013 |
2014 |
2015 |
|
ANZ |
11.96 |
12.4 |
12.1 |
|
Commonwealth Bank |
15.06 |
14.30 |
15.70 |
Based on the share market performance ratio analysis, it can be revealed that Commonwealth Bank shares are performing better than ANZ Bank shares.
Conclusion
It can be concluded from the above analysis of both ANZ and Commonwealth Bank profitability ratios, that Commonwealth Bank profitability level was better as compared to ANZ bank. This is evident by the fact that, for the last three years, Commonwealth Bank earned more return from its equity as compared to ANZ banks. This trend is also observed on Commonwealth Bank ROA which shows that the bank was making more earnings from its assets as compared to ANZ Bank. It can also be concluded that Commonwealth Bank was more efficient in utilizing its assets to generate income as compared to ANZ Bank which had relatively lower values in asset turnover for the past three years. Further, it can be concluded that for the past three years Commonwealth Bank was more dependent on debt financing in financing its key operations as compared to ANZ. This is evident by huge values in debt to equity ratio as well as huge debt ratios for the past three years as compared to ANZ Bank.
From the above financial analysis, it is advisable to potential investors to invest their funds in future in ANZ banks instead of Commonwealth Bank despite the Commonwealth Bank better profitability, efficiency and share market performance ratios. This is based on the fact that liquidity and solvency level of Commonwealth Bank for the last three years was not financially sound and shows that the bank has been relying heavily on debts financing against its readily available assets. By comparing the current and quick ratios of the two firms, it can be revealed that ANZ Bank maintain huge level of current assets as compared to Commonwealth Bank.
ANZ Bank 2015, ANZ Bank Annual Report 2015; Viewed at 15th May 2017 from;
https://www.shareholder.anz.com/sites/default/files/2015_annual_report.pdf
Bull, R 2007, Financial Ratios: How to use financial ratios to maximize value and success for your business’. Elsevier.
Commonwealth Bank 2017, Commonwealth Bank overview; Viewed at 15th May 2017 from; https://www.commbank.com.au/about-us/our-company/overview.html
Commonwealth Bank Annual Reports 2015; Viewed at 15th May 2017 from;
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/2016_Annual_Report_to_Shareholders_15_August_2016.pdf
Drake, P & Fabozzi, FJ 2012, Analysis of Financial Statements. John Wiley & Sons.
Fridson, MS & Alvarez, F 2011, Financial Statement Analysis: A Practitioner’s Guide. John Wiley & Sons.
Reuters 2017, Profile: Australia and New Zealand Banking Group Ltd (ANZ.AX); Viewed at 15th May 2017 from;
https://in.reuters.com/finance/stocks/companyProfile?symbol=ANZ.AX
Reuters 2017, Profile: Commonwealth Bank of Australia (CBA.AX); Viewed at 15th May 2017 from;
https://www.reuters.com/finance/stocks/companyProfile?symbol=CBA.AX
Shen, P. (2000). The P/E ratio and stock market performance. Economic review-Federal reserve bank of Kansas city, 85(4), 23.
The Australian 2017, Australia & New Zealand Banking Group Ltd Viewed at 15th May 2017 from;
https://markets.theaustralian.com.au/shares/ANZ/australia-new-zealand-banking-group-ltd
Walton, P 2000, Financial Statement Analysis: An International Perspective. Cengage Learning EMEA.
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