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Bank5037 Risk Management in Financial Institutions Assignment

   

Added on  2020-05-04

10 Pages3535 Words77 Views
1Bank 5037 Individual Assignment

2ContentsIntroduction......................................................................................................................................3Key Financial Ratios........................................................................................................................3Interest Rate Risk.............................................................................................................................6Credit Risk.......................................................................................................................................6Market Risk.....................................................................................................................................7Foreign Exchange Risk....................................................................................................................7Liquidity Risk..................................................................................................................................8Capital Adequacy.............................................................................................................................8Ranking of Banks............................................................................................................................8List of Financial Institutions Websites..........................................................................................10

3IntroductionThe present report aims to conduct the fundamental analysis of stocks of some selectedfinancial institutions. The analysis is carried out through examining the key financial ratios of thefinancial institutions and their significant business risks. The significant business risks examinedare interest rate risk, credit risk, market risk, foreign exchange rate risk, liquidity risk, and capitaladequacy. The financial institutions selected for the purpose are Bank of America, Australia andNew Zealand Banking Group, Commonwealth Bank of Australia, Westpac Banking Group,Barclays PLC, Bank of China, Citigroup, HSBC Holdings PLC ADR and JPMorgan Chase andCo.Key Financial RatiosThe major financial ratios that help in examining the financial position of a businesscorporation are profitability, liquidity, efficiency, market capitalization and return on equity. Theprofitability ratios assess the ability of a corporation to generate earnings in comparison torevenue. The liquidity ratios determine the cash position while efficiency ratios provide ananalysis of utilizing effectively the assets and liabilities of a corporation. The marketcapitalization ratios determine the market value of a company while return on equity assesses theprofit earned by a company on its equity value. The key financial ratios of the selected financialinstitutions are examined as follows:The Bank of America is recognised as one of the leading bank of the country for meetingthe personal financial needs of a business entity. The analyses of the profitability ratios of thebank such as gross margin, operating margin, return on invested capital, asset turnover hasindicated that its profitability is increased in the last few years. The liquidity ratios such asfinancial leverage and debt/equity ratio indicates that the liquidity position of the bankingcorporation has decreased in the recent years. The financial leverage and debt/equity ratios haveshown a decreasing trend from the year 2013-2016. The efficiency ratios such as receivablesturnover, inventory turnover, fixed assets turnover and asset turnover of the banking corporationindicates the ability of the banking corporation. The efficiency ratios such as fixed assetsturnover and assets turnover have shown an increasing trend and thus it can be said that thebanking corporation possess larger ability to effectively use its assets and liabilities forgenerating profitability. The market capitalization ratio such as EPS (Earning per Share) haveshown a decreased trend as analyzed from its negative growth over the past few years. The returnon equity of the banking corporation has shown a decreasing trend in the past few years and hassignificantly decreased from 10.77 in the financial year 2007 to the financial year 2016. The Australia and New Zealand banking Group is recognised as third largest bank ofAustralia in terms of the market capitalization. The profitability of the banking group in the pastfew years has shown a decreased trend which indicates its reduced profitability. The operating

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