Impact of Macro and Micro Economic Factors on Banking Companies in Australia

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Principals of Financial Markets Group Assignment

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Executive Summary
The report has been carried out for gaining an understanding of the impact of macro and
micro economic factors on the performance of the banking companies within Australia. In this
context, the use of top-down analysis is done for examining the impact of factors such as interest
rate, inflation rate, value of $AUD, business cycle and the GDP growth rate within the country
that have an impact on banking companies’ performance. On the other hand, bottom-up analysis
has analyzed the company specific factors with the use of ratio analysis technique that helps in
evaluation of the financial performance of the selected banking corporations. They both are a
part of fundamental analysis that is used for developing an understanding of the behavior of
market and economic changes that influences the share prices of the companies in context. It has
depicted the changes in the economic policies and their influence on the performance of the
banking sector performance. The financial performance analysis has also resulted in identifying
the future threats and opportunities for the banking sector that can impact the growth and
development of the financial service companies.

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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Top-down Analysis..........................................................................................................................4
Bottom up Analysis.........................................................................................................................8
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

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Introduction
This report has been developed for undertaking a fundamental analysis of two ASX listed
companies that are operating within the same industry. Fundamental analysis can be described as
a method used by the investors for analyzing the macro and micro economic factors impacting
the performance of a company. It consists of the use of top-down and bottom-up analysis to gain
an analysis of the economic and company specific factors that can impact its performance in the
future context. Top down analysis begins with examining the macro-economic factors that can
have an impact on the future performance of a company in context. This is followed by bottom-
up analysis that is carried out to gain an insight into the current financial condition of a company
to compare it with industry performance. In this context, the company selected for analysis
purpose is Westpac Banking Corporation and Australia (ANZ) operating within the banking
industry of Australia.
Top-down Analysis
The analysis is carried out for examining the macro-economic factors such as interest
rate, current value of currency, GDP growth rate, inflation rate and the type of business cycle in
which the economy is operating. This has been carried out as follows for determining the impact
of economic environment within Australia on the performances of the selected banking
corporations.
Current Interest Rate
The Reserve Bank of Australia (RBA) has kept the interest rate within the country steady
up to 1.5 per cent since the past two years. The move of the RBA is supported by the intention of