Comparative Analysis of Commonwealth Bank and Westpac Bank

CORPORATE ACCOUNTING

EXECUTIVE SUMMARY
An industry average is calculated through the average of returns of various companies working
within it. The performance of such companies together describes the performance of an industry
in the market. From an investor's point of view, it is important to know about a company in terms
of its internal management, internal control, effectiveness & efficiency of a business, etc so that
useful decisions can be made. Thus, for such reasons it's important that the financial statements
prepared are authenticated and reliable and an efficient analysis has been made based on such
information. The following discussion is a comparative analysis of two listed Australian
companies called Commonwealth bank and Westpac bank, working within the same industry.

Contents
INTRODUCTION...........................................................................................................................4
ANALYSIS OF EQUITY................................................................................................................5
DISCUSSION ABOUT EACH EQUITY ITEM.........................................................................5
DISCUSSION REGARDING DEBT & EQUITY OF BOTH THE COMPANIES...................7
ANALYSIS OF CASH FLOW STATEMENT...............................................................................9
DISCUSSION REGARDING CASH FLOW STATEMENT.....................................................9
COMPARISON OF CASH FLOW OF BOTH THE COMPANIES FOR THE PAST 3
YEARS.......................................................................................................................................10
DESCRIPTION OF ANALYSIS OF CASH FLOW OF BOTH THE COMPANIES..............12
ANALYSIS OF COMPREHENSIVE INCOME STATEMENT.................................................14
ITEMS REPORTED IN THE OTHER COMPREHENSIVE INCOME STATEMENT..........14
REASONS FOR NOT REPORTING THIS ITEM IN THE INCOME STATEMENT............14
COMPARATIVE ANALYSIS OF THE OCI STATEMENT's ITEMS...................................14
USE OF OCI IN EVALUATION OF PERFORMANCE OF MANAGERS............................15
ANALYSIS OF CORPORATE INCOME TAX...........................................................................16
EFFECTIVE INCOME TAX RATE.........................................................................................16
DEFERRED TAX ASSETS AND LIABILITIES.....................................................................16
INCREASE IN DTA AND DTL...............................................................................................17
CALCULATION OF CASH TAX USING THE BOOK TAX.................................................17

CALCULATION OF CASH TAX RATE.................................................................................19
DIFFERENCE IN CASH TAX AND BOOK TAX..................................................................19
CONCLUSION..............................................................................................................................20
Bibliography..................................................................................................................................21

INTRODUCTION
There are various financial & non-financial information together are used for the preparation of
various components that forms the financial reports of an organization (Alvarez, 2013). All these
factors differ in terms of nature and characteristics. The selected two companies belong to the
banking sector and a comparative analysis has been made between them on the basis of equity,
cash flow statement, comprehensive income, corporate income tax, deferred tax assets and
deferred tax liabilities, cash tax, etc.
Commonwealth bank of Australia, being the largest bank in Southern Hemisphere, is a global
bank having its business operations at United States, United Kingdom and New Zealand. The
activities undertaken by this company includes business and retail management of funds,
superannuation facilities, insurance services, investment services, Institutional banking and such
other services such as brokerage services. This company earned the title of being largest listed
company on the Australian Securities Exchange with brands such as Commonwealth insurance
or securities, Bankwest etc.
Considered as one of the 'big four' Australian banks, Westpac Banking Corporation is a financial
services provider with its headquarters at Sydney. The words 'Western' and 'Pacific' are
combined together to form the word 'Westpac'. The company is currently acquainted with 40,000
employees and 14 million employees (Atkinson, 2012). The company has a long term objective
that not only includes its growth in profits or expansion but also to prosper in terms of customers
and communities by providing best services. As per 2017 Dow Jones Sustainability Index, it was
considered as one of the most sustainable bank which was for the fourth time in a row.
Let us discuss the comparative analysis of both the companies along with their reasons and
impact on the financial reports.

ANALYSIS OF EQUITY
The equity of a company reflects its capital structure, that is, the monies on which the business is
based upon. In case of company, this equity structure is formed through investments made by
shareholders or investors (Berry, 2009). Such holders get shares of the company in return. Equity
structure includes shares such as equity shares, preference shares, right shares, etc. Retained
earnings and surpluses or deficits are also included for the calculation of the total equity of a
company.
DISCUSSION ABOUT EACH EQUITY ITEM
Our analysis discusses about the equity portion of two past years of both the companies.
Commonwealth bank has both ordinary and treasury shares with values $35,266 million and
$295 million respectively which sums up as $34,971 million as per 2017. The 2016 data gives
the capital value as $33,845 million. Thus, we see an increase in the equity value in 2017.
Analyzing the reason behind it, this increase was because of issuance of shares under dividend
reinvestment plan during the year. The balance in retained earnings account arose from $23,435
million to $26,330 million which was because of surplus profits earned by the company during
the previous year (Boyd, 2013). However, there is a decline in the reserves balance due to
foreign exchange fluctuations as well due to loss on sale of investments. Thus, we conclude that
the equity value arose from $60,014 million to $63,170 million in 2016 and 2017 respectively.
Commonwealth Bank
Shareholder’s Equity 2017 2016
Share capital 34,971 33,845
Reserves 1,869 2,734
Retained earning 26,330 23,435
Total 63,170 60,014