Comparative Analysis of Commonwealth and Westpac Banks

Corporate accounting

EXECUTIVE SUMMARY
We get the industry overview by analyzing the performance of each company belonging to that
industry. The following discussion is the comparative analysis of two listed companies of
Australia operating within the same industry. For such an analysis, we have chosen
Commonwealth and Westpac banks. The analysis has been made from an investor's point of
view as such stakeholders have an interest in knowing about the internal environment of an
organization so that useful decisions can be made accordingly.

Contents
ANALYSIS OF EQUITY................................................................................................................6
Discussion on each item of equity for both the companies..........................................................6
Discussion regarding debt and equity of both the companies......................................................7
ANALYSIS OF CASH FLOW STATEMENT...............................................................................9
Discussion regarding Cash Flow Statement:...............................................................................9
Description of Analysis of Cash flow of both the companies....................................................13
ANALYSIS OF COMPREHENSIVE INCOME STATEMENT.................................................14
Items reported in other comprehensive income statement.........................................................14
Reasons for not reporting this item in income statement...........................................................14
Comparative Analysis of OCI statement items..........................................................................14
Use of OCI in evaluation of performance of managers.............................................................15
ANALYSIS OF CORPORATE INCOME TAX...........................................................................16
Tax expense for the companies for the current year..................................................................16
Effective income tax rate...........................................................................................................16
Deferred tax asset and liabilities................................................................................................16
Increase in DTA and DTL.........................................................................................................17
Calculation of cash tax using book tax......................................................................................17
Calculation of Tax rate...............................................................................................................19
Difference in cash tax and book tax...........................................................................................19

CONCLUSION..............................................................................................................................20
Bibliography..................................................................................................................................21

INTRODUCTION
The financial & non financial measures and statistics together sums up as various components of
the financial reports. Such components differ from each other in terms of characteristics and their
nature. The following discussion focuses on comparison of various such components between
Commonwealth group and Westpac group working under the same industry.
The Australian multinational bank, Commonwealth Bank, is engaged a number of activities such
as Institutional banking , retail and business management of funds, superannuation facilities,
investment, insurance and such other financial services such as brokerage services. It has its
businesses spread all over the world such as New Zealand, US, UK and Asia. As of 2015, this
company had turned out to be the largest listed company on Australian Securities Exchange
(ASX) with brands such as Commonwealth securities & insurance, ASB Bank, Bankwest, etc.
This company is also the Southern Hemisphere's largest bank (Armstrong, 2015).
Westpac Banking Corporation, also known as Westpac, having headquarters at Sydney is a
provider of financial services and is considered as one of the 'big four' banks of Australia. It's
name is formed by the combination of 'Western' and 'Pacific'. Considering its current status, it
has 14 million customers with 40,000 employees under it. It looks forward to prosper in terms of
growth, customers, communities and great service provider. It was consideded as one of the most
sustainable bank as per Dow Jones Sustainability Index in 2017 which was for the fourth time in
a row (Atkinson, 2012).
For a better picture of both the companies, we have discussed the following financial aspects of
both the companies’ along with a comparison analysis between the two.

ANALYSIS OF EQUITY
The equity of a company refers to shareholder's funds or monies invested by shareholders who
get the shares of the company. Such shares could be equity or preference shares or both. Also,
retained earnings and reserves and surpluses or deficits form a part of equity (Berry, 2009).
Discussion on each item of equity for both the companies
Let us discuss the equity portion of the two companies for past two years. Commonwealth Bank
consists of both ordinary as well as treasury shares worth $35,266 and $295 respectively giving a
total share capital value as $34971 in 2017 in comparison to $33,845 in 2016. We are seeing this
increase in equity due to issue of shares by the company during the previous year under dividend
reinvestment plan (Boyd, 2013). We see an increase in retained earnings too, that is, from $23,435
million to $26,330 million. This is due to addition of surplus profits in 2017. Also, due to changes in
foreign exchange rates as well as loss on sale of certain investments, we see a decline in the company's
reserves. However, the overall equity value increases from $60, 014 million in 2016 to $63,170 million in
2017.
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