Finance for Business: Analysis of Bank of Queensland's Performance

This report provides a detailed financial analysis of Bank of Queensland's performance, including liquidity ratios, capital structure ratios, non-current asset analysis, scenario analysis, share or bond issuance, and PE ratio and share price movement. The report identifies areas for improvement, such as the need to improve the capital structure and reduce the amount of debt. The report also includes recommendations for the company.

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FINANCE FOR BUSINESS

Finance for business
Abstract
The bank of Queensland has been taken into account for the performance of the analysis. In that,
there is the determination of the main service which is provided by the bank to its consumers.
There is the identification of the ratios and in that it is identified that the liquidity maintained and
the capital structure needs to be improved. There is the analysis of the non-current assets which
are involved. They have been identified and with that, the fluctuations which are taking place
have also been considered. The sensitivity of the various variables has been determined and
decisions will be made on the basis of the same. The share issue is made in the current year and
the description of the same is provided. The share price movement has been identified and it is
compared with the movement of the PE ratio.
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Finance for business
Table of Contents
Abstract............................................................................................................................................2
Introduction......................................................................................................................................4
Financial analysis.............................................................................................................................4
Service provided by the company................................................................................................4
Performance ratios.......................................................................................................................4
Non-current asset analysis...........................................................................................................7
Scenario analysis.........................................................................................................................8
Share or bond issuance..............................................................................................................10
PE ratio and share price movement...........................................................................................10
Recommendations..........................................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
Appendix........................................................................................................................................16
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Finance for business
Introduction
The financial aspects in the business are required to be met in an appropriate manner and for that,
there are various aspects which need to be taken into account. There will be carrying out of the
financial analysis in relation to the bank of Queensland in this report and will be covering all of
the required elements. In this, the main service which is provided by the company will be
covered and with that, there will be consideration of the performance of the business. In that, the
ratios will be calculated and by that there will be an evaluation which will be made for the
performance of the business. The identification will be made for the non-current assets which are
involved and proper analysis will be performed for the same. The scenario testing will be made
and also the issuance which is made for the share or bond will be taken into account. The share
price movement will be considered together with the change in the PE ratios.
Financial analysis
Service provided by the company
Bank of Queensland is involved in providing various services to its consumers and in that
personal and professional both the services are involved. Out of the entire services, one is the
agribusiness banking solutions. This is the business in which the experts from the agriculture and
banking sector helps in running the business in a more effective manner (Bank of Queensland,
2019). They use their local knowledge and experience and provide the guidelines to all so that
they can improve their businesses. In this process, the members will be going to people and will
be dealing with the issues they are facing in all of the regions.
Performance ratios
A company is required to measure its performance in a regular manner so that further decisions
can be taken accordingly. In the business there are various changes which take place and all of
them are required to be taken into consideration (Delen, Kuzey, and Uyar, 2013). For that the
techniques are available which can be used and most common and effective among all is ratio
analysis. In that, there will be the calculation of the ratios by which position of the business will
be determined and there will be a proper evaluation which will be made possible.
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Finance for business
Liquidity ratios
A business is required to deal with various circumstances and in that the liabilities are involved
which will have to be borne. In order to meet them in an effective manner, there will be
consideration of the liquidity which is maintained by the business (Williams and Dobelman,
2017). The liquidity ratios will be calculated by which the proportion of the assets and liabilities
which is maintained will be identified and the business will be able to take the effective decisions
for the coming period.
Particulars Formula 2016 2017 2018
Current ratio Current assets/current
liabilities
1.32 1.33 1.33
Quick ratio Quick assets/Current
liabilities
1.18 1.18 1.20
2016 2017 2018
1.05
1.10
1.15
1.20
1.25
1.30
1.35
Current ratio
Linear (Current ratio)
Quick ratio
Linear (Quick ratio)
The current and quick ratio has been calculated and in that it is identified that there is an upward
trend which is present. The ratios are increasing and it shows that the company is maintaining the
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Finance for business
appropriate amount of the liquidity. It will be possible for the company to meet with all of the
liabilities which are there in an adequate manner and there will be no issue which will be faced in
this respect (Bank of Queensland, 2018). The quick ratio is also at the proper level and this
shows that liquid assets are available with the company which will be used at the time of need.
Capital structure ratios
The requirements of the funds are always there in the business and to meet that there is the need
to consider the various options which are available. There will be consideration of them and by
taking all of the aspects in consideration there will be an optimal capital structure which will be
formulated (Petersen and Plenborg, 2012). This will be done with the help of capital structure
ratios in which the company will be determining the amounts which are arranged with the equity
and other sources. The calculation has been made in this respect and the same is represented
below.
Particulars Formula 2016 2017 2018
Debt ratio Total liabilities/total
assets
0.93 0.93 0.93
Debt to equity Total liabilities/total
equity
13.18 12.64 12.74
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2016 2017 2018
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Debt ratio
Linear (Debt ratio)
Debt to equity
Linear (Debt to equity)
The calculation is made for the debt ratio and debt to equity ratio in which the downward trend
has been identified. It has been ascertained that the level of the debts has declined to a certain
extent which shows that equity is given the more importance (Bank of Queensland, 2017). In
this, the total liabilities are at a much higher amount and they are required to be reduced. The
debt should not be more than equity and in the given case it is much higher than the same.
Non-current asset analysis
The assets are required by the business in carrying the operations in an effective manner. There
are many fixed assets which are incorporated in this system and by that the working is made in
the best possible manner. The results which will be obtained with the help of them will be better
than before and this will be reducing the burden on the labor which was earlier made. There are
various changes which are made in the assets in all the years and it is required that proper
analyzation of the same shall be made for further decision making.
In the given case there are various services which are provided by the bank of Queensland and in
that process, they also required various assets (Barker and Schulte, 2017). There are many assets
which are involved and the modifications are made in them as per the need. This will lead to the
various changes and for that, the analysis of non-current assets will be made. In this category,
there are many assets which are included and will be taken into consideration. The deferred tax
assets are made by the company and they will be used in the time of need. There is a decline in
the balance from $55 to $45 which shows that the balance of the asset has reduced.
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Finance for business
The change is also taking place in the plant, property, and equipment which is existing. The same
has been declined in 2018 which was there in 2017 at a balance of $60 million and currently is at
the level of $57 million. The decline has taken place due to the amortization which is taking
place in the non-current assets. Another non-current asset which is involved in the intangible
assets of the company. There is a slight increase which is made in them in every year from $869
to $872 in 2017 and further to $875 in 2018 (Bank of Queensland, 2017). This increase is made
because of some addition which is made by the company and this will be beneficial for the
organization. It will be using all of the assets for the attainment of further growth which is
necessary for the long-run growth.
Scenario analysis
The company makes an investment in various projects and for that, there are various options
which are available. A business is required to make the analyzation of the various options which
are available and then the one which will be bringing the company with the maximum returns
will be selected in that the decision making will be made with the help of the toll that is available
(Ruiz et al., 2012). There will be the use of the scenario analysis which will be made. In any of
the investment which is made, there are various costs which are incurred and the company is
required to classify them as the fixed and variable cost. By making the division he decisions will
be made accordingly as the impact of the change will not be made on the fixed cost and the same
will be required to be incurred at all the levels of production.
The decision in this will be made on the basis of the net present value which will be presenting
the total return that will be available with the business. With the changing environment, there are
various changes which are made in the costs that are linked to the project. The change will be
affecting the final decisions and it is required that the analyzation of the change shall be made in
an adequate manner (Rodríguez et al., 2013). There will be various variables which will be
deviating and the effect which they will be making on the NPV is required to be ascertained. The
one which will be affecting the decision the most will be considered to be the sensitive element.
In the given case there are various changes which are taking place in the sales unit, selling price
per unit, the variable cost, and fixed cost. All of them will be shown and then the decision will be
made accordingly. The calculations for the same are made and shown in the appendix.
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Finance for business
Particulars Origina
l
Worst
case
Best case
NPV 6592661 -1656780 17903750
% of Change in NPV (A) -125.131 171.5709
The detailed calculation for the analyzation of the change in the variable aspects has been made
and is shown in the appendix. There are two aspects which have been evaluated and they are the
best cases and worst cases. Under the worst case, the decline in the NPV will be made and in
best scenarios, there will be positive impact which is reflected in the NPV. All of the results
which are obtained are presented in the table above. By the change in the elements, there will be
increased and decrease which will be made in the final results and after considering them the
decision will be taken by which the business will be affected in the best possible manner.
Share or bond issuance
The company undertakes various issues which are made in relation to the shares and bonds.
There is the issue of the ordinary shares which is made by the company in the current year and
the same has been reported in the annual report of the company. The issue has been made on the
26 October 2017an in that there are 850000 shares which have been issued by the company. The
issue has been made at the rate of $13.28 (Bank of Queensland, 2018). In addition to this there
were other shares which were issued on 17 May 2018 and in those 2809 shares have been issued
and this was made at the rate of $10.02. The issue has been made to the trustee of the bank of
Queensland and this was made under the employee share plans trust by which the rights of the
shares have been exercised. The plans which were due have been used and under that, the share
issue has been made by which ye requirements of all will be fulfilled.
PE ratio and share price movement
The PE ratio is calculated by the use of the EPS and the market price of the share. In this, they
will be required to be identified. There is the change which takes place in the value of the same.
There are many fluctuations which take place in the share price and this is because of the various
market conditions which are responsible for the same (Sun, 2012). In order to deal with them in
an adequate manner, there is the need to take all of the changes in consideration and by that, the
effective decisions will be made for the coming period. There will be consideration of the change
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Finance for business
in the share price and the earnings which are made on them by which the change in the ratio will
be calculated.
The calculated values will be compared to identify the relationship that exists among them and
this will help in the taking of the decisions by which growth in the future can be attained. The
calculation of the ratio and the change which is taking place in the share price is represented
below.
Particulars 2016 2017 2018
MPS 9.25 11.28 10.23
EPS 0.898 0.909 0.855
Price earnings
ratio
10.30 12.41 11.96
2016 2017 2018
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
10.30
12.41 11.96
Price earnings ratio
Price earnings ratio
Linear (Price earnings
ratio)
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Finance for business
Share price movement
(Source: Market index, 2019)
There are various changes which are taking place and it has been determined that the market
price is increasing in 2017 and then again the decline is made in 2018 (Yahoo finance, 2019).
The fluctuations which are made are noted in the graph which is presented. There are many
changes which are taking place and a similar impact is made on the PE ratio which is calculated.
It can be noted with the graph that they both are moving in the same direction due to which it can
be said that there is the convergent relation which is present in them. There will be the same
impact which will be made with the change in the one. The increase in the share price will be
leading to the rise in the ratio and the same change will be noted in the reverse situation.
Recommendations
All of the areas which are important for the analysis have been considered and with the help of
that the analysis is made and in that there is the consideration of all the important facts. There is
the determination of the performance with the help of the ratios which are calculated. It is noted
that liquidity is maintained in an adequate manner and the company will be able to meet the
obligations in an adequate manner. There is the need for the improvement in the capital structure
as the amount of the debts which is included in the company is very high. There will be the need
to repay the debts and in place of that funds will be raised by issuing the equity shares. This will
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Finance for business
be raising the equity balance of the company and balance among both the sources of the funds
will be made possible.
Conclusion
The report has been presented on the bank of Queensland and in that there is the performance of
the financial analysis in relation to it. The services which are provided by the company have
been identified and proper description of the same has been provided. There is the evaluation of
the performance which is made and in that there is the ascertainment of the capital structure and
liquidity ratios. They have helped in making the evaluation of the performance in the appropriate
manner. There is the undertaking of the analysis in relation to the non-current assets and in that
all of the assets which are involved have been taken into account. The changes which are taking
place in them have been considered in an adequate manner. The scenario analysis has provided
with the most sensitive element which is involved in the business. The issue of the shares has
been made and all of the details in relation to that have been included. There is the comparison
which is made with the share price and PE ratio and movement among them is noted.
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Finance for business
References
Bank of Queensland. (2017) Annual report. [Online] Available at:
https://www.boq.com.au/content/dam/boq/files/reports/annual-report/annual-report-2017.pdf
[Accessed 20 September 2019]
Bank of Queensland. (2018) Annual report. [Online] Available at:
https://www.boq.com.au/content/dam/boq/files/shareholder-centre/financial-results/2018/
FY2018_Annual_Report.pdf [Accessed 22 September 2019]
Bank of Queensland. (2019) Agribusiness banking solutions. [Online] Available at:
https://www.boq.com.au/business/industry-specialists/agribusiness [Accessed 22 September
2019]
Barker, R. and Schulte, S. (2017) Representing the market perspective: Fair value measurement
for non-financial assets. Accounting, Organizations and Society, 56, pp.55-67.
Delen, D., Kuzey, C. and Uyar, A. (2013) Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Market index. (2019) Bank of Queensland (BOQ). [Online] Available at:
https://www.marketindex.com.au/asx/boq [Accessed 22 September 2019]
Petersen, C.V. and Plenborg, T. (2012) Financial statement analysis: valuation, credit analysis
and executive compensation. Pearson Longman.
Rodríguez, G.C., Andrés, A.C., Muñoz, F.D., López, J.M.C. and Zhang, Y. (2013) Uncertainties
and sensitivity analysis in building energy simulation using macroparameters. Energy and
Buildings, 67, pp.79-87.
Ruiz, P.A., Foster, J.M., Rudkevich, A. and Caramanis, M.C. (2012). Tractable transmission
topology control using sensitivity analysis. IEEE Transactions on Power Systems, 27(3),
pp.1550-1559.
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Sun, L. (2012) Information content of PE ratio, price-to-book ratio and firm size in predicting
equity returns. In International Conference on Innovation and Information Management, 36, pp.
262-267.
Williams, E.E. and Dobelman, J.A. (2017) Financial statement analysis. World Scientific Book
Chapters, pp.109-169.
Yahoo finance. (2019) Bank of Queensland Limited (BOQ.AX). [Online] Available at:
https://finance.yahoo.com/quote/BOQ.AX/history?
period1=1411324200&period2=1569090600&interval=1mo&filter=history&frequency=1mo
[Accessed 22 September 2019]
1.
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Appendix
Worst case analysis
Particulars Year 1 Year 2 Year 3 Year 4 Total
Units 360000 360000 360000 360000
Selling price per unit 20 20 20 20
variable cost 18 18 18 18
Contribution per unit 2 2 2 2
contribution in value 720000 720000 720000 720000
Cash fixed cost 550000 550000 550000 550000
Depreciation 500000 500000 500000 500000
Net profit before tax - -330000 -330000 -330000
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Finance for business
330000
Tax @30% -99000 -99000 -99000 -99000
Profit after tax -
231000
-231000 -231000 -231000
Depreciation 500000 500000 500000 500000
working capital 0 0 0 800000
Salvage value of asset 500000
Net cash inflows 269000 269000 269000 156900
0
PVF@12% 0.893 0.797 0.712 0.636
PV of inflows 240179 214445.2 191468.9 997128 1643220
PV of Outflow 3300000
NPV -
1656780
Best case scenarios
Particulars Year 1 Year 2 Year 3 Year 4 Total
Units 540000 540000 540000 540000
Selling price per unit 30 30 30 30
variable cost 12 12 12 12
Contribution per unit 18 18 18 18
contribution in value 9720000 9720000 9720000 972000
0
Cash fixed cost 350000 350000 350000 350000
Depreciation 500000 500000 500000 500000
Net profit before tax 8870000 8870000 8870000 887000
0
Tax @30% 2661000 2661000 2661000 266100
0
Profit after tax 6209000 6209000 6209000 620900
0
Depreciation 500000 500000 500000 500000
working capital 0 0 0 800000
Salvage value of asset 500000
Net cash inflows 6709000 6709000 6709000 800900
0
PVF@12% 0.893 0.797 0.712 0.636
PV of inflows 5990179 5348374 4775334 508986
4
21203750.3
PV of Outflow 3300000
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Finance for business
NPV 17903750.3
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