Financial Analysis of Commonwealth Bank

Running head: FINANCE FOR BUSINESS - MASTERS
Finance for business – masters
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1FINANCE FOR BUSINESS - MASTERS
Table of Contents
Abstract.......................................................................................................................................2
I. Introduction...........................................................................................................................3
II. Financial analysis of Commonwealth Bank.........................................................................3
2.1 Description of key product or service................................................................................3
2.2 Calculation and analysis of the selected performance ratios...........................................3
2.3 Analysis of non-current asset............................................................................................5
2.4 Scenario analysis..............................................................................................................6
2.5 Issuance of bonds or shares.............................................................................................8
2.6 PE ratio and share price movement..................................................................................9
III. Recommendation letter...................................................................................................10
IV. Conclusion......................................................................................................................11
Reference..................................................................................................................................12

2FINANCE FOR BUSINESS - MASTERS
Abstract
The task portrays the main issues associated with Commonwealth Bank, its financial
performance from different aspects, acceptability of new project under different scenarios and
its share price movements. Among others, the key service provided by the bank is the mobile
banking as it is the 1st one that became successful in implementing the fully functional mobile
banking services. Regarding liquidity position it is found that the loan deposit ratio has been
reduced from 126.67% to 119.61% over the 3 years period. The capital structure of the bank
shows that significantly high level of debt that may raise question on its future sustainability.
During the last year the bank did not issue any shares, however covered bond issued by it
amounting to $555 million. Further, though the net profit of the bank is in reducing trend over
the past 3 years, the PE ratio and share price have been improved during the same period.

3FINANCE FOR BUSINESS - MASTERS
I. Introduction
Purpose of the assignment is to analyse the financial performance of any ASX listed
company that will be Commonwealth Bank Australia (CBA) for this assignment.
Commonwealth Bank was established under Commonwealth Bank Act during the year 1911
and it started operating during the year 1912. It was empowered to conduct the savings as
well as general business related to banking. At present the bank has 52,000 employees and
800,000 shareholders. It offers wide range of services for assisting the Australians to build as
well as manage the finances. Objective of the bank is becoming the finest organization in
Australia providing financial services through excelling the customer’s services as well as
strategies of the bank for recognising significant opportunities within business. It will further
help in developing more value for the people, stakeholders and people (Commbank.com.au
2019). The task will depict the key product or services offered by the entity and importance of
those products or services. In the next section the report will comment upon its capital
structure as well as liquidity position taking into account the financial data provided through its
annual report for last 3 years. Next, the report will conduct the analysis of non-current assets
along with the method of depreciation used by the bank. In the next section it will conduct
scenario analysis for the situation provided and will comment upon the normal case, worst
case and best case analysis that will help in understanding the sensitivity of NPV. The report
will also highlight and comment upon the performance of its share price through its PE ratio
and stock movement. Based on all these facts the report will provide the recommendation
letter to the client that will provide the explanation regarding why the entity shall be included in
his / her portfolio.
II. Financial analysis of Commonwealth Bank
2.1 Description of key product or service
Different products and services related to business banking are offered by CBA those
include business accounts, merchant services, business loans, superannuation, asset
finance, investment, insurance and investments. However, the key service provided by the
bank among others is the mobile banking. Though implantation of the mobile technology was
not the new approach for the Australian customers, CBA is 1st one that became successful in
implementing the fully functional mobile banking services through offering free application for
different mobiles along with iPhone (Revelli and Viviani 2015). Its competitors like Westpac
and ANZ also implemented the mobile banking even before CBA, however, it was only limited
to iPhone to be functioned it fully. Since, its 1st implementation of the services related to
mobile banking, CBA is managing as well as maintaining the same on continuous basis
through making the service more convenient as well as efficient for any of the mobile where
internet can be used. Further, it simplified the lives of number of customers and offers them
the eservices related to transfer of money, paying bills, checking the account balances
through using the mobile phones (Commbank.com.au 2019).
2.2 Calculation and analysis of the selected performance ratios
Liquidity ratio – liquidity ratios helps to determine the ability of the company whether it is
able to meet its short term debt obligation with available short term assets. Analysis of
liquidity position plays important role to the potential investors as it says lot about the
company’s existing obligation and future prospects. Deposit funding ratio or loans to deposit
ratio is used in case of banks for measuring through comparing total loans of a bank with its