Finance For Business Assignment - Commonwealth Ltd and Westpac Bank

Finance For Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Q1) Operation and comparative advantages of two companies..................................................1
Q2) Comparison of performance ratio of two companies...........................................................3
Q3. Analysis of monthly share prices movements of two companies........................................5
Q4). Identification of significant factors which may affected share prices of both the
companies....................................................................................................................................9
Q5). Calculation of Beta values and expected return using CAPM model...............................10
Q6)Dividend policy...................................................................................................................11
Q7 Recommendation letter.......................................................................................................12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Finance is a wide term that is defined as the management of money in effective manner,
it also includes activities like budgeting, investing, borrowing and lending. It is consider the
actual study of money that how it is managed and its best usage to give maximum result (Ben-
David, Graham and Harvey, 2013). As all the large and small business, government bodies and
individual need fund to operate the finance filed is separated into three sub categories such as
corporate, public and personal finance. As a large group of investment analysts the company
named ABL provide recommendation in this project. Two major bank of Australia which is
Commonwealth Ltd and Westpac Bank group are chosen to make recommendation for these big
institutes.
In this project report different Ratio, rate of return and Beta calculation are calculated to
know which company may have the investment. Analysis of monthly share price of these two
companies and comparison between these two bank are performed under this report. Dividend
policy for both banks are discussed under this project.
MAIN BODY
Q1) Operation and comparative advantages of two companies.
Investment analysis is the process of calculating and measuring an investments to know
the exact profitability and risk associated with them. These investment studies are done to judge
actual income generated from these investment and its resale value. So to provide the investment
analysis, Commonwealth bank Ltd and Westpac Group bank has been analysed.
Commonwealth bank Ltd
Commonwealth bank Ltd is one of the largest bank of Australia that provides its
Banking services in same country and other countries. It was founded under the banking act of
commonwealth in 1911 and started its services to common people in 1912 (Chun-juan, 2003).
The bank empowered to conduct various services majorly the two saving accounts and general
banking services like, business loan, merchant services, debit and credit cards etc. In present
bank has grown in a bigger unit and expand its business in almost every part of country and
overseas. It has large number of employee working in the Commonwealth bank Ltd and it attract
more number of shareholder because of its services and retur. In contrast, this bank is B&PB
(Business and Private bank) and IB&M (International bond & Marine brokerage) that are the
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leading provider of various financial services to different institutional bodies, corporate
companies, small and large business and various personal clients. The bank provide different
financial services under corporation act 2001 such as deal in financial product those are
investments and security for buyer and seller with a long and short term financial gain, it gives
guidance to provide advice for financial product. Commonwealth bank Ltd provide custodial or
depository services which are related to the individual or small business holding property of a
registered managed investment scheme to gain huge profit. The bank develop market for all
those security and investment of buyer and seller with the Australia and overseas (Fee, Hadlock
and Pierce, 2013). This large bank provide a full and big range of product to their customer such
as transaction services, saving and investments accounts, fund transfer and payments, Forex card
facilities foreign exchange, general insurance, debt and loan securities that includes government
bonds, money market instruments and margin lending facilities etc.
Westpac Group Bank.
The other bank which is selected for the comparison and ascertain the best bank in term
of investments is Westpac bank group. This is the first and the oldest company in banking
industry in Australia and one of the largest bank in New Zealand. It was founded in 1817 with its
headquarters at Sydney and now has become the one of four major banking organisation in
country. They provide a wide range of customer, different business and organization banking
services and wealth management services. There business comprises some major key customer
facing division that operates a specific function of brands such as, consumer bank, business
bank, balance transfer financial group in Australia (BTFG), Westpac institutes bank (WIB) and
Westpac bank in new Zealand (.Hribar and Yang, 2015).
Consumer bank is responsible for sales and services to their customer with in Australia
under the bank of Melbourne etc. Business bank prudent for sales and other services to micro
and medium firms and other commercial consumer in Australia. It also includes specialist
services like cash flow, trade, property, treasury and auto finance loans. BTFG are the provider
of services like manufacture and distribution of investments, retirement product such as
superannuation, wealth management, private banking, margin lending as well as general and
lenders of different mortgage insurances. WIB deliver financial services and product to their
overseas customer through their branches and adjunct located in other countries like New
Zealand, UK etc.
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As from the investment point of view, comparative advantage of Commonwealth Bank
Ltd are more satisfying to the customer as this bank has wide range of services and the level of
return and profitability is also high.
The other bank Westpac Group Ltd is also one the leading bank of Australia and has some
comparative advantages that reflect benefits if investment in this company.
Comparison of comparative Advantages
Commonwealth Bank Ltd Westpac Group Bank
The bank operate its some special services like
Forex card , insurance such as air, water, land
and general within Australia and outside that
make much more profitable.
Other advantages is high rate of return on
investment and fixed deposits allow
Commonwealth bank Ltd to earn more income
and strong their position in the market.
The bank have five customer facing division
which through which large number of customer
base and shareholder are attracted towards this
bank.
They are able to provide services like
retirement benefits, video banking etc. that
develop this bank one out of four major bank
(Li, 2005).
Q2) Comparison of performance ratio of two companies.
Performance ratio are the major source for comparing the position of both banks through
which effective performance can be determined. Various key ratio which are calculated to
compare are Liquidity ratio, Profitability Ratio and capital (leverage) ratio. To conduct
comparative analysis of these two bank annual statements of past three accounting year is taken
that is 2015, 2016 and 2017.
Ratio Analysis:
Liquidity Ratios: These ratio are used to find out the debtor's ability to pay its current
debts and their margin of safety by calculation the metrics that includes current ratio, quick ratio
and cash flow ratio. Current ratio are determined by comparing the current assets and liabilities
of both bank whereas Quick ratio are ascertained by measuring the quick assets and current
liabilities to calculate the short term debts in any emergency.
Formula 2015 2016 2017
Current ratio Current assets/current liabilities
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Commonwealth
Bank Ltd.
0.19 0.17 0.17
Westpac Group
Ltd
0.16 0.13 0.11
From the above table it can be observed both bank have low equal short term debt paying
ability. As Ideal current ratio is about 2:1 so from these report both the bank are not ideally able
to pay their current debit from the amount of income generated in the three consecutive year. The
current ratio for three year of commonwealth bank Ltd is 0.19:1, 0.17:1 and 0.17:1 for year
respectively (Malkiel, 2013). Same of Westpac Group Ltd current ratio of three year is 0.16:1,
0.13: and 0.11 for the following year. But on comparison some how Westpac bank is more ideal
to pay their debt as related to commonwealth bank. From the Analysis of both companies it was
observed that none of the bank had maintained their inventory and their were no prepaid
expenses so quick ratio will be same as current ratio.
Profitability ratio: These ratio are calculated to assess a business firm to generate
earning related to the expenses done with an accounting period. In case if the value of ratio are
higher for the current year as compared to previous period that will indicate that the organisation
is doing well. In respect to determine the profitability of these two bank two important ratio net
profit margin and return on equity is evaluated for the three year 2017, 2016 and 2017.
Net profit margin Net profit after tax/net sales*100 2015 2016 2017
Commonwealth
Bank Ltd.
38.07 38.09 39.57
Westpac Group Ltd 38.87 35.51 37.12
Return on equity Net income/owner's equity*100
Commonwealth
Bank Ltd.
17.9 16.38 16.09
Westpac Group Ltd 15.77 13.38 13.37
In the case of profitability ratio it can be said that both bank have good net profit margin
and return on equity is also better of banks. Net profit margin of Commonwealth bank is much
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