Financial Analysis of Commonwealth and Westpac Banks in Australia

CORPORATE ACCOUNTING

EXECUTIVE SUMMARY
This assignment is prepared to financially analyse two listed companies of Australia that
operates in the same industry. The financial reports of Common Wealth and Westpac Banks
has been analysed in this assignment. At the end of this report, the users will be able to have a
view about the efficiency of the organisation’s working.

Contents
INTRODUCTION......................................................................................................................3
ANALYSIS OF EQUITY..........................................................................................................4
Discussion on each item of equity for both the companies....................................................4
Discussion and debt and equity of both the companies..........................................................6
Analysis of Cash flow statement................................................................................................7
Discussion on the cash flow statement of both the companies..............................................7
Comparison of cash flow of three years of both the companies.............................................8
Description of analysis of cash flow of both the companies................................................10
Analysis of comprehensive income statement.........................................................................11
Items reported in the other comprehensive income statement.............................................11
Reasons for not reporting these items in the profit and loss statement................................11
Comparative analysis of the items of the other comprehensive income statement..............11
Use of other comprehensive income in evaluation of performance of managers................12
Analysis of corporate income tax.............................................................................................13
Tax expense for the companies for the current year.............................................................13
Effective income tax rate......................................................................................................13
Deferred tax liabilities and assets.........................................................................................13
Increase in DTA and DTL....................................................................................................14
Calculation of cash tax using the book tax...........................................................................14
Calculation of cash tax rate..................................................................................................16
Difference in cash tax and book tax.....................................................................................16
Conclusion............................................................................................................................17
Bibliography.............................................................................................................................18

INTRODUCTION
A financial report comprises of several components in it. In order to understand these parts
of the financial report, we need to know about its characteristics and their nature. In this
assignment various components of the companies in Australia has been discussed. The
discussion has been done on Commonwealth bank of Australia and Westpac bank are as
follows (Atkinson, 2012).
Commonwealth bank is considered to be one of the biggest banks operating in Australia.
However, this bank also carries out its business in various other countries such as Unite
Kingdom, New Zealand and also United states. It was establishes in the year 1991 also in the
same year it got listed in the Australian stock exchange (ASX). There are huge number of
branches of this bank which is nearly 1100 and also there are 51800 people employed in this
bank. This is not only considered as the biggest bank in Australia but also in the entire
southern hemisphere. The bank engages in providing many services such as superannuation,
institutional banking, insurance, fund management, broking services (Armstrong, 2015).
Westpac bank is located in Sydney and is considered to be among the four largest banks of
Australia. This bank is highly reputed as it has been ranked as the most sustainable bank
across the globe for four consecutive years (Berry, 2009). In 1817 there was an establishment
of a bank which was known as New south Wales. Later, in 1982 this bank it changed to
Westpac bank. This bank got listed in the Australian stock exchange in the year 1970. There
are about 14 million people that are associated with this bank and also there are 32620 people
who are employed in this bank. The bank believes in providing its services worldwide and so
there is huge number of branches set up which is nearly 1490.
In order to understand the financial position and performance of both these companies,
various components of the financial reports are studied and discussed in this report (Boyd,
2013).

ANALYSIS OF EQUITY
The equity shareholders fund comprises of the funds that are raised from the public in
exchange of equity shares, reserves and also the profits that are ploughed back by the
company which is also known as retained earnings.
Discussion on each item of equity for both the companies
The components of the equity portion of Commonwealth bank comprises of share capital,
retained as well as certain reserves that were created. The total share capital of the company
for the year 2017 amounts to $34971 which can be divided into two parts (Case, 2012). The
first part consist of ordinary equity share that amounts to $ 35266 and the second part consists
of the treasury stock which amounts to $295. There was an increase in the share capital of the
company which happened because of the issue of new equity shares which was planned by
the company under dividend reinvestment plan. There was increase in the retained earnings
of the company. It increased from $23435 to $ 26330 million. This was the result of the
phenomenal performance of the company during 2017 which was reflected in the increased
operating profits of the company. However, it was noticed that the reserves of the company
fell from $ 2734 to $1869 in the year 2017. This fall in the reserves was because of the
change in the foreign currency exchange rate as well as loss that has arisen because of
disposal of certain assets (Bragg, 2016). The equity of the company increased from $60014 in
2016 to $ 63170 in 2017.
Commonwealth Bank
2Shareholder’s Equity 2017 2016
Share capital 34,971 33,845
Reserves
1,86
9 2,734
Retained earning 26,330 23,435
Total 63,170 60,014