Financial Analysis of ANZ and CBA

This assignment analyzes the dividend payout ratios of ANZ and Commonwealth Bank, focusing on their cash basis policies. It compares the payout ratios over three years (2016-2018), calculates the Weighted Average Cost of Capital (WACC) for both banks, and provides investment recommendations based on the analysis. The assessment also considers liquidity positions and profitability, suggesting improvements for Commonwealth Bank's financial planning and investor relations.

Financial for business-
ANZ V
COMMENWEALTH
Bank

EXECUTIVE SUMMARY
The report covers the brief description about the operations of ANZ and commonwealth
bank and trend analysis have been identify with the help of financial ratios. In respective report
sensitivity analysis is performed to determine marketable securities and systematic and
unsystematic risk are discussed for the selected banks. The report also summaries the calculation
of dividend payout ratio and valuable recommendation are given for stakeholder.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
Table of Contents.............................................................................................................................3
TASK 2............................................................................................................................................1
2.2. Calculation and analysis of selected performance ratios......................................................1
2.3 Cash management analysis....................................................................................................4
2.4 Sensitivity analysis................................................................................................................5
2.5 Systemic risk and un-systemic risk........................................................................................6
2.6 Dividend payout ratio and dividend policy...........................................................................6
REFERENCES................................................................................................................................8

TASK 2
2.2. Calculation and analysis of selected performance ratios
It is very important to have a proper analysis of financial statements as it support in
measuring the financial performance of company. The depth analysis ANZ bank and
commonwealth bank have been discussed for the period of 2016 to 2018. in order to complete
the financial analysis of both bank valuable financial ratio are discussed in order to measure
ANZ bank and commonwealth bank position in context to profitability and liquidity.
Liquidity ratio:
These ratio are mainly calculated to determine the ability of company as they are able to
pay its short term liabilities. It is also used by stakeholder holder to determine the liquidity
position of company in specific time. In order to find the liquidity of both bank current ratio and
quick ratio are calculated:
Current ratio: Current assets/ current liabilities
Name of bank 2016 2017 2018
Commonwealth bank 0.17 0.16 0.18
Australia and New
Zealand Bank
0.29 0.27 0.33
Quick ratio: Total current assets- Inventory- prepaid expenses/Current liabilities.
It is another form of liquidity ratio as it describe about the liquidity position in more
descriptive manner as it does not includes prepaid expenses and inventory.
Name of bank 2016 2017 2018
Commonwealth bank 0.16 0.17 0.14
Australia and New
Zealand Bank
0.28 0.23 0.24
From the above, calculation it has been observed that Australian and New Zealand bank
is more able to pay it liabilities from its current assets in last three years.
Profitability ratio:
In business context, the profitability ratio helps to display the profitable position of
company of company within a specific time frame. This ratio is used by investors to extract out
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the profit company used to earn on their revenues, total assets and actual investment made by
company in a year. To calculate profitability of ANZ and commonwealth bank operating net
profit margin and Return on total assets are calculated.
Operating net profit margin: Operation profit/sales *100
Name of Bank 2016 2017 2018
Commonwealth bank 38.63% 40.34% 37.59%
Australia and New
Zealand Bank
27.59% 30.10% 35.21%
Return on Assets: Net income /Average Total Assets
Name of Bank 2016 2017 2018
Commonwealth bank 1.02 1.04 0.96
Australia and New
Zealand Bank
0.63 0.71 0.7
From the calculation, it has been observed that profitability position of commonwealth
bank is much better than ANZ. Apart this, return on total assets helps to describe that
commonwealth bank has earned more return on assets as compare with other bank. Therefore it
can be said ANZ have lower profitable position as compared to commonwealth bank in these
three years.
Efficiency Ratio: This ratio is basically used to examine the situation that in how well an
organisations is able to use their assets and liabilities in order to meet internal requirements. In
order to determine the efficiency of commonwealth and ANZ bank Fixed assets turnover ratio
and assets turnover ratio is calculated.
Fixed Assets turnover ratio: Net sales/ Average Fixed Assets
It is generally used to calculate the operating performance and is also used as net of
accumulated depreciation.
Name of Bank 2016 2017 2018
Commonwealth 7.05 6.3 7.7
ANZ 9.35 10.21 9.57
Assets Turnover ratio: Net sales/ Average Total assets
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It is also one of the effective efficiency ratio which help to calculate ability of an organisations
to generate sales from actual assets by comparing net sales with average total assets.
Name of Bank 2016 2017 2018
Commonwealth bank 0.03 0.03 0.03
ANZ 0.02 0.02 0.02
From the above calculation it has been calculated that net revenue that is gained on the
fixed assets by commonwealth and ANZ bank, thus it can be observed that there is no vast
difference in earning ability. Both bank are able to generate enough sales from total assets
acquired by companies.
Solvency ratio:
This is one of the main metric, which is used by the companies in order to meet the
ability to set its debt obligation as it shows weather firm have generated enough amount to meet
short and long term liabilities. In order to determine the solvency ratio of both bank Debt equity
ratio and Debt ratio is calculated.
Debt equity ratio: Total Liabilities/ Total Equity
It is an important financial ratio that is helpful to compare a company total debt to total
equity. This ratio mainly display the percentage of bank financing which arise creditors and
investors.
Name of Bank 2016 2017 2018
Commonwealth Bank 17.57 17.19 15.57
ANZ 14.83 14.21 14.9
Debt Ratio: Total Liabilities/ Total Assets
It is also the part of solvency ratio that is used to measure a companies total liabilities on
the total assets and it display the total ability of both bank to pay its total liabilities from actual
assets acquired within a specific time frame.
Name of Bank 2016 2017 2018
Commonwealth 0.94 0.93 0.93
ANZ 0.94 0.93 0.94
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From the analysis, it is observed that calculating debt equity ratio for both bank
determine that commonwealth bank is more reliable on total debt in order to meet the financial
obligation of business as compared to ANZ bank.
WACC of Commonwealth Australia, and New Zealand Banking Group
Limited
WACC = E / (E + D) * Cost of Equity + D / (E + D) *
Cost of Debt* (1 - Tax Rate)
Australia and New Zealand Banking Group Limited (ANZ.AX)
Year 2018 2017 2016
WACC 5.62 5.60 5.17
Commonwealth Bank of Australia
Year 2018 2017 2016
WACC 4.81 4.84 4.99
2.3 Cash management analysis
Below is the cash flow management analysis done for subsequently three years.
Organisation is required to manage the free cash/flow of operations. Following are the
calculation shown for last three year’s free cash flows and essential decisions are analysed
subject to manage current assets.
Free Cash Flow Ratio: Operating cash Flow / current Liabilities
This type of ratio is calculated to measure the capacity of company to convert its current
liabilities from the cash flows earned from a company total operations. It mainly help company
to determine the total bank liquidity in the short term.
Name 2016 2017 2018
Commonwealth -26.5 -7.74 0.52
ANZ 50.76 112.63 58.13
Free cash flow to net income:
Name 2016 2017 2018
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Commonwealth -0.69 -0.19 0.01
ANZ 1.84 3.74 1.65
2.4 Sensitivity analysis
Year 0 1 2 3 4
Revenue
$
6,000,000.00
$
4,860,000.00
$
3,936,600.00
$
3,188,646.00
-Operating
Expenses -$3,600,000 -$3,564,000 -$3,528,360 -$3,493,076
Other expenses
-$
300,000.00
-$
330,000.00
-$
363,000.00
-$
399,300.00
EBITDA $2,100,000 $966,000 $45,240 -$703,730
-Depreciation -$450,000 -$450,000 -$450,000 -$450,000
EBIT $1,650,000 $516,000 -$404,760 -$1,153,730
-Tax -$495,000 -$154,800 $121,428 $346,119
NOPAT $1,155,000 $361,200 -$283,332 -$807,611
+Depreciation $450,000 $450,000 $450,000 $450,000
Cash flow from
operations $1,605,000 $811,200 $166,668 -$357,611
Capital
expenditure
-$
2,600,000.00
Working
capital -$600,000
FCF
$
(3,200,000.00)
$
1,605,000.00
$
811,200.00
$
166,668.00
$
(357,611.00)
PV of FCF -3200000 1515008.495 722783.1256 140175.5659 -283903.6622
NPV
-$
1,105,936
Adding up PV
of FCF's
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-$
4,243,927
Using NPV
Function
Workings:
Year 1 Year 2 Year 3 Year 4
Sales in Units increase by 10% 300000 270000 243000 218700
Selling price per unit decrease by 10% 20 18 16.2 14.58
Variable cost will be increase by 10% 12 13 15 16
Cash fixed expenses increased by
10% 300000 330000 363000 399300
Cash inflow 6000000 4860000 3936600 3188646
Variable expenses 3600000 3564000 3528360 3493076
2.5 Systemic risk and un-systemic risk
ANZ bank
Company is focused upon long-term sustainability and credible banking infrastructure
within the organisational stream. The change and variation subject to improve the policies. There
is $44 billion total systemic risk assets are recorded with in the ANZ bank and 48% of total
group capital counted as 38%.
Commonwealth Bank
Capital adequacy of the commonwealth bank is measured based on total weighted assets
and also represented as allocation of risk in related to most related exposures. Trade market risk
is accounted as $4650 million for the year 2017, $9439 million for the year 2016. Traded market
risk for common wealth bank increased by 95% in 2018 probably due to increasing in potential
losses in market movements and gaps between the security markets.
2.6 Dividend payout ratio and dividend policy
Both the organisations uses cash basis distribution dividend policy in terms of distributing
earning on earning per shares. The following are some calculations shown below for dividend
pay-out ratio.
ANZ Bank
Year
2018
($)
2017
($)
2016
($)
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Earnings per share 2.12 2.11 1.89
Dividend paid per share 1.6 1.6 1.75
Payout ratio 79.5% 80% 80%
The dividend payout ratio is calculated on the cash basis and it is analysed that the
dividend payout ratio on cash basis for ANZ bank was calculated as 79.5% for the year 2018,
80% for the year 2017 and 80% for the year 2016.
Common wealth bank
Year 2018 ($) 2017 ($) 2016 ($)
Earnings per share 5.17 5.59 5.29
Dividend paid per share 4.3 4.21 4.2
Payout ratio 80.4% 75% 77%
The dividend payout ratio for common wealth bank was recorded 80.4% for the year
2018, 75% for the year 2017 and 77% for the year 2016.
Recommendation based on analysis of results
From the above analysis and WACC it has recommended to stakeholder and investors
that they can make future investments more in ANZ rather than commonwealth bank. This is
because the liquidity position of commonwealth bank was not good and this bank have taken
more amount of loan on its available assets. The calculated figure shows that commonwealth
bank have more shortage of funds to meet its day to day operations. It is observed that ANZ bank
use to provide funds from current assets to meet short term requirement. Thus in recent time,
many investors have suffered major losses as investment are not giving appropriate results.
Therefore it is advised to commonwealth bank to have proper financial planning and take the
permission of investor without making any future changes in term and conditions. To consider
the profitability of last three financial years are important in context to the Commonwealth &
ANZ Bank. As in the financial 2011 to 2013 the average operating profit margin has increased
by 50% to 54%. Both banks are not earning higher profits from the return of total assets. So it
has been analysed that profitability positions of these banks are not good in order to pay more
returns to the investors. Where as ANZ Bank is providing better returns despite of minimum
returns. S it has bee suggested to the investors to make investment in ANZ Bank so that they can
get sufficient returns.
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REFERENCES
Books and journals
Annual-report commonwealth. 2019. [Online] Available Through:
<https://www.commbank.com.au/about-us/investors/annual-reports.html>.
Annual-report of 2019. [Online] Available Through: <https://shareholder.anz.com/pages/annual-
report-archive>.
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