Financial Analysis of Westpac and National Australia Bank

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

FINANCIAL MANAGEMENT1
Executive Summary
The aim of the assignment is to conduct a financial analysis on the Westpac and National
Australia Bank for the trend period 2014-2018. The aim of this report is to analyse the risk
decomposition of the return on equity of the banks, and also to analyse the credit risk and
quality of the banks. These are analysed on a standalone basis along with comparison with
the peer company. Also the liquidity and operational ratio of both the banks are analysed to
understand their risk levels.

FINANCIAL MANAGEMENT2
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Decomposition of Return on Equity:.....................................................................................3
Credit Risk Exposure and Mitigation:....................................................................................6
Liquidity and Operational Risk Ratios...................................................................................7
References:.................................................................................................................................8
Appendix....................................................................................................................................9
1) Analysis of Liquidity Ratio and Operating Efficiency Ratio (National Australia Bank)
9
2) Analysis of Liquidity Ratio and Operating Efficiency Ratio (Westpac Bank)...............9

FINANCIAL MANAGEMENT3
Introduction
The health of an economy is indicated by the financial structure of the banks.
Analysis of the banking sector is essential and has to be done with utmost care to accurately
determine the risk and return. Thus for our assignment we have taken the National Australia
Bank, which has been in business for over 160 years. The bank is located over more than 900
location across Australia, New Zealand and across the globe and serving more than 900
customers. The company which is in direct competition to the National Australia Bank is
Westpac Banking Corporation. Westpac Banking Corporation is one of the oldest company
of Australia and the first banking company with operations in New Zealand and Australia.
The aim of this report is to analyse the risk decomposition of the return on equity of
the banks, and also to analyse the credit risk and quality of the banks. These are analysed on a
standalone basis along with comparison with the peer company. Also the liquidity and
operational ratio of both the banks are analysed to understand their risk levels.
Discussion
Decomposition of Return on Equity:
The return on equity is one of the most important ratio which is a measure of the
profitability of a company. It means that how much return a shareholder is able to get on
investing a dollar of its money in the company. The 5-way Du-Pont is taken to decompose
each part of the Return on equity (Benjamin, Mohamed and Marathamuthu 2018).
The tax burden faced by the national Australia bank has been relatively stable around
65%-67% with a severe fall in it in the year 2016 due to the company selling off its life
insurance business and its demerger from it resulting in losses which wiped off almost 90%