Financial Statement and Investment Analysis Assignment
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This report provides a financial statement and investment analysis of ING Bank. It covers the core business activities, major changes in financial performance, and key financial ratios for the years 2016 and 2017. The report concludes with an overall assessment of the company's future prospects.
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Financial Statement and Investment Analysis Assignment
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1 By student name Professor University Date: 25 April 2018. 1|P a g e
2 Contents Background and Abstract............................................................................................................................3 Introduction: Core business and different segments...................................................................................3 Discussion and Analysis...............................................................................................................................3 Major changes in the financial performance...........................................................................................3 Ratio Analysis of the company.................................................................................................................4 Conclusion...................................................................................................................................................5 Financial Analysis and overall assessment...............................................................................................5 References...................................................................................................................................................9 2|P a g e
3 Background and Abstract A report has been prepared on the one of the banks called ING Bank. The report highlights the core business activity of the company and the different segments in which the company is involved. It also mentions the major changes that have took place in the company over the past years as shown in the chairman’s message and the review by the managing director. Key financial ratios have also been computed for the last 2 years, 2017 and 2016 and finally the overall assessment of the company and the prospects in future have also been highlighted. Introduction: Core business and different segments The ING group is a Dutch multinational banking financial services offering company based out of Amsterdam. It is one of the pioneer companies in banking industry and has its stretch over a number of countries all around the word. The core business activities of the company includes direct and retail banking, commercial banking and investment banking as well. It also deals in asset management activities and insurance services as well(Belton, 2017). The company has served more than 37.4 million customers in over 40 nations over the world and is a part ofEuro Stoxx 50 stock market index. The primary purpose of the company is empower people to be step ahead in both lives as well as business. The company has been operating in some of the major economies like those of United States, India, China, United Kingdom, Spain, Brazil, Hungary, Malaysia, Luxembourg, Monaco, Netherlands, Columbia, etc. The company has the largest market share in the retail banking which scales up to 40%, followed by direct banking and commercial banking(Trieu, 2017). Discussion and Analysis Major changes in the financial performance The company has been focusing on the international expansion and capital injection for the last couple of years through mergers and acquisition. As per the message of the Chairman of the company and the managing director, the group’s net profits have increased by more than 5% over the past year, the group’s return on equity was 10.2% which is much higher than the normal industry trend. The Fully loaded CET 1 ratio ING Group was 14.7% which is one of the major achievements in the history of the company as it shows minimal risk for the company(Mubako & O'Donnell, 2018).Amongst the major financial changes, the company came up with innovation techniques to compete with giants like Google and Amazon. The company also announced venturing and investing in the start-ups as well. For the same, 300 Million Euro was being planned to invest in the financial technology based start-ups. In the Global Bank Awards 2017, it was awarded the best bank in the world. The company also started with the online wealth management services in Germany where the customer would not have to be concerned regarding the asset allocation and the product selection(Sithole, Chandler, Abeysekera, & Paas, 2017). Amongstthenon-financialmeasures,thecompanystartedwiththeThinkForwardLeadership Experience to train 5000+ managers. All these measures have fuelled up growth for the company and has increased the performance of the company over the past years. Many such measures are still there in the pipeline(Choy, 2018). 3|P a g e
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4 Ratio Analysis of the company The ratio analysis of the company for the years 2016 and 2017 has been done and shown below: 1. Liquidity Ratios Current Ratio = Total current assets/ Total current liabilities20172016 Total current assets818,878814,973 Total current liabilities665,594648,801 Result1.231.26 Liquid ratio /Quick Ratio = (Total current assets - Inventory - Prepaid expenses)/ Total current liabilities20172016 Total current assets - Inventory - Prepaid expenses818,878814,973 Total current liabilities665,594648,801 Result1.231.26 2. Debt Management Ratios Debt ratio = (Total Debts / Total Assets) or ((Total assets- total owners' equity)/total assets)20172016 Total Debts 135,59 5150,053 Total Assets 846,31 8843,919 Result16%18% 3. Profitability ratios Profit Margin / Net Profit ratio = Net income / Total income20172016 Net result5,1014,302 Total Income17,87617,514 Result28.54%24.56% Operating Margin ratio = Operating Profit/Total income20172016 Operating Profit7,4045,937 Total Income17,87617,514 Result41.42%33.90% Return on Assets = Net income/total assets20172016 Net income5,1014,302 Total Assets846,318843,919 Result0.60%0.51% Net Interest Margin = (Investment Income – Interest Expenses) /20172016 4|P a g e
5 Average Earning Assets Investment Income - Interest Expenses16,49615,750 Average earning assets846,318843,919 Result1.95%1.87% From the above key financial ratios, we can see that in terms of liquidity, the current ratio of the company is 1.23 in 2017 and it has declined from 1.26 in 2016. It indicates that the liquidity pressure is there and the company needs to increase the proportion of current assets in order to increase the pay off the short term liabilities(Jefferson, 2017). The quick ratio as well indicates the same facts. In terms of debt management ratios, the debt ratio has declined from 18% in 2016 to 16% in 2017 and it is a positive measure which is indicative of the fact thatthe company is not relying on debt and the ownership of the shareholders is not diluted. Furthermore in terms of profitability of the company, it can be seen that the net margin as well as the operating margin of the bank has grown by nearly 4% and 8% respectively as compared to the last year and it indicates that the company is growing profitably and meeting the expectations of the shareholders. The return on assets which is the measure of how well the assets are being utilised by the bank in generating the revenue has also increased from 0.51% to 0.60% but still the same needs to improve further(Linden & Freeman, 2017). The net interest margin which is one of the most important ratios from the perspective of the banks has also increased by 0.08% from 1.87% in 2016 to 1.95% in 2017 and is indicative of the fact that the interest income is more than the interest expenses. Conclusion Financial Analysis and overall assessment The financial performance through bird’s eye view has been shown below: Besides the above trends, the balance sheet as well as the profit and loss account of the company for the last 2 years has been shown below(Johnson, 2017): ING Bank Consolidated statement of financial position Particulars20172016 5|P a g e
6 EUR mEUR m Assets Cash and balances with central banks221,98918,144 Loans and advances to banks328,74628,872 Financial assets at fair value through profit or loss4 − trading assets116,763114,512 − non-trading derivatives2,1852,309 − designated as at fair value through profit or loss4,2425,099 Investments5 − available-for-sale69,73082,912 − held-to-maturity9,3438,751 Loans and advances to customers6574,899562,873 Investments in associates and joint ventures79471,003 Property and equipment81,8012,002 Intangible assets91,4691,484 Current tax assets324252 Deferred tax assets338181,000 Other assets1013,06214,706 Total assets846,318843,919 Liabilities Deposits from banks1136,82131,964 Customer deposits12552,690531,096 Financial liabilities at fair value through profit or loss13 − trading liabilities73,59683,167 − non-trading derivatives2,3463,585 − designated as at fair value through profit or loss11,21512,266 Current tax liabilities774546 Deferred tax liabilities33752919 Provisions141,7132,028 Other liabilities1515,97216,793 Debt securities in issue1690,231101,305 Subordinated loans1715,83116,104 Total liabilities801,941799,773 Equity18 Share capital and share premium17,06717,067 Other reserves4,3045,835 Retained earnings22,29120,638 Shareholders’ equity (parent)43,66243,540 Non-controlling interests715606 Total equity44,37744,146 6|P a g e
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7 Total liabilities and equity846,318843,919 ING Bank Consolidated statement of profit or loss Particulars20172016 EUR mEUR m Interest income43,98844,221 Interest expense–30,206–30,904 Net interest income1913,78213,317 Commission income3,8643,581 Commission expense–1,150–1,148 Net commission income202,7142,433 Valuation results and net trading income216721,093 Investment income22192421 Share of result from associates and joint ventures716677 Result on disposal of group companies2311 Other income24349172 Total income17,87617,514 Addition to loan loss provisions6676974 Staff expenses255,1985,036 Other operating expenses264,5985,567 Total expenses10,47211,577 Result before tax7,4045,937 Taxation332,3031,635 Net result (before non-controlling interests)5,1014,302 Net result attributable to Non-controlling interests8275 Net result attributable to shareholder of the parent5,0194,227 Dividend per ordinary share (in euros)6.832.89 Total amount of dividend paid (in millions of euros)3,1761,345 7|P a g e
8 From the above discussion and analysis, it can be mentioned that the company has been a growing one and has also been earning profit over the period of time(Dichev, 2017). As far as the future prospects of the company is concerned, it plans to expand further and venture into new markets andstart several onlineassetmanagementservices(Meroño-Cerdán,Lopez-Nicolas,&Molina-Castillo,2017). Furthermore, as has been mentioned above, the company also has planned investment in the technology based start-ups which is aimed at increasing both thetop line as well as bottom-line of the company and improve the customer experience and services. Besides this, the company has met all the sustainability reporting measures and is continuously working in the area of corporate governance and hence all in all, the company has good future prospects(Marques, 2018). 8|P a g e
9 References Belton, P. (2017).Competitive Strategy: Creating and Sustaining Superior Performance(Vol. 2). London: Macat International ltd. Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis.Ecological Economics, 145. Retrieved from https://doi.org/10.1016/j.ecolecon.2017.08.005 Dichev, I. (2017). On the conceptual foundations of financial reporting.Accounting and Business Research, 47(6), 617-632. doi:https://doi.org/10.1080/00014788.2017.1299620 Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland . Technological Forecasting and Social Change, 353-354. Johnson, R. (2017). The Best Strategies for Investing.In the News, 21-31. Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making.Business Ethics Quarterly, 27(3), 353-379. Retrieved from https://doi.org/10.1017/beq.2017.1 Marques, R. P. (2018). Continuous Assurance and the Use of Technology for Business Compliance. Encyclopedia of Information Science and Technology, 820-830. Meroño-Cerdán, A., Lopez-Nicolas, C., & Molina-Castillo, F. (2017). Risk aversion, innovation and performance in family firms.Economics of Innovation and new technology, 1-15. Mubako, G., & O'Donnell, E. (2018). Effect of fraud risk assessments on auditor skepticism: Unintended consequences on evidence evaluation.International Journal of Auditing, 22(1), 55-64. Sithole, S., Chandler, P., Abeysekera, I., & Paas, F. (2017). Benefits of guided self-management of attention on learning accounting.Journal of Educational Psychology, 109(2), 220. Retrieved from http://psycnet.apa.org/buy/2016-21263-001 Trieu, V. (2017). Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, 93(1), 111-124. 9|P a g e