Analysis of NAB and ANZ Group based on Owners' Equity, Cash Flow and Other Comprehensive Income Statement

The report presents the analysis of NAB and ANZ Group which are amongst the largest financial institutions in Australia. Based on the owners’ equity, cash flow and other comprehensive income statement, it was found out that ANZ Group has been performing relatively better in terms of equity management. In fact, the analysis showed that ANZ Group is in a better position to manage its cash and to generate more cash flow from its operations in comparison to NAB.

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CORPORATE ACCOUNTING
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Corporate Accounting 2
Executive Summary
The report presents the analysis of NAB and ANZ Group which are amongst the largest
financial institutions in Australia. Based on the owners’ equity, cash flow and other
comprehensive income statement, it was found out that ANZ Group has been performing
relatively better in terms of equity management. In fact, the analysis showed that ANZ Group
is in a better position to manage its cash and to generate more cash flow from its operations in
comparison to NAB.

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Table of Contents
Executive Summary...................................................................................................................2
INTRODUCTION......................................................................................................................4
OWNERS EQUITY...................................................................................................................5
Items Reported on NAB and ANZ Group Statement of Equity.............................................5
Analysis the Debt as well as Equity Position of NAB and ANZ Group................................6
CASH FLOWS STATEMENT..................................................................................................7
Items Reported in NAB and ANZ Group Cash Flows Statements........................................7
Analysis of NAB and ANZ Group based on Cash Flow Statement.......................................9
Analysis of NAB and ANZ Group.......................................................................................10
OTHER COMPREHENSIVE INCOME STATEMENT........................................................10
Items Reported In Other Comprehensive Income Statement...............................................10
The reason why the items reported in other comprehensive income statement are not
recorded in the income statement.........................................................................................11
Analysis of the Other Comprehensive Income between NAZ and ANZ Group..................11
Whether the Other Comprehensive Income Items ought to be included while assessing
Managers’ Performance........................................................................................................12
ACCOUNTING FOR CROPORATE INCOME TAX............................................................12
The Tax Expenses Reported in NAB and ANZ Group Latest Financial Statements...........12
Effective Tax Rate for the Two Companies.........................................................................12
Comments on the Deferred Tax Assets/Liabilities...............................................................13
Whether There Was an Increase or Decrease in Deferred Tax Assets or Liabilities...........13
Cash Tax Amount for Both Companies...............................................................................14
Cash Tax Rate for Both Companies.....................................................................................14
The reason behind cash tax rate being different from book tax rate....................................14
Conclusion................................................................................................................................14

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INTRODUCTION
National Australian Bank and Australia and New Zealand Bank Group Ltd are among the
largest Australian financial institutions. The ANZ is one of largest financial institution in
Australia after CBA, NAB and the Westpac. The bank was established in the year 1951 and
has banking operations in over 34 other countries. Besides, it is one of the largest financial
institutions in New Zealand operating two main brands the National Bank and the ANZ in
New Zealand. It is the third largest financial institution in Australia by market capitalization.
Additionally, ANZ offers retail services and products to different clients and private banking
clients across Australia via branch network, contact centre, mortgage specialists as well as
numerous self-service channels like phone banking, website, internet banking, ATMS,
corporate and digital banking (ANZ 2017). It also offers commercial banking services that
entail financial solutions via its dedicated managers who are mostly focused on medium,
large and privately owned small firms. The banks institutional segment offers liquidity and
work capital solutions, including supply chain financing, clearing, deposits, cash management
solutions, documentary trade, payments, specialised loan execution and structuring, export
and project finance, acquisition finance, corporate advisory services, debt structuring, loan
syndication as well as risk management services on the interest rate, foreign exchange,
commodities, wealth solutions, credit and debt capital management (Investing.com 2018). Its
New Zealand segment provide commercial and retail banking services and wealth
management services to the small business and private banking clients. On the other hand, its
Wealth Australia segment offers mortgage, general and life insurance services while it Asia
pacific retail segment provides wealth management and general banking services to the
medium- and small-sized enterprises institutional clients as well as government institutions.
On the other hand, the NAB is considered as the largest banking institutions within Australia.
Besides, this bank offers an array of financial services which include wealth management,

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banking as well as a platform for the investment banking. Additionally, the bank has
locations across New Zealand and Australia as well as in US and UK. Also, NAB has highly
regarded research division that releases its business confidence resulting indicators each
month followed by the traders globally. In other words, NAB is amongst the big four
financial institutions in Australia (NAB 2017). It has over 1,590 service centres and branches
and around 4,412 ATMS operating across Asia, New Zealand and Australia serving
approximately 12.7 million consumers. With these considerations, the report presents
analysis of NAB and ANZ Group. It starts with analysis of their owner’s equity statement and
the analysis of cash flow statements. Further, the report present analysis of their other
comprehensive Income and items there is as well as analysis of how they both account for
their income tax.
OWNERS EQUITY
Items Reported on NAB and ANZ Group Statement of Equity
Based on NAB statement of the owners’ equity, it is evident that there were a number of
items reported. One of the key item reported in this statement include contributed equity,
retained profits, reserves as well as non-controlling interest in the controlled entities
(Investing.com 2018). Contributed equity comprised of the issuance of the ordinary shares,
redemption of the national capital instruments as well as transfer from the equity-based
compensation reserves. On the other hand, reserves comprises of total comprehensive income
in the year. This also comprised of transfer to the retained profits, transfer from the equity-
based compensation reserve as well as equity-based compensation. Retained profit on the
other hand, comprised of total comprehensive income, redemption of the national capital
instruments, transfer to the retained profits, dividend paid as well as distribution on the other
equity instruments.

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Contribution equity in million for NAB are said to have increased over the last two years
moving from 32,524 million to 32,866 million by June 2017 (NAB 2017). This indicates a
slight increase in the contribution equity over the years. The increase in the contribution
equity could have been as a result of continued issuance of the ordinary shares by the bank in
the year 2017. On the other hand, reserves for the bank decreased from 309 million in the
year 2016 to around 190 million in the year 2017. The decrease is attributed by the negative
in the total comprehensive income over the period as well as the decrease in the transfer to
the retained profits and transfer from the equity-based compensation reserves. Further,
retained profit over the period experienced a slight decrease moving from 15,719 million in
the year 2016 to around 15,545 million by 2017. The decrease is attributable to increased
dividend paid to its shareholders over 2017.
On the other hand, based on ANZ Group statement of the owners’ equity, it is evident that
some of the items reported include reserves, ordinary share capitals, the retained earning as
well as non-controlling interests. Reserves for the company decreased from 1,078 million in
2016 to 37 million in 2017 (ANZ 2017). Furthermore, ordinary shareholders’ capital
increased from 28,765 million to 29,088. This is attributable to dividend reinvestment plan.
Additionally, retained earnings increased over the years moving from 27,975 million to
29,834 million.
Analysis the Debt as well as Equity Position of NAB and ANZ Group
NAB shareholder’s equity over the period was approximately 51,317 million. This was a
slight increase from what was reported in 2016 where the bank reported equity of around
51,315 million (Investing.com 2018). Further, NAB total debt has been increasing over the
years with the debt moving from 725,395 million to 737,008 in the last two years. This is a
clear sign that the bank is been overlying on debt financing to finance its day to day

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operations rather than its owner’s equity. On the other hand, ANZ Group total equity
increased over the period moving from 57,927 million to 59,075 million (ANZ 2017).
Nonetheless, its total debts decreased from 856,942 in 2016 to 838,251 million in 2017. This
is a clear sign that the two banks; that is, both ANZ and NAB rely more on debt financing
rather than on equity financing.
CASH FLOWS STATEMENT
Items Reported in NAB and ANZ Group Cash Flows Statements
Based on NAB cash flows statement analysis, it is evident that there were several items
reported. These items were grouped or categorized into three major categories; that is, cash
emerging from the operations, the cash outflow from the investing undertakings and finally
cash from the financing undertakings. Items included in the cash from the operation section
include the amount of interest received and amount of interest paid. Interest received
decreased over the years moving from $28,338 million in 2016 to around 27,176 in 2017
while interest paid decreased from as high as $15,592 million to $14,315 million by 2017.
Another item reported in this section is dividend received. Dividend received by NAB is
found to have increased from 21 million reported in 2016 to around 36 million reported in
2017 (Investing.com 2018).. There is also life insurance which comprised of investment
revenue received, premiums and the other revenue received and policy payment and the
commission expenses. Amount of premium as well as other revenue received is found to
decrease from 9,426 million in 2016 to 76 million in the year 2017 while investment revenue
received decreased from 1,797 million to 5 million in 2017. Another items reported in the
cash flow from the operations section include net trading income paid which is found to have
decreased from 3,351 million in 2016 to about 3,198 million in 2017. Other items include
operating expense paid, other operating income received as well as income tax paid. All these
amount are said to have experienced a significant boost with payments moving downward

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while revenues increasing upwards. There are also trading securities, deposits as well as other
borrowings, loans and advances, net increase in the deposits with the central banks as well as
net movements in the life insurance liabilities and assets.
On the cash from the investing activities, items reported comprised of movement in the debt
instruments at the fair value vial the other comprehensive income; that is, proceeds from the
maturity and disposal and purchases, movement in the other equity and debt instruments; that
is proceeds from maturity and disposal and purchases (Investing.com 2018).. There are also
purchases of the controlled entities and the business combination, proceeds on the sales of the
joint ventures and associates, proceeds from sales of PPE, purchases of the PPE as well as
proceed from the sales of the controlled entities. Further, based on the second section, that is,
cash from the financing undertakings, the key items reported include repayment of the bonds,
which increased from 29,543 million to 32,426 million. There are also proceeds from the
other debt issues and repayment of the other debt issues. Another item reported in this section
is proceeds from the issuance of the bonds and repayment of the other contributed equity.
Finally, there is distribution and dividend paid which increased from 4,593 million in 2016 to
around 4,750 million.
Based on ANZ Group cash flow statement, it is clear that the items recorded there in were
categorized into three broad categories; that is, cash from operations, cash from the
investment as well as cash utilized in financing its activities (Investing.com 2018).. Items
reported in the first section of the cash flow statement include profit after tax, depreciation
and amortization, collateral paid, profit on the sale of the PPE, provision for the credit
impairment, trading securities, impairment of the investment in the AmBank, net loans and
advances, collateral received, deposits and borrowings as well as life insurance contracts. On
the other hand, items reported in its cash used in its investment activities include purchases,

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Esanda dealer financial divestment, available-for-sales asset, purchases, as well as sales of
the Asia retail business. Finally, items reported in the third section; that is, cash used by the
financing activities include issue proceeds, dividends paid, redemptions as well as share-buy-
back.
Analysis of NAB and ANZ Group based on Cash Flow Statement
NAB amount of cash collected from the operations was 13,217 in the year 2017, this is an
decrease from the year 2016 where the bank had reported net cash from the operation of
14,460 million and in 2015 the bank had recorded 14,562 million (Investing.com 2018)..
Further, based on NAB cash flow statement, it is evident that total amount utilized in its
investment activities decreased from 9,970 million in the year 2016 to around 313 million in
the year 2017 (NAB 2017). The decrease in this amount was mostly attributed by increment
in the amount of proceeds collected from sales of the controlled entities as well as due to
proceeds collected on sale of the joint venture and associates. Additionally, from the
statement, it is evident that NAB cash flows from its financing undertakings decreased from
9,496 million in the year 2016 to around -331 million in the year 2017. The decrease was
attributed by the significant decrease in proceeds from the issuance of the bonds as well as
due to repayments of the other debt issues. It was also attributable to increase in repayments
of the bonds over the year.
On the contrary, ANZ Group’s cash from operations increased with a significant margin
moving from 10,841 million in 2016 to around 23,972 million in 2017. Further, its cash
utilized in its investment decreased as from 14,410 million to 12,830 million. Moreover, cash
provided by the financing activities decreased from 1,958 million in 2016 to -6,667 million in
2017 (ANZ 2017). Therefore, ANZ Group seems to enjoy relatively higher cash flow
generation compared to NAB.

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Analysis of NAB and ANZ Group
Based on the two banks cash flow analysis, it is evident that the NAB has been doing better
than its counterpart ANZ Group in cash flow generation and cash flow management. In fact,
the analysis shows that NAB has been in a position to generate significant amount of the cash
flow over the years from its operations; hence, it has relatively high amount of cash and cash
equivalent over the period.
OTHER COMPREHENSIVE INCOME STATEMENT
Items Reported In Other Comprehensive Income Statement
Based on NAB (2017), the main items reported in the bank’s statement of the other
comprehensive income include fair value variations on the financial liabilities that is
designated at the fair value attributable to bank’s own credit risk. The fair value variation
reported in the year 2017 was around 11 million which was a major increase from the
previous year (Investing.com 2018). Another item reported in the statement is revaluation of
the land and buildings. The amount for revaluation of the lands and buildings was at 1 million
in the year 2017 compared to -1 million which was reported in 2016. This shows that
revaluation of the lands and buildings increased with significant margin over the period. The
third item reported on the equity statement was currency adjustment on the translation of the
other contributed equity. This amount was at 4 million in 2017, an increase from -183 million
reported in the year 2016. Such means that the amount increased over the year (NAB 2017).
The fourth item was equity instruments at the fair value via the other comprehensive income
which comprised of the tax on the items transferred to the equity directly and revaluation
losses. The tax on the items transferred to the equity increased as from 23 million in 2016 to
around 31 million. All the above items formed the total items which would not at any point
be reclassified to the income statement. Other items reported in the statement include those
items which would be reclassified subsequently to income statement. These items included

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the cash flow hedges; that is, losses transferred to income statement and gains on the cash
flow of the hedging instrument. The other item was the foreign currency translation reserves;
that is transfers to income statement on a disposal of the foreign operations as well as
currency adjustments on the translation of the foreign operations. There are also revaluation
gains and gains from the sale transferred to income statement. The items reclassified
subsequent to the income statement plus items that would not be reclassified to the profit or
loss statement forms other comprehensive income.
On the other hand, based on ANZ Group statement of other comprehensive income, there are
a number of items reported in this statement. Some of these items include items that could not
be reclassified to the income statement. These amounts for these items were 26 million in the
year 2017 (ANZ 2017). Other items were those items that might be reclassified to the income
statement which include exchange differences taken to the equity of around 748 million,
exchange difference that was transferred to the income statement as well as other reserve
movement. It also includes items such as share of the associates and income tax that was
attributable to other reserve movements (Investing.com 2018)..
The reason why the items reported in other comprehensive income statement are not
recorded in the income statement
Those items in other comprehensive statement are not necessarily reported in the income
statement (Black 2016). This is based on the fact that the items are yet to be realized as
incomes thus no need to report them to the income statement till they are realized (Khan,
Bradbury & Courtenay 2018).
Analysis of the Other Comprehensive Income between NAZ and ANZ Group

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The other comprehensive income for the two firms differed accordingly based on the
company financial performance. To be more specific, ANZ Group other comprehensive
income decreased over the year from -585 in 2016 to -1,040 in 2017. This was the case in
NAB where the total other comprehensive income decreased as from -20 million in 2016 to -
313 million in 2017. In case all the items reported in the other comprehensive income
statement were reported in income statement, all the amount of profit attributable to
stakeholder’s equity would in return decline for the two firms.
Whether the Other Comprehensive Income Items ought to be included while assessing
Managers’ Performance
With the fact that items reported in other comprehensive income statement result in a decline
in organization’s net income, the items and in particular other comprehensive income
analysis ought to be included while examining or evaluating managers’ performance
(Bradbury 2016). This is due to the notion that items reported in the statement have
significant impact on the organization’s profitability and in particular net income generation
(Pascan 2014).
ACCOUNTING FOR CROPORATE INCOME TAX
The Tax Expenses Reported in NAB and ANZ Group Latest Financial Statements
Tax expenses usually entail income before tax then multiplied by a specific tax rate. The
amount of tax expenses reported in NAB and ANZ Group financial statements include
income tax expense and corporate tax expense. NAB incurred $2,480 million as income tax
expenses in 2017. Nonetheless, ANZ Group income tax expenses were approximately 3,206
million in the year 2017. This means that ANZ Group income tax expenses were higher
compared to those one paid by NAB.

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Effective Tax Rate for the Two Companies
Effective tax rate is usually computed by dividing income tax expenses by the EBIT
(Elschner & Vanborren 2009). Therefore, in our case, effective tax rate for ANZ and NAB
would be as shows below:
ANZ Effective tax rate = 3,206/9,627 = 33.30%
NAB Effective tax rate = 2,480/8,661 = 28.63%
From the above results, it is clear that ANZ Group had high effective tax rate compared to its
counterpart; NAB.
Comments on the Deferred Tax Assets/Liabilities
NAB deferred tax assets was approximately 1,988 in the year 2017 while it had no deferred
tax liabilities within this year. On the other hand, ANZ Group deferred tax asset were 675
million in the year 2017 while the deferred tax liabilities were 257 million. The deferred tax
assets as well as the liabilities are usually reported in the firms’ balance sheets in order to
give a provision for future taxation that might arise whenever the taxable incomes are
significantly lower than the net incomes or the profit generated before tax.
Whether There Was an Increase or Decrease in Deferred Tax Assets or Liabilities
Based on the NAB balance sheet, it is evident that NAB deferred tax assets increased over the
year with a significant margin moving from 1,925 million by 2016 to around 1,988 million by
2017. Nonetheless, since there was no deferred tax liabilities it is evident that the bank
deferred neither tax liabilities did not increase nor decrease. This is based on the notion that
there was nothing to increase or decrease. On the other hand, deferred tax assets for ANZ

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Group decreased as from 623 million in 2016 to around 675 million in the year 2017. Its
deferred tax liabilities also decreased from 227 million in 2016 to 257 million in 2017.
Cash Tax Amount for Both Companies
Cash tax is usually equals to = the book tax + upsurge in company’s deferred tax liabilities –
increment in company’s deferred tax assets
Therefore, NAB’s cash tax = 2,480 + (0) – (1,988-1,925) = 2,417
ANZ’s cash tax = 3,206 + (257-227) – (675-623) = 3,184
Cash Tax Rate for Both Companies
According to Noor and Fadzillah (2010), Cash tax rate is usually computed by dividing cash
tax amount by the EBIT. Hence, in this scenario, ANZ Group’s cash tax rate = 3,184/9,627 =
33.07%
NAB’s cash tax rate = 2,417/ 8,661 = 27.91%
As from the above result, it can be stated that ANZ Group had high cash tax rate than its
counterpart.
The reason behind cash tax rate being different from book tax rate
Cash tax rate is said to vary from book tax rate since the computation of the cash tax rate is
based on original income tax expense plus the variation in the deferred tax asset and the
company’s deferred tax liabilities (Devereux, Lockwood & Redoano 2009). This is not the
case for the book tax rate since this is only computed by dividing original tax expense by the
reported EBIT.
Conclusion

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In conclusion, ANZ Group and NAB are considered as some of the largest banking institution
in Australia in terms of market capitalization. Therefore, based on the analysis, ANZ Group
seems to be doing relatively better in terms of cash flow generation and in terms of tax
income management compared to NAZ. Furthermore, the ANZ Group ANZ Group is doing
better in equity management and debt management compared to NAB which seems to be
overlying on debt financing to finance its operations over the period.

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REFERENCES
ANZ (2017), ANZ annual report 2017: Viewed from:
http://shareholder.anz.com/sites/default/files/2017_anz_annual_report.pdf (Accessed at 18th
September 2018)
Black, DE (2016), ‘Other comprehensive income: a review and directions for future
research,’ Accounting & Finance, 56(1), 9-45.
Bradbury, ME (2016), ‘Discussion of ‘Other comprehensive income: a review and directions
for future research,’ Accounting & Finance, 56(1), 47-58.
Devereux, MP, Lockwood, B & Redoano, M (2009), ‘Do countries compete over corporate
tax rates?,’ Journal of Public Economics, 92(5-6), 1210-1235.
Elschner, C & Vanborren, W (2009) Corporate effective tax rates in an enlarged European
Union (No. 14). Directorate General Taxation and Customs Union, European Commission.
Investing.com (2018), ANZ Banking Group (ANZ) Company profile: Viewed at:
https://www.investing.com/equities/australia---nz-banking-grp-ltd-company-profile
(Accessed 6th September 2018)
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September 2018)
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https://www.investing.com/equities/national-australia-bank-limited-income-statement
(Accessed at 18th September 2018)

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