Business Financial analysis of National Australian Bank

This report analyzes the financial performance of National Australian Bank. It includes performance ratio analysis, share price movement, and market value ratios. It also provides recommendations for improvement.

RUNNING HEAD: Business Financial analysis of National Australian Bank
1
Name of the student
Topic- Business Financial analysis of National Australian Bank
University name

Table of Contents
Introduction...........................................................................................................................................3
1. Description of National Australian Bank...................................................................................3
2. Governance and Ownership structure............................................................................................4
3. Performance ratio analysis of National Australian Bank...............................................................5
Short term solvency ratio...................................................................................................................6
Long term Solvency ratios.................................................................................................................7
Asset utilization.................................................................................................................................8
Profitability ratios..............................................................................................................................9
Market value ratios..........................................................................................................................12
4. The share price graph and calculation for the movement of the share price.................................14
4.1 Graph reflecting the share price movement of the National Australian Bank............................14
4.2 The comparison between the Share price movement of National Australian Bank and share
price movement of all ordinary stock exchange...............................................................................14
5. Announcements...........................................................................................................................16
6. Research via internet....................................................................................................................16
6.1 Beta calculation...................................................................................................................17
6.2 Computation of required rate of return by using CAPM method...............................................18
6.3 Determining the investment method (Conservative investment)................................................19
7. Computation of the weighted average cost of capital...................................................................19
7.1 Computed Cost of Capital through Capital Assets Pricing model........................................19
7.2 Implications that a higher WACC on investment decision........................................................20
8. Debt ratio consideration of National Australian Bank.................................................................21
8.1 Stable Debt to equity ratio of the company....................................................................................21
8.2 Gearing ratio discussion.............................................................................................................22
9. Divided policies of the company.................................................................................................22
10. Letter of recommendation........................................................................................................23
11. Conclusion...............................................................................................................................25
12. References...............................................................................................................................26
13. Appendix.................................................................................................................................27

Business Financial analysis of National Australian Bank
3
Introduction
With the changes in economic conditions and complex business structure, each and
every organization has implemented a proper strategic program to run the business
effectively. This report assist in evaluating whether National Australian Bank has positive
financial performance or not. In this report, financial performance of National Australian
Bank will be analyzed to determine whether bank has been running its busienss effectively or
not. The share price analysis of two years, weighted average cost of capital and investment
method of National Australian Bank has been analysed to identify where company needs to
make improvement in its business. In the end, letter of recommendation have been given to
directors and managers of Company.
1. Description of National Australian Bank
It is an Australian Bank which is one of the four biggest financial institutions in Australia in
context with the market capitalization, revenue and number of customers and earnings. This
company has gained momentum throughout the time and increased its number of clients. The
current CEO of the company is Andrew who takes all the necessary steps to run the business
effectively.

2. Governance and Ownership structure
The present CEO of the company is Andrew
The below-given table reflects the key major stakeholders who are owning the highest shares
in Company (Laudon, and Traver, 2013).

Business Financial analysis of National Australian Bank
5
3. Performance ratio analysis of National Australian Bank
The ratio analysis assists in evaluating the financial performance of National Australian
Banks by setting the relation between two factors of the company (National Australian Bank.
2015).

Short term solvency ratio
1. Current ratio
It is evaluated that Current ratio of National Australian Bank is moderate which reflects that
company has managed to operate its business (Vogel, 2014).
Liquidity ratio Years
2017 2016
Current ratio 1.2 .89
Quick ratio .92 .57
This table shows that company has increased its current ratio by .30 points and also
increased its quick ratio by .31 points in 2017 as compared to last year data.
Note- If we do not consider any of its assets current then the current and quick ratio
would be determined as zero.
(National Australian Bank. 2015).

Business Financial analysis of National Australian Bank
7
Proving the equation
This equitation shows the left side of the company is equal to the right side of the
company.
Providing equation 2014 2015 2016 2017
Net profit After tax/OE 0.55154
0.47597938
5 0.42241 0.34557
EBIT/TA*NPAT/EBIT*TA/OE 0.55154
0.47597938
5 0.42241 0.34557
(The above-given table reflects the equation for the net profit and overall earning)
Both sides of the data are equivalent.
Long term Solvency ratios
Debt to equity
The financial leverage of National Australian Bank is high which shows that bank has
been enjoying the lower cost of capital.
The National Australian Bank has maintained 92% debt to equity ratio which reflects
that company has high financial leverage. (Cikaliuk, et al.).
National Australian Bank needs to lower down its finanical leverage by reducing the debt
portion.
Computation of debt to equity of Company
Debt Equity

2016 2017
A. Total Liabilities 7,26,307 737008
B. Total assets 7,77,622 7,88,325.00
(A/B) 93% 93%
Interpretation
It is analysed that the debt to equity of company has been showing the positive results
which reflects that company could undertake more projects with it lower cost of capital.
However, the debt to equity has gone down to 93% which is 2% lower as compared to last
four year data.
Gearing ratio discussion
The gearing ratio is the ratio which reflects the relation between the interest payment
and earnings before interest and tax. It is observed that company has increased its gearing
ratio to 52% in 2017 which is 1% lower as compared to 2016.
Gearing Ratio
2016 2017
Gearin
g Ratio 53% 52%
The Gearing ratio of National Australian Bank is not effective company needs to
lower down its debt portion.
Asset utilization
1. Inventory turnover ratio

Business Financial analysis of National Australian Bank
9
This ratio shows company’s efficiency to deploy the funds in the books of account of
Company.
Efficiency ratio Years
2017 2016
Inventory turnover ratio 0 0
Asset turnover ratio .82 .86
Receivable turnover ratio 16.5 17.1
Days' sales in inventory 2.1 2.2
Days' sales in receivables 24 23
The National Australian Bank does not have inventory in its business due to its
financial activities. Therefore, inventory turnover of company is zero
2. Asset turnover ratio
It shows that revenue generated capacity of company from its assets. The assets turnover of
National Australian Bank has increased to .82 times which is .02 times higher as compared to
last year data.
3. Debtor turnover ratio
The debtor turnover of National Australian Bank is very high which shows that it has been
efficiently deploying its capital in the books of accounts..
Profitability ratios
Computation of the Return on Equity and Return on assets

National Australian Bank
Particulars (Amount in Million 2016 2017
AUD$
EBIT 27,629 27,403
Interest 14,699 14,221
Net profit 21,666 17,730
Total Assets 7,77,622 7,88,325
Total Liabilities 7,26,307 7,37,008
Shareholders' Equity 51,292 51,306

Business Financial analysis of National Australian Bank
11
Computation of Return on Assets of Company
1. The rate of Return
on Assets
2016 2017
A.
Net
income
(AUD $
in
Million)
21,666 17,730
B.
Total
assets
(AUD $
in
Million)
7,77,6
22
7,88,3
25
(A
/B) 3% 2%
Interpretation of the data
National Bank Australia has kept its return on equity to 2% in 2017 which is 1 %
lower as compared to last year data. It reflects that company has decreased its overall net
income since last five years which is not a positive indicator for the business (Dahir, Mahat,
and Ali, 2018).

Return on equity of the company
2. The rate of Return on
Equity
2016 2017
A. Net
income
available
to equity
shareholde
rs.
21,66
6 17,730
B.
Shareholde
r’s Equity
51,29
2
51,306.
00
(A/B) 42.24
% 34.56%
Interpretation
The return on equity of company has been reduced to 34.56% which is 10 % lower as
compared to last year data. The total revenue of the company has reduced the drastic rate
which shows negative indicator. It has been observed that if a company wants to increase its
overall return on equity then it must increase its overall revenue.
Market value ratios
1. Earnings per share
It is the portion of the profit allocated to each outstanding shares of company.
Market Value ratios Years
2017 2016
Earnings per share - 2.80 - 7.40
P/E ratio - -
Dividend pay-out
ratio - -

Business Financial analysis of National Australian Bank
13
The EPS of National Australian Bank has been divided into two parts.
Price to earnings ratio
It measures company’s current share price in relation to its per share earnings. The PE ratio
of company is positive which shows that Banks has increased its PE ratio to .68 in 2017
which is 20% higher as compared to last year data.
Dividend payment ratio
The dividend payment ratio has increased by 20% as compared to last year data.

4. The share price graph and calculation for the movement of the share price
4.1 Graph reflecting the share price movement of the National Australian Bank
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
1/1/2018
3/1/2018
0
5
10
15
20
25
30
35
Average return-National Australia
Bank Limited (NAB.AX)
Average return-National
Australia Bank Limited
(NAB.AX)
(Yahoo Finance, 2017)
4.2 The comparison between the Share price movement of National Australian Bank
and share price movement of all ordinary stock exchange
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
1/1/2017
2/1/2017
3/1/2017
4/1/2017
5/1/2017
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
1/1/2018
2/1/2018
3/1/2018
-5
0
5
10
15
20
25
30
35
Average Return
Average return-National Australia Bank Limited (NAB.AX)
null 22.391094
Average Return
(Yahoo finance, 2017)

Business Financial analysis of National Australian Bank
15
After evaluating the share price data of the National Australian Bank and share price
movement of All ordinary stock exchange, it is observed that the share price movement of
National Australian Bank is highly stable which reflects that as compared to all ordinary
share price index, company has increased the share price value by 20% since last five years.
On the other hand, the share price movement of the entire ordinary index is less stable which
reflects the negative value creation on the overall investment.
It is observed that if investors want to create value on the invested amount then it needs to
focus on investing their capital in National Australian Bank. The other companies are not
doing well in market after analysing the all ordinary share price index (Zhu, 2014).

5. Announcements
It has been evaluated that the share price of National Australian Bank has been changed in the
positive manner which shows a positive indicator of the value creation. It is analysed that the
banking and finance sector of Australia reflects the positive indicator for the business. The
high brand image and innovative functions used by National Australian Bank is the positive
factor for increasing the overall share price of the company.
The reduction in the interest rate charged by the company for assigning the bank loan amount
to borrowers was also the major announcement which eventually increases the overall share
price of Company.
6. Research via internet
Stock information and Beta calculation
The beta value of company is -0.07432 which shows that there will be changes in the capital
value negatively due to changes in the share value of market.

Business Financial analysis of National Australian Bank
17
6.1 Beta calculation
The beta value of National Australian Bank is
Regression
Statistics
Multiple R
0.12460
1
R Square
0.01552
5
Adjusted R
Square -0.0337
Standard
Error
0.02397
8
Observations 22
ANOVA
df SS MS F
Significan
ce F
Regressi
on 1
0.0001
81
0.0001
81
0.3154
06 0.580621

Residual
2
0
0.0114
99
0.0005
75
Total
2
1
0.0116
8
Coefficie
nts
Standar
d Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Interce
pt 0.009079
0.0053
47
1.6979
47
0.1050
24
-
0.0020
7
0.0202
33
-
0.0020
7
0.0202
33
X
Variabl
e 1 -0.07432
0.1323
34
-
0.5616
1
0.5806
21
-
0.3503
6
0.2017
24
-
0.3503
6
0.2017
24
The beta value calculated of National Australian Bank is -.074. It shows that if the market
premium or change in the market is seen then there will be a negative impact on the share
price of National Australian bank. This beta calculation of National Australian Bank has
shown that company needs to increase overall output if it wants to maintain less risky
business as compared to shown market risk premium.
6.2 Computation of required rate of return by using CAPM method
E(R) = Rf +( β∗R p)
E(R) = expected Amount of rate of return
Rf = Risk free % rate of return

Business Financial analysis of National Australian Bank
19
β = Computed Beta
Rp= Market premium risk factor (National Australian Bank. (2017).
Calculation of Required rate of return
Risk-free rate (A) 4%
Beta (B) -0.074320221
Market Risk premium (C) 6%
Required rate of return [A+(B*C)] 3.55%
(Please see the excel)
Notes- The risk-free rate of return is computed on the basis of government yield and rate of
return offered on the issued gilt securities.
6.3 Determining the investment method (Conservative investment)
After analysing the annual report of the company, it is analysed that company has
decreased its overall revenue due to its negative business functioning and tough banking and
finance regulation. It is analysed that National Australian Bank should invest its capital in
other business sectors with a view to creating value on their investment. National Australian
Bank should diversify its business and indulge in other sectors. The conservative investment
policy of the company is based on the less return on capital employed and low turnover of the
company. Therefore, it is considered that if management of National Australian Bank wants
to create value on its investment then it should focus on investing the capital in the other
diversified business sector which has higher profitability.

7. Computation of the weighted average cost of capital
7.1 Computed Cost of Capital through Capital Assets Pricing model
Cost of capital- 3.55%
It is computed by using the capital assets pricing model.
Cost of debt- 1.93%
It is observed that cost of debt of the company is computed on the basis of interest payment
and debt capital (Brigham, and Ehrhardt, 2013).
WACC = cost of debt* portion of the debt capital+ cost of Equity * portion of the Cost of
equity
WACC
Capital
Amount
Cost of
capital
% of
portion WACC
Equity 51,306 3.55% 7% 0.00323%
Debt 7,37,008 1.93% 93% 1.80%
Total
capital 7,88,314 WACC 2.04%
It is analysed that the weighted average cost of capital of the company is 2.04% which shows
that weighted average cost of capital is based on the cost of equity and cost of debt multiplied
with the portioned investment.
7.2 Implications that a higher WACC on investment decision
National Australian Bank has a low level of weighted average cost of capital. It is
analysed that company has kept the lower weighted average cost of capital which reflects that
company will have a higher return on capital employed if it invests its capital in other

Business Financial analysis of National Australian Bank
21
business. It is observed that if the company has several project investment options then it
could easily create value on their vestment. It is evaluated that if a company wants to create
value on their investment then it has to find other projects which have a high return on
investment. National Australian Bank has shown the positive amount of increment in the
return on capital employed due to its less weighted average cost of capital it would make
management to accept those projects which will offer a high return on capital employed.
8. Debt ratio consideration of National Australian Bank
8.1 Stable Debt to equity ratio of the company
The the debt to equity of company has been showing the positive results which
reflects that company could undertake more projects with it lower cost of capital. However,
the debt to equity has gone down to 93% which is 2% lower as compared to last four year
data (Cikaliuk, et al.).
Computation of debt to equity of Company
Debt Equity
2016 2017
A. Total Liabilities 7,26,307 737008
B. Total assets 7,77,622 7,88,325.00
(A/B) 93% 93%
Interpretation
. Both year company had 93% debt to equtiy ratio which shows higher finaical
leverage. It has been considered that the debt to equity of National Australian Bank is very

high which reflects the company needs to lower down its debt portion. It will be negative to
National Australian Bank if in case it fails to have adequate amount of net profit to cover its
interest charges.
8.2 Gearing ratio discussion
The gearing ratio is the ratio which reflects the relation between the interest payment
and earnings before interest and tax. The National Australian Bank has stable gearing ratio in
spite of a decrease in its overall total revenue. It is observed that company has increased its
gearing ratio to 52% in 2017 which is 3% lower as compared to 2013. It is observed that
company should reduce the overall interest payment with a view to reducing the overall
financial leverage.
Gearing Ratio
2016 2017
Gearin
g Ratio 53% 52%
The Gearing ratio of National Australian Bank is not that effective. However, it is
covering all of its interest payment out of the earnings before interest and tax. Nonetheless,
National Australian Bank either needs to increase its overall profitability or reduce the
interest payment if want to mitigate its business uncertainty and financial leverage.
9. Divided policies of the company
After considering the annual report of National Australian Bank, it is observed that
company has been following profit based dividend policy. It has issued divided to its
shareholders on the basis of the profit earned. It is analysed that company has reduced its
dividend payment with the decrease in its total revenue. However, bonus shares and other
incentives programs have been followed by the company to issue a dividend in the market.
The company should focus on creating value on the investment by re-plug its earnings in its
own value chain activities. Nonetheless, the company has also followed proper strategic
program which focuses on issue less dividend and investing more in its operating activities
such as securitisation, buying mutual funds and lending money to borrowers. This dividend

Business Financial analysis of National Australian Bank
23
policy is highly appreciable to the organizations which are running their business in sluggish
market conditions. In this market condition, the company has followed the proper strategic
program to attract more investors. The profit-based dividend police will eventually reduce the
value of its business in the long run as the company has been offering less dividend amount
with the decrease in its overall revenue. The dividend policy of National Australian Bank
could be changed with the changing business factors and complex market situation. However,
National Australian Bank has followed profit based dividend policies which is too logical in
this ramified economy. Ideally, investors also appreciate these sort of dividend policies when
company is having good amount of return. Nonetheless, in case of negative business
situation, it might be result to negative impact on investors and they will stop making
investment in National Australian Bank.
This investment method of National Australian Bank has shown that company has
been increasing its investment in other business sectors with a view to diversify its business
and increasing its overall return on capital employed.
10. Letter of recommendation
To,
Directors of National Australian Bank
Address:-
There are several positive and negative factors which might impact the business functioning
of the organization. It is observed that company could create value on its investment on the
basis of invested capital. There are several finding such as total revenue of company has gone
down by 20%, net profit has also decreased by 22% which is also not a positive indicator of
the growth of the Bank. Nonetheless, the weighted average cost of capital is too low which
could not only increase the overall return on capital employed but also increase the efficiency
of the organization. The beta value calculated of National Australian Bank is -.074. Which
reflects that if the market is changed by 1% then the share price of the company will also
change by .74 in negative factors (National Australian Bank. 2018)? The Weighted average
cost of capital of the company is 2.04% that is a positive indicator for creating value on the
investment. The share price of the National Australian Bank and share price movement is
showing the positive value creation. It would help investors to create value on their

investment. Now, in the end, it could be inferred that if investors want to invest their capital
in National Australian Bank then it will not only increase the value of the investment but also
provide them with the return on equity in terms of dividend.
Now, in the end, it could be inferred that if National Bank Australia want to increase its
overall total revenue then it must reduce its overall interest charges on its lending capital.

Business Financial analysis of National Australian Bank
25
11. Conclusion
There are several financial analysis tools which could be used by investors and
management department to analyse the financial performance of the company. It is observed
that company has reduced its total revenue. The return on assets of the company has gone
down to 2% in 2017 which is .99% lower as compared to last five year data. It reflects that
company needs to reduce the return on its capital employed. It is analysed that if National
Australian Bank wants to create value on its investment then it must tap another diversified
market to create value on their investment. The company has kept high financial leverage in
all of its five-year business which is not a good indicator to run the business efficiently.
Nonetheless, in 2017, it had reduced its debt to equity ratio to 93% which is 2% lower as
compared to last four year data

12. References
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Cikaliuk, M., Erakovic, L., Jackson, B., Noonan, C. and Watson, S., 2017. Board Leadership
for Strategic Transformation: Aligning Diversity Initiatives at the Bank of New Zealand.
Dahir, A.M., Mahat, F.B. and Ali, N.A.B., 2018. Funding liquidity risk and bank risk-taking
in BRICS countries: An application of system GMM approach. International Journal of
Emerging Markets, 13(1), pp.231-248.
Laudon, K.C. and Traver, C.G., 2013. E-commerce. Pearson
National Australian Bank. (2015). Annual report. Available at
http://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual
%20Report.pdf, Accessed on 29th April 2015
National Australian Bank. (2016). Annual report. Available at
http://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual
%20Report.pdf, Accessed on 29th April 2018
National Australian Bank. (2017). Annual report. Available at
http://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual
%20Report.pdf, Accessed on 29th April 2018
National Australian Bank. (2018). Annual report. Available at
http://www.wellard.com.au/assets/ASX%20Announcements/160930%20Annual
%20Report.pdf, Accessed on 29th April 2018
Yahoo finance, 2018 retrieved on 19h January from https://in.finance.yahoo.com/
Zhu, J., 2014. Quantitative models for performance evaluation and benchmarking: data
envelopment analysis with spreadsheets (Vol. 213). Springer

Business Financial analysis of National Australian Bank
27
13. Appendix
Australian Australian Bank
Particulars (Amount in
Million 2014 2015 2016 2017
AUD$ AUD$ AUD$
EBIT 30,778 30,419 27,629 27,403
Interest 17,039 16,437 14,699 14,221
Net profit 26,414 26,414 21,666 17,730
Total Assets 8,83,301 9,55,052 7,77,622 7,88,325
Total Liabilities 8,35,393 8,99,539 7,26,307 7,37,008
Shareholders' Equity 47,891 55,494 51,292 51,306
1. The rate of Return on Assets
2014 2015 2016 2017
A. Net income 26,414 26,414 21,666 17,730
B. Total assets 8,83,301 9,55,052 7,77,622 7,88,325
(A/B) 2.99% 3% 3% 2%
2. The rate of Return on Equity
2014 2015 2016 2017
A. Net income available to equity
shareholders. 26,414 26,414 21,666 17,730
B. Shareholder’s Equity 47,891 17,981 51,292 51,306.00
(A/B) 55.15% 146.90% 42.24% 34.56%
3. Debt Ratio
2014 2015 2016 2017
A. Total Liabilities 8,35,393 8,99,539 7,26,307 737008
B. Total assets 8,83,301 9,55,052 7,77,622 7,88,325.0
0
(A/B) 95% 94% 93% 93%
Gearing Ratio
2014 2015 2016 2017
Gearing Ratio 55% 54% 53% 52%
SUMMARY OUTPUT

Regression
Statistics
Multiple R 0.124601
R Square 0.015525
Adjusted R
Square -0.0337
Standard
Error 0.023978
Observatio
ns 22
ANOVA
df SS MS F
Significanc
e F
Regression 1
0.00018
1
0.00018
1
0.31540
6 0.580621
Residual 20
0.01149
9
0.00057
5
Total 21 0.01168
Coefficien
ts
Standar
d Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.009079
0.00534
7
1.69794
7
0.10502
4 -0.00207
0.02023
3
-
0.0020
7
0.02023
3
X Variable 1 -0.07432
0.13233
4
-
0.56161
0.58062
1 -0.35036
0.20172
4
-
0.3503
6
0.20172
4
Date
Adj
Close
National Australia Bank
Limited (NAB.AX)
Adj Close (All ordinary
share index)
Average
Return
31-03-
2016 null null
30-04-
2016
22.39
109 4947.899902
31-05-
2016
22.04
704 - 5151.799805 0.04
30-06-
2016
23.00
937 0.04 5316 0.03
31-07-
2016
23.70
295 0.03 5447.799805 0.02
31-08-
2016
24.16
244 0.02 5310.399902
-
0.03
30-09-
2016
24.27
515 0.00 5644 0.06
31-10-
2016
25.08
143 - 5529.399902
-
0.02

Business Financial analysis of National Australian Bank
29
30-11-
2016
27.14
344 0.08 5525.200195
-
0.00
31-12-
2016
27.71
92 0.02 5402.399902
-
0.02
31-01-
2017
29.23
631 0.05 5502.399902 0.02
28-02-
2017
30.47
011 - 5719.100098 0.04
31-03-
2017
31.07
329 0.02 5675
-
0.01
30-04-
2017
27.52
728
-
0.11 5761 0.02
31-05-
2017
28.26
775 0.03 5903.799805 0.02
30-06-
2017
28.61
167 0.01 5947.600098 0.01
31-07-
2017
28.85
05 0.01 5761.299805
-
0.03
31-08-
2017
30.09
24 - 5764 0.00
30-09-
2017
31.20
057 0.04 5773.899902 0.00
31-10-
2017
28.26
775 - 5776.299805 0.00
30-11-
2017 29.57 0.05 5744.899902
-
0.01
31-12-
2017 29.13
-
0.01 5976.399902 0.04
31-01-
2018 30.18 0.04 6057.200195 0.01
28-02-
2018 28.49
-
0.06 6167.299805 0.02
31-03-
2018 28.59 0.00 6130.399902
-
0.01
27-04-
2018 28.59 6131.399902 0.00