Financial Performance Analysis of Banks

This assignment requires students to analyze the financial performance of two banks (Commonwealth Bank and another unnamed bank) over a period from 2008 to 2017. Students will use key financial ratios such as Financial Leverage, Net Profit Margin, Return on Assets, and Return on Equity to evaluate the banks' profitability, efficiency, and risk management. The data for both banks is provided in tabular format, allowing for direct comparison of their performance over time.

Running head: PROFESSIONAL PROJECT
How debt management will improve the expected profit of the Commonwealth Bank
Name of the Student:
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Unit Name:
Unit Code:
Tutor’s Name:
Name of the University:
Assignment No:
Assignment Title:
Due Date:
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Author’s Note:

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Declaration
I have read and understand the Rules Relating to Awards (Rule 3 Section 18 – Academic
Misconduct Including Plagiarism) as contained in the SCU Policy Library. I understand the
penalties that apply for plagiarism and agree to be bound by these rules. The work I am
submitting electronically is entirely my own work.
Signed:
(Please type your name)
Date:

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PROFESSIONAL PROJECT
Executive Summary
The professional project that is under consideration looks to explain how debt management is
associated with the expected profit of Commonwealth Bank in relation to the other banks in
Australia. The other banks that have been chosen are Westpac and ANZ Bank respectively.
The research has framed the research questions and the objectives of the paper in accordance
to which the researcher has agreed to take the research ahead. The literature review explains
the advices provided by other researchers and websites that associate to debt management.
Quantitative data has been used in order to proceed with data analysis so that the financial
figures of the paper can be assessed and thereby outcome of the paper can be achieved.

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Table of Contents
Chapter 1: Introduction..............................................................................................................4
1.1 Problem Statement...........................................................................................................4
1.2 Research Aims and Objectives.........................................................................................5
1.3 Research Questions..........................................................................................................5
Chapter 2: Literature Review.....................................................................................................6
Chapter 3: Research Methodology.............................................................................................8
3.1 Data collection process....................................................................................................8
3.2 Data Analysis...................................................................................................................9
Chapter 4: Data Analysis and Findings....................................................................................10
4.1 Descriptive Statistics......................................................................................................10
4.2 Correlation......................................................................................................................12
Chapter 5: Discussion..............................................................................................................14
5.1 Descriptive Statistics......................................................................................................14
5.2 Correlation......................................................................................................................14
Chapter 6: Conclusion and Recommendation..........................................................................15
6.1 Addressing the aims and the questions..........................................................................15
6.2 Limitation.......................................................................................................................15
6.3 Recommendation............................................................................................................15
Reference List..........................................................................................................................16
Appendix..................................................................................................................................20

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Chapter 1: Introduction
In the modern world, management of debt has been one of the key issues for the
organizations that are performing in the global economy. The debt management is helpful in
determining the level of profit for any organization. In the current aspect to time, the basis of
finance is the initial step in the functioning of an organization or business. The basic and the
fundamental financial source are inclusive of equity and debt financing which is even called
the capital structure of financing (De Jonghe, & Öztekin 2015). In accordance to equity
financing, the common fund can be increased by issuing the Initial Public Offering (IPO) to
the common people and the issuance of the ordinary shares. On the other hand, debt is
explained as the agreement among two parties where the borrower has to assure to make
payments of certain amount of interest with the treaty to make payment for the principle
value in the coming future (De Mooij, & Keen 2016). The process of debt financing is
regarded as a key aspect of the financial strategy of the organization because of the fact that
debt are of numerous kinds that includes the issuing of the bonds, debentures, trade credits
and loans etc. On the other hand, profit is explained as the financial advantage or the rewards
that have been achieved when the revenue value is more than the costs of the business
operations. As the profit is associated directly with the process of decision making of an
organization and therefore has an effect on the selection of the equity or debt financing
(Alshatti, 2015).
1.1 Problem Statement
Different kinds of organisations has the option of selecting in between the equity
financing and debt financing for the activities of the business which is associated directly to
the growth and profit of the organization (Allegret et al., 2016). It can be explained that debt
financing has the benefit over the tax savings or the tax intentions over the financing related
to equity and debt financing is not a complex process with respect to the equity financing in

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the process of debt management and the lender is eligible only to undertake repayment of the
principle of the loan that has been agreed on and additionally the rate of interest. Therefore,
most of the organizations have the intention of undertaking debt financing (Alessandri, &
Nelson 2015). It is due to this reason that this thesis paper has looked to discuss about the
management of debt variables that have an impact on the anticipated profits of the firm, the
process of research planning that are going to be utilised in order to compare and compute the
variables that can be exploited in order to assess the various kinds of ratios, leverage and the
amount that can be used in order to undertake a comparison of the outcome in the present
scenario (Bennett et al., 2015). This paper has therefore looked to determine the debt
management process and its impact on profit of Commonwealth Bank of Australia.
1.2 Research Aims and Objectives
The objectives of the paper has been constructed in order to have an idea about the
process that would be undertaken and the factors that would be taken into consideration in
order to have an idea about the result that would be obtained in this paper. The research aims
and objectives are as follows:
 Determine how profitability has an impact on the operations of a bank
 Ascertain how debt management improves the level of profit in the bank
1.3 Research Questions
The researcher looks to frame the research questions in order to create a path in
accordance to which the research paper would move ahead and thereby would be able to
answer to the issues that are pertinent to this research paper. The research questions are as
follows:
Q1. How does profitability have an impact on the activities of Commonwealth Bank?

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Q2. How does debt management improve the profit level of Commonwealth Bank?
Chapter 2: Literature Review
The anticipated profit and the capital structure of the organizations are dependent on
the numerous decisions associated with the capital structure that are undertaken by them. In
the current period, several researches have been explained that capital structure has been
swelling but there are empirical evidences has been key even today (Waemustafa, & Sukri
2015). There have been several studies and reports that have discovered that positive tax has
an impact on the extent of debt financing (Subrahmanyam et al., 2017). There has been
several numbers of studies that have revealed a negative impact on of tax on the extent of
leverage. Therefore, it needs the Meta assessment of the impact of marginal tax on the debt
ratio (Barth et al., 2017). The tax benefit is seen to be one of the most significant pieces of
information for the purpose of financial decisions in accordance to the capital structure. It is
due to this fact that development in the capital structure has been suggested as a central
principle as the companies have been making use of extreme utilisation of the debt in order to
damage the level of profit for an organization. DeAngelo, & Stulz (2015) have undertaken the
tax advantages of debt making use of the rate of the marginal tax at various degrees of
interest. As the taxable income after the subtraction of the rate of interest is lower than the
past financing, the process expressed by Calomiris, & Carlson (2016) has a good chance of
estimating the lower rate of marginal tax than the one predicted by Ball et al., (2015). The
development in the capital structure with the assistance of the debt to equity ratio will raise
the profitability of the firm (Ashraf et al., 2016). The extent of debt or the debt to equity ratio
themselves does not specify whether the organizations have been using increased amount of
debt or not but on the other hand, the companies that are operating outside Australia has
faced the transformations in the usage of debt after the financial crisis in accordance to the

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PROFESSIONAL PROJECT
financial decisions from the point of view of the tax advantages and costs (Van Bekkum,
2016).
There have been other papers as well who have concentrated on the agency issue that
has a direct impact on the capital framework of an organization (Chan-Lau et al., 2015). The
agency issues come out when there is supposed to be the probability of disputes among the
owners of the company and the lenders which may limit the optimal capital ability decision
of the company (Panizza, & Presbitero 2014). In this case, the capital investment will look to
explain the agency issues with the help of debt financing. On the other hand, cost associated
with bankruptcy is looked upon to be comparative to the value of liquidation of the company
where the concentration is given on the assessment of the decisions of the organizations that
are associated with the capital investment in accordance to the external debt financing along
with the bankruptcy threats (Alshatti, 2015). Therefore, the companies will look to select the
extent of optimality in order to mitigate the increased expense of borrowing and bankruptcy.
But in certain scenario, the agency cost can be existent even when the estimated cost of
bankruptcy is terminated. Furthermore, when the rate of the corporate tax is raised, the
agency expense will reduce but the optimal level of capacity will rise with the rise in the
extent of borrowing (De Jonghe, & Öztekin 2015).

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Chapter 3: Research Methodology
This segment of the research paper has the intention of revealing the process of
collecting the authentic data that would the helpful in taking the paper forward and answering
the issues that have been identified by the researcher previously. In order to discover the
effective capital structure that is related to debt financing and equity financing that will be
helpful in finding out the anticipated profit of Commonwealth Bank, the researcher has
looked to collect quantitative data.
3.1 Data collection process
The main objective of the data gathering process has been to reveal the impact of debt
management on the on the anticipated profit of Commonwealth Bank. In accordance to this
research, the researcher has looked to undertake descriptive research design in order to
explain the data that has been gathered by the researcher from several sources (Borisova et
al., 2015). The paper has tried to collect the data with the assistance of the secondary data
methods so that critical level of analysis can be attained (Black et al., 2016). In order to
gather the data in an effective and swift manner, the researcher has utilised the most general
methods of gaining the secondary data. This kind of data has been gathered by taking
assistance of the sources like the websites and even website journals. The other sources
include the journals, relevant books, and articles, reports from the governments and the
annual reports of the banks that have been taken into consideration (Greenwood et al., 2015).
The researcher has even taken assistance of the researches that have been taken previously by
other researches in order to link them with the current researches and have a clear idea about
the result that needs to be accomplished. The collection of the data with the help of these
sources will be reducing cost for the researcher and thereby this method is looked upon as

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PROFESSIONAL PROJECT
cost efficient. The secondary data even addresses the current concern by not taking assistance
of any other sources that are available to the researcher.
The information related to Commonwealth Bank and the other banks that have been
selected for the assessment in this paper has even gathered from the Australian Statistics
Bureau (ABS) as this website contains all the data that are associated with any organization
that are functional in the Australian economy (Gomariz, & Ballesta 2014). However, as this
paper mainly concentrates on the financial aspects of the banks, effective level of information
has been available from the annual reports of the concerned banks and thereby effective
results can be attained.
3.2 Data Analysis
The researcher has looked to collect quantitative data as the paper is concerned with
assessing the financial figures that are associated with the transactions that have taken place
in Commonwealth Bank and the other banks that have been selected in order to gain the
outcome that is required in order to complete the paper. The data that has been attained needs
to go through several software tools in order to get the results out of them (Hasan et al.,
2017). Excel software and tool has been used in order to evaluate the data and the internal
aspect of the data that would explain the impact of debt management on the expected profit
for Commonwealth Bank can be obtained. The leverage ratio of the selected banks will be
taken into consideration in order to attain the results that are associated with the research
aims and questions.

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Chapter 4: Data Analysis and Findings
This segment of the paper has been framed in order to have an idea about the process
and the measures that have to be taken in order to critically evaluate the financial figures and
break them down in an effective manner in order to have an idea about debt management and
their impact on the expected profit of Commonwealth bank in Australia in comparison to the
ANZ Bank and Westpac. The values that are in relation to Return on Equity, Return on Asset
and the Financial Leverage have been compared of each of the banks in order to have an idea
about their operational activities. The analysis has been given as follows:
4.1 Descriptive Statistics
Commonwealth Bank
Commonw
ealth Bank 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mean
13.56
67
12.86
67
12.45
67
12.59
67
12.53
67
11.95
33
11.91
33 11.88
10.96
67
10.86
33
Standard
Error
6.263
46
6.103
46
5.797
84
5.814
98
5.762
62
5.469
16
5.433
91
5.407
05
4.979
82
4.915
03
Median 19.76 17.07 17.53 18.17 17.91 16.77 16.21 16.65 15.5 15.46
Standard
Deviation
10.84
86
10.57
15
10.04
22
10.07
18
9.981
15
9.472
87
9.411
8
9.365
29
8.625
3
8.513
09
Sample
Variance
117.6
93
111.7
57
100.8
45
101.4
42
99.62
34
89.73
52
88.58
2
87.70
87
74.39
57
72.47
26
Skewness
-
1.731
7
-
1.506
4
-
1.693
2
-
1.727
6
-
1.720
5
-
1.696
5
-
1.626
2
-
1.697
4
-
1.711
8
-
1.721
4
Largest(1) 19.9 20.69 18.95 18.65 18.68 18.05 18.41 17.9 16.38 16.09
The descriptive statistics of Commonwealth Bank explain that the mean value of the
bank in accordance to the variables that have been taken into consideration has their value in

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PROFESSIONAL PROJECT
between 10.86 to 11.56. The values have been very close to each other. The median for the
variables for the past 10 years have ranged from 15.46 to 18.17. The standard deviation on
the other hand has been around 8.5 to 10.8. The figures explain that there have been slightest
of changes in the financial scenario in accordance to the debt management and profitability.
ANZ Bank
ANZ
Bank 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mean 11.05 8.65 10.27
10.73
67
10.48
33 10.47 10.86 10.21 8.79
8.966
67
Standard
Error
5.298
78
4.267
38
4.729
02
4.899
34
4.801
81
4.778
38
4.936
03
4.671
28
4.421
23
4.306
78
Median 14 10.19 13.91 15.21 14.61 14.75 15.62 14.19 9.92 10.97
Standard
Deviation
9.177
75
7.391
32
8.190
9
8.485
9
8.316
98
8.276
4
8.549
46
8.090
9
7.657
79
7.459
56
Sample
Variance
84.23
11
54.63
16
67.09
08
72.01
05
69.17
21
68.49
88
73.09
33
65.46
27
58.64
17
55.64
5
Skewness
-
1.297
-
0.896
9
-
1.604
8
-
1.713
-
1.683
1
-
1.704
8
-
1.728
8
-
1.678
-
0.649
6
-
1.121
4
Confidenc
e
Level(95.
0%)
22.79
88
18.36
11
20.34
73
21.08
01
20.66
05
20.55
97
21.23
8
20.09
89
19.02
3
18.53
06
The values in regards to ANZ Bank indicate that the mean value has been in between
8.7 to 11.05 and the median on the other hand has been 9.92 and the highest value has been
15.62. On the other hand, the standard deviation explains that value has been in between 7.4
to 9.1. These figures have lower values in accordance to the ones that have been observed for
Commonwealth Bank.
Westpac Bank

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Westpac 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mean
16.14
67 10.27
11.55
67
11.52
67
10.00
33 10.31 10.95
10.69
33
9.573
33
9.403
33
Standard
Error
7.615
49
4.930
26
5.265
51
5.235
09
4.574
05
4.660
03 4.96
4.843
57
4.347
45
4.234
43
Median 22.86 13.12 16.19 16.02 13.87 14.94 15.91 15.3 13.38 13.37
Standard
Deviation
13.19
04
8.539
47
9.120
14
9.067
45
7.922
48
8.071
41
8.590
97
8.389
3 7.53
7.334
25
Sample
Variance
173.9
87
72.92
25
83.17
69
82.21
86
62.76
57
65.14
77
73.80
48
70.38
04
56.70
09
53.79
12
Skewness
-
1.697
-
1.334
6
-
1.696
1
-
1.682
4
-
1.673
1
-
1.731
9
-
1.732
1
-
1.725
9
-
1.693
5
-
1.721
9
Confidenc
e
Level(95.
0%)
32.76
68
21.21
32
22.65
57
22.52
48
19.68
05
20.05
05
21.34
12
20.84
02
18.70
56
18.21
93
The descriptive statistics in relation to Westpac indicates that the mean value ranges
from 9.4 to 16.14. The median for the financial figures of Westpac are 13.37 to 22.86 and the
standard deviation has a range of 7.33 to 13.19.
4.2 Correlation
The process of correlation refers to the understanding of the relationship among the variables
that have been taken into consideration. This paper has looked to undertake a correlation
among the financial leverage and the net profit margin of the banks that have been chosen.
The correlation of all the banks have been explained as follows:
Commonwealth Bank
Correlation -0.786950463
MSE 0.940482382
The correlation of Commonwealth bank has been constructed by taking help of the
financial leverage figures and the net profit of the company. The figures indicate that the

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PROFESSIONAL PROJECT
correlation is negatively correlated explaining that financial leverage and net profit margin
are not associated to each other for Commonwealth Bank. The mean squared deviation has a
value of 0.9404. This addresses that debt management does not improve the profit of the
bank.
ANZ Bank
Correlation -0.156814712
MSE 1.48335
The figures for ANZ Bank has been similar to Commonwealth Bank as it is seen that
the values for the past ten years are negatively correlated and the two variables are not
associated to each other. The mean squared deviation of ANZ Bank comes to 1.48335
Westpac Bank
Correlation -0.203415414
MSE 1.727055587
The correlation for Westpac is negatively correlated as well and thereby explaining
that debt management is not having improving the level of profit for the bank. The mean
squared deviation for the bank is 1.727055587.

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Chapter 5: Discussion
5.1 Descriptive Statistics
The figures that have been attained for the three banks indicate that the performance
of the banks have fallen with the advent of time for all the three banks. The fall in the
leverage ratios have indicated that there has been an impact on the profit of the companies
(Greenwood et al., 2015). The values of all the three banks have decreased significantly for
the past 10 years and there has been an observation that out of the three banks the
performance of Commonwealth Bank has been the best. The assessment therefore has been
able to explain that debt management has an impact on the estimated profit and the same has
been observed in the analysis of Commonwealth Bank.
5.2 Correlation
The values that have been obtained for the correlation analysis of all the three banks
have addressed that all the variables that have been compared for the banks are not closely
related to each other for all the 10 years. Westpac, ANZ Bank and Commonwealth Bank have
their profit and financial leverage not associated closely to each other as the obtained value is
negative. This explains that debt management may not improve the estimated profit of the

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PROFESSIONAL PROJECT
banks especially in the case of Commonwealth Bank as it has the highest negative value. The
outcome is positively related to the constructed literature review.
Chapter 6: Conclusion and Recommendation
6.1 Addressing the aims and the questions
The paper has been extensively able to answer the research aims and objectives as the
results that have been collected explain that management of debt has the capability to
improve the expected profits of a bank. The result has been able to signify that leverage may
not have an impact on the profitability of Commonwealth Banks and debt management
cannot improve the profit level of the banks. The results even indicate that debt management
and level of profit are indirectly associated to each other and therefore steps has have been
undertaken by the management of the banks to improve the level of profit.
6.2 Limitation
The limitation that is existent with this research paper has been that the secondary
data that has been collected for the completion of the paper may not be accurate as the
transactions that have been disclosed by the companies may not be true. The other limitation
that has been observed is the time limitation and therefore the researcher could not construct
a much better result.

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6.3 Recommendation
Every research paper has certain aspects in accordance to which suggestions can be
given in order to improve financial position of the banks and thereby improve the operational
activities as well. The management of the banks can take steps in improving the debt
management process of the banks with the help of which the level of profit can be enhanced.
The banks can even look to undertake partnerships with other financial institutions who
would look and control the debt management processes of the banks which can be effective
in maintaining the profit level they desire.
Reference List
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curve. Journal of Money, Credit and Banking, 47(1), 143-175.
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European Banks Stocks Contagion or Interdependence?. European Research
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Alshatti, A. (2015). The effect of credit risk management on financial performance of the
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Alshatti, A. (2015). The effect of credit risk management on financial performance of the
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Retrieved 5 February 2018, from http://www.anz.com

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Ashraf, D., Rizwan, M. S., & L’Huillier, B. (2016). A net stable funding ratio for Islamic
banks and its impact on financial stability: An international investigation. Journal of
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Ball, R., Li, X., & Shivakumar, L. (2015). Contractibility and transparency of financial
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performance during the crisis. Journal of Financial Intermediation, 24(4), 487-513.
Black, L., Correa, R., Huang, X., & Zhou, H. (2016). The systemic risk of European banks
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De Jonghe, O., & Öztekin, Ö. (2015). Bank capital management: International
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De Jonghe, O., & Öztekin, Ö. (2015). Bank capital management: International
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De Mooij, R. A., & Keen, M. (2016). Debt, taxes, and banks. Journal of Money, Credit and
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Subrahmanyam, M. G., Tang, D. Y., & Wang, S. Q. (2017). Credit default swaps, exacting
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Appendix
Westpac
Bank
Year
Financial
Leverage
Net Profit
Margin
Return on
Assets
Return on
Equity
2008 24.63 33.79 0.95 22.86
2009 17.02 20.88 0.67 13.12
2010 16.19 37.53 1.05 17.43
2011 16.02 41.34 1.09 17.47
2012 15.25 33.2 0.89 13.87
2013 14.94 36.57 0.99 15
2014 15.91 37.92 1.03 15.91
2015 15.3 36.99 1.01 15.77
2016 14.44 35.45 0.9 13.38
2017 13.9 36.62 0.94 13.37
ANZ
Bank
Year
Financial
Leverage
Net Profit
Margin
Return on
Assets
Return on
Equity
2008 18.39 26.24 0.76 14
2009 15.15 20.97 0.61 10.19
2010 16.01 27.81 0.89 13.91
2011 16.05 31.56 0.95 15.21
2012 15.93 31.9 0.91 14.61
2013 15.73 33.97 0.93 14.75
2014 15.97 36.23 0.99 15.62
2015 15.54 35.56 0.9 14.19
2016 15.82 27.81 0.63 9.92
2017 15.22 31.6 0.71 10.97

21
PROFESSIONAL PROJECT
Commonwealth Bank
Year
Financial
Leverage
Net Profit
Margin
Return on
Assets
Return on
Equity
2008 19.76 32.36 1.04 19.9
2009 20.69 26.85 0.84 17.07
2010 18.95 26.14 0.89 17.53
2011 18.65 29.52 0.97 18.17
2012 17.91 32.14 1.02 18.68
2013 16.77 31.91 1.04 18.05
2014 16.21 33.5 1.12 18.41
2015 16.65 33.56 1.09 17.9
2016 15.5 33.56 1.02 16.38
2017 15.46 34.9 1.04 16.09