Ratio Analysis of HSBC and Standard Chartered

Running head: RATIO ANALYSIS OF HSBC AND STANDARD CHARTERED
Ratio Analysis of HSBC and Standard Chartered
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RATIO ANALYSIS OF HSBC AND STANDARD CHARTERED
Executive summary
The objective of the report is to highlight the importance of the ratio analysis and on the basis
of the ratio analysis evaluation of the financial strength of HSBC and the standard chartered
bank has been made. The report contains the brief analysis of all the profitability, efficiency
and capital structure ratios to make a comparative analysis between these two banks. It also
contains the impact of changes in the accounting policies of the banks and the report has been
concluded by stating the limitations of the use of ratio analysis to evaluate the financial
condition of the banks.

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RATIO ANALYSIS OF HSBC AND STANDARD CHARTERED
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Conclusion..................................................................................................................................6
References..................................................................................................................................7
Appendix....................................................................................................................................8

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RATIO ANALYSIS OF HSBC AND STANDARD CHARTERED
Introduction
HSBC is one of the leading banks in the world with total asset value of US $2.558
trillion. The bank has around 3900 offices in 65 countries. The bank operates in Asia, Africa,
Europe and north America having a customer base of 38 million. The company is listed in
both the stack exchanges of Hong Kong and the London stock exchange. Standard chartered
is one of its major competitors which is also considered as one of the major banks in the
international market. Standard chartered has 1200 branches all over the world and the
business is expanded over more than 70 countries in the world.
Discussion
Analysis of financial statements
The income statement of HSBC has been analysed and from which it has been
observed the operating profit in the last 5 years has decreased, in spite of generating higher
revenue in the last 5 years, this indicates that the operating expenses has exceeded
significantly in the last five years and the management of the bank has to take preventive
measures to control the increasing trend of expenses.
By analysing the balance sheet, it has been observed that in the last five years the
HSBC bank has been able to enhance the value of their assets which indicates that the bank
has strong financial condition (Monahan 2018).
From the analysis of the cash flow statement it can be observed that despite of
negative free cash flow in the year 2015 and 2017 the bank has made significant
improvement in the year 2016 and 2018 and from negative balance it bring the cash position
in positive balance tht is from (-£ 57,438,000.00) in the year 2015 to £ 66,902,000.00 in the
year 2016 and from (-£ 12,930,000.00) in the year 2017 to £3,425,000.00 in the year2018
and £26,111,000.00 in the year 2019.
Ratio analysis
The financial performance of HSBC is compared with standard chartered bank, in
order to make the comparison four main ratios are considered these are capital structure ratio,
efficiency ratios, profitability ratios, and the liquidity ratios,
Profitability ratios
The profitability ratios that are considered to measure the financial strength of HSBC
and standard chartered bank are net profit margin, return of assets and the return on equity.
The net profit margin of HSBC in the year 2018 and 2019 is 16.73 and the 7.21 which
indicates that the HSBC failed to maintain its net profit margin in the year 2019 and due to its
poor performance in the year 2019 the net profit margin decreased to a significant level. In
comparison to that the standard chartered bank has been able to increase the profit margin
from 7.49 in the year 2018 to 15.17 in the year 2019. This indicates that standard chartered
has been able to perform better than HSBC (Bootle et al 2018).
Return on assets