Financial Statement Analysis
Added on 20200504
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Accounting & Financial Management
C. Ratio AnalysisProfitability RatiosThe profitability ratios are calculated for analyzing the revenue generated by a business entity in comparison to the expenses incurred. The ratios examined for measuring the profitability of ANZ and Commonwealth bank are as follows:Net Profit ratio: The net profit ratio depicts the percentage of profit realized from the business operations after meeting all the operating expenses, interest expenses and taxes. It is calculated through the help of following formula:Net Profit=Profit after tax/Net SalesReturn on Assets: It depicts the profit gained by a business entity through the use of its total assets (Atrill, McLaney and Harvey, 2014). It is calculated as:Return on Assets (ROA) =Net Income/Average Total AssetsThe profitability ratios of ANZ and Commonwealth Bank as calculated are as follows:Profitability Ratio201420152016Net Profit RatioANZ36.26%35.56%27.81%Commonwealth33.50%33.56%33.56%Return on AssetsANZ0.94%0.84%0.62%Commonwealth1.09%1.04%0.99%As depicted form the above table, the net profit ratio of ANZ have shows a decreasing trend from 20142016 while of Commonwealth have shown an increasing trend for the same period. On the other hand, the ROA of both ANZ and commonwealth bank is declining from 20142016. Thus, it can be said that Commonwealth bank has realized larger profits in the recentyears as compared to ANZ (ANZ : Annual Report, 2015). Efficiency Ratios:The efficiency ratios depict the ability of a business entity to realize sales from the effective use of its assets. The efficiency ratios analyzed for ANZ and Commonwealth are as follows:Fixed Turnover Ratio: It depicts the use of fixed assets by a business entity to generate sales and is calculated as:Fixed Asset Turnover Ratio=Net Sales/Average Fixed assets
Asset Turnover Ratio: It depicts the amount of revenue realized by a business entity through the use of its assets (Harris and Mongiello, 2012). It is calculated as:Asset Turnover Ratio=Net Sales/Average Total AssetsThe Efficiency ratios of ANZ and Commonwealth Bank as calculated are as follows:Efficiency Ratio201420152016Fixed Turnover RatioANZ0.0340.0320.031Commonwealth0.0390.0380.036Asset Turnover RatioANZ0.0260.0240.022Commonwealth0.0330.0310.029The above table indicates that fixed asset turnover ratio for ANZ and Commonwealth bank is decreasing from the year 20142016. Similarly, the asset turnover ratio for both the bankshas shown a decreasing trend for the same period. Therefore, it can be said that both the banks are not using their asset base effectively for generating revenue (ANZ : Annual Report, 2016). Liquidity Ratios:The liquidity ratios depict the ability of a company to hold cash for meeting its financial obligations. The liquidity ratios analyzed for both the banks are as follows:Current Ratio: It compares the current assets of a company in relation to the current liabilities and is calculated through the formula:Current Ratio=Current Assets/Current LiabilitiesQuick Ratio: The quick ratio measures the amount of liquid assets of a business entity in comparison to the current liabilities (Atrill, McLaney and Harvey, 2014). It is calculated as:Quick Ratio=(Cash + Marketable Securities + Accounts Receivable) / Current LiabilitiesThe liquidity ratios of ANZ and Commonwealth Bank as calculated are as follows:Liquidity Ratio201420152016Current ratioANZ2.322.001.37Commonwealth0.640.690.74Quick ratioANZ2.322.001.37Commonwealth0.640.690.74The current ratio of ANZ is decreasing form the period of 20142016 while that of Commonwealth is increasing for the same period. Also, the quick ratio of ANZ is decreasing from the financial year 20142016 while that of Commonwealth bank have shown an increasing
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