Analysis of CBA's Financial Statements - Accounting for Managers

This report provides a comprehensive analysis of Commonwealth Bank of Australia's (CBA) financial statements, focusing on the balance sheet and income statement over a five-year period (2013-2017). The analysis highlights key items such as 'Loans and other receivables,' 'Deposits and other borrowings,' 'Net interest income,' and 'Operating expenses.' It examines the trends and changes in these items using horizontal analysis, discussing factors influencing these changes, including economic conditions, CBA's strategies, and specific events like technology adoption and customer-focused initiatives. The report concludes with an outlook for the future, emphasizing CBA's focus on strengthening its balance sheet and supporting business investment.

RUNNING HEAD: ACCOUNTING FOR MANAGERS
ANALYSIS OF FINANCIAL STATEMENTS

Accounting for managers 2
Part 1 Balance Sheet
a. According to the balance sheet of CBA, the major items which can be the interest of
the company are ‘Loans and other receivables’ reported on the asset side and
‘Deposits and other borrowings’ shown as liabilities on the other side
(Commbank.com.au 2017).
b. As CBA operates in banking industry, the main source of revenue and core activities
include taking the deposits and providing loan to the customers. This is the reason
why the above two items are majorly focused. The values of both the items has
increased over the past 5 years. One of the main reason behind this increase is the
positive changes happening in Australian Banking business in past years. As per 2015
annual report, the monetary policy of RBA resulted in the reduced dependence on
mining investment. The interest rates has been reduced which was a positive sign for
construction sectors and households back in 2014. Another reason was CBA’s strong
strategies which were focused on customer satisfaction (Commbank.com.au 2014).
c. Certain events has occurred in past 5 years which has affected CBA’s final accounts.
They are:
 Offering Daily IQ services to the business consumers, which keeps them
updated about their business and market (Commbank.com.au 2016).
 Establishment of Lab network across London, Sydney and Hong Kong. This
facilitates bank to contact or partner with clients.
 Investments made in projects like quantum computing and blockchain. In
addition to this, bank has also acquired a financial service technology named
as TYME. It designs banking ecosystem that stimulates customer service in
emerging markets (Commbank.com.au 2016).

Accounting for managers 3
All these events increases the value of deposits, loans and investments of the bank,
which can be seen on its balance sheet.
d.
Horizontal analysis
2013 2014 2015 2016 2017
$M $M $M $M $M
Loans and other receivables 556,648 597,781 639,262 695,398 731,762
Deposits and other borrowings 459,429 498,352 543,231 588,045 626,655
Investments 59,601 66,137 74,684 80,898 83,535
Increase/Decrease $M $M $M $M
Loans and other receivables 41,133 41,481 56,136 36,364
Deposits and other borrowings 38,923 44,879 44,814 38,610
Investments 6,536 8,547 6,214 2,637
In the balance sheet of CBA, Loans and deposits are the two items which are of major
significance because these items constitutes bank’s activities and revenue. As per the
analysis, increase has been notice is terms of $m in these items which implies that bank has
maintained a strong balance sheet in past five years. Also due to some changes in the
economy and working structure, the amount of investment made by the bank has also
increased.
Part 2 Income statement
a. On the income statement, the main items on which CBA focuses more are ‘Net
interest income’ and ‘operating expenses’ (Commbank.com.au 2017).
b. For the banking sector, interest income forms a major part of their revenue. Along
with this all the expenses incurred on conducting banking activities falls under the
head ‘operating expenses’. So, that is why these two items are of interest for CBA. An
increase was noticed in the expenses in past years, due to increase in banking staff,
changes in Australian economy, complying with new regulatory obligations and
enhancing the capabilities of system. Along with this, adoption of new technology

Accounting for managers 4
also increases the operating expenses (Commbank.com.au 2013). The reason for
increase in interest income is due to the strategy followed by CBA in respect of its
customer satisfaction. The loan amount provided to the clients has increased which
results in more interest income.
c. The events which affected above items along with other accounts of the business are:
 Development of the banking application named as CommBank app, along
with the launch of a tablet ‘Albert’ for its business customers
(Commbank.com.au 2015).
 Follow-up of customer focused strategies and implementation of new
technologies.
 Lowering of Australian dollar (Commbank.com.au 2015).
 The lower provisioning in private banking and business has resulted in the
reduction of loan impairment expenses.
All these actions increased the revenue of the bank and affected the value of expenses.
d.
Horizontal analysis
2013 2014 2015 2016 2017
$M $M $M $M $M
Net interest income 13,934 15,101 15,795 16,935 17,600
Operating expenses 9,085 9,573 10,068 10,468 11,082
Increase/Decrease $M $M $M $M
Net interest income 1,167 694 1,140 665
Operating expenses 488 495 400 614
Net interest income is basically the income earned by the bank after deducting all the
expenses. Therefore, it is a very important item to take into consideration. In Addition to this,
bank also emphasis on the expenditures incurred on its operations. Reason being, apart from
other items, net income is directly affected by the operating expenses. The above analysis

Accounting for managers 5
shows that both the items has been increased in the past years but the rise in interest income
is much more than the rise in expenses.
Part 3 Outlook for next years
From the above information, it can be said that the bank is performing very well for itself and
for the people of Australia. The last five year results shows that company has kept its balance
sheet stronger and has provided excellent services to its customers. According to CBA’s
CEO, in the coming years, the bank will focus on enhancing the business investment for
securing jobs and lifting up the wages. In order to strengthen its balance sheet, the business
will give more importance to its long term strategies for remaining competitive in the market.
CBA also focuses on keeping a strong banking system so that it can entertain its customer in
every economic scenario (Commbank.com.au 2017).

Accounting for managers 6
References
Commbank.com.au (2017). Annual Report 2017. Retrieved 13 March 2018, from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
annual-reports/annual_report_2017_14_aug_2017.pdf
Commbank.com.au (2013). Annual Report 2013. Retrieved 13 March 2018, from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
annual-reports/2013_CBA_Annual_Report_19_August_2013.pdf
Commbank.com.au (2014). Annual Report 2014. Retrieved 13 March 2018, from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
annual-reports/2014-annual-report-website.pdf
Commbank.com.au (2015). Annual Report 2015. Retrieved 13 March 2018, from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
annual-reports/cba-annual-report-30%20June-2015.pdf

Accounting for managers 7
Commbank.com.au (2016). Annual Report 2016. Retrieved 13 March 2018, from
https://www.commbank.com.au/content/dam/commbank/about-
us/shareholders/pdfs/annual-reports/2016_Annual_Report_to_Shareholders_15_Augu
st_2016.pdf