Detailed Financial Analysis: ANZ and Commonwealth Bank Performance

This report provides a detailed financial statement analysis of ANZ and Commonwealth Bank, utilizing horizontal, vertical, and ratio analyses to derive key insights and recommendations. The analysis reveals that while both banks have maintained relatively constant revenue bases, their gross profit percentages have increased, with Commonwealth Bank showing a slightly higher margin. ANZ's return on equity has significantly declined due to a drop in net profit attributable to shareholders, while Commonwealth Bank's has remained fairly stable. The report highlights Commonwealth Bank's higher debt levels and gearing ratio, posing risks from a shareholder's perspective, and suggests reducing debt proportion. Cash flow issues are identified in Commonwealth Bank's operating activities, contrasting with ANZ's stable cash flow. Recommendations include strategies to increase revenue, control expenses, manage debt, and stabilize tax and debt components to enhance shareholder security. Ultimately, while Commonwealth Bank has seen income and profit increases, its balance sheet indicates higher risk due to cash flow and debt capital, whereas ANZ demonstrates more stability across revenue, profit, and balance sheet status.

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By student name
Professor
University
Date: 07 January 2018.
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Contents
Recommendation........................................................................................................................................3
Conclusion...................................................................................................................................................5
References...................................................................................................................................................6
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Recommendation
From the above analysis of the financial statements through the horizontal and vertical analysis and the
ratio analysis, various inferences can be drawn and following are the recommendations for both the
companies in this regard:
1. The revenue base for both the banks ANZ and the commonwealth bank has fairly remained
constant for all the 3 years however, the gross profit percentage has increased for both,
commonwealth bank being on the slightly higher side. In order the bank targets to improve the
gross margin, it needs to increase its top line (Goldmann, 2016).
2. The return of equity has dropped substantially for ANZ whereas for commonwealth bank, it has
remained fairly constant. This is mainly because in ANZ bank, the net profit attributable to the
shareholders has declined by huge margin. For this, the company needs to increase its topline
and decrease the indirect and the direct expenses (Gerlach, Mora, & Uysal, 2018).
3. Debt being on higher side in commonwealth bank, the gearing ratio is way too high as compared
to the ANZ bank. This is risky from the shareholder’s perspective and the company should thus
try to reduce the proportion of debt in the capital structure. ANZ is just above the industry ratio
and thus, it should also try to lower it down.
4. In terms of horizontal analysis, it can be seen that the profit of commonwealth bank has
decerased mainly on account of decrease in revenue and increase in operating expenses
therefore the same should be controlled and within the budget to make the industry margin.
5. In terms of cash flow statement, there is a lot of variation in the cash flow from operating
activities in commonwealth bank and it has decreased by 270% in 2016 and 78% in 2017, which
is an indicator that the company is facing cash flow issues. In sharp contract, the cash flow from
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operating activities in ANZ banks is fairly stable which shows the continuous flow of cash in the
company and hence CWB has to drive its cash flow in a much more planned way going forward.
6. Furthermore, the commonwealth bank has been issuing debt or loan capital on a continuous
basis throughout the 3 years due to which the debt equity ratio ha increased beyond the
industry average. The ANZ bank has been stable in this regard and had issued equity shares only
in 2015. Therefore CWB bank needs to repay the loan capital soon (Alexander, 2016).
7. From the vertical analsysis, it can be seen that for ANZ bank, the proportion of expenses as a %
of revenue has not varied much in the last 3 years whereas for CWB bank, the interest expenses
have declined considerably from 60% to 56% to 53%, other parameters remaining almost
constant. Therefore, ANZ bank needs to decrease its interest expenses in order to remain
competitive in the industry.
8. In ANZ bank’s balance sheet analysis, it can be seen that the current tax assets and the deferred
tax assets has undergone major changes in the last 3 years, other components being almost
constant whereas in CWB bank, the proportion of loan capital has increased year on year and
hence ANZ and CWB bank needs to stabilise its tax and debt respectively to give more security
to the shareholders (Heminway, 2017).
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Conclusion
From the above in depth analysis and the recommmendations on the financial statements, it can be
concluded that the though commonwealth bank’s income and profit has increased over the past 3 years
but the status of the balnce sheet reflects that there is a lot of risk in terms of the cash flow and reh
increase in the debt capital year on year. On the other hand, ANZ has been fairly stable in all the
respects, be it revenue or the profit or the balance sheet status. It can therefore, be said that the
company has not been growing in the last 3 year and it needs to take strong steps in order to increase
revenue and profitability.
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Gerlach, J., Mora, N., & Uysal, P. (2018). Bank funding costs in a rising interest rate environment. Journal
of Banking and Finance, 87, 164-186.
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4, 103-112. Retrieved from
https://doi.org/10.1007/978-3-319-39919-5_9
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, 1-35.
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