Comprehensive Analysis of Australian Banking Industry: Project Report

This project report offers a comprehensive financial analysis of the Australian banking industry, focusing on investment opportunities. It employs both top-down and bottom-up analysis methodologies to evaluate market performance, industry trends, and the financial health of key players like ANZ Bank and Commonwealth Bank. The report examines macroeconomic factors such as GDP, inflation rates, and fiscal policies, providing a holistic view of the industry's environment. Key financial metrics, including ratio analysis and DU Pont analysis, are used to assess the performance of individual firms. The analysis includes income statements, cash flow statements, and balance sheet data. The report concludes with a summary of findings and provides recommendations for investors, making it a valuable resource for understanding the dynamics and potential of the Australian banking sector. This project offers a detailed assessment of the current state and future prospects of the industry.

RUNNING HEAD: Investment analysis 1
Project report

Investment analysis 2
Executive summary:
Fundamental concepts are the best concept to identify the best stock in the market and
it is also useful to analyze the various conditions and situation of the company. In this report,
various tools of fundamental analysis such as bottom up analysis and top down analysis has
been performed to identify and manage the performance of the country, industry as well as
the firms. In this report, firstly the Australian market has been analyzed. In addition, the
industry of banking has been evaluated and lastly the performance has been done over the
two firms which are operating its business functioning under the industry of banking. More,
various micro and macro factors have been analyzed for this report. Lastly, a summary of the
report and a recommendation have been given to brief the investor about the situation of the
company.

Investment analysis 3
Contents
Introduction.......................................................................................................................4
Company overview:..........................................................................................................4
Top down analysis............................................................................................................4
Banking industry of Australia.......................................................................................5
Future projections.........................................................................................................6
Inflation rate..................................................................................................................7
GDP..............................................................................................................................8
Fiscal policies...............................................................................................................9
Bottom up analysis...........................................................................................................9
Ratio analysis..............................................................................................................10
ANZ Bank Australia...............................................................................................10
Commonwealth bank Australia..............................................................................11
DU Pont analysis........................................................................................................12
ANZ Bank Australia...............................................................................................12
Commonwealth bank Australia..............................................................................13
Financial data analysis................................................................................................15
ANZ bank Australia................................................................................................15
Commonwealth bank Australia..............................................................................16
Summary and recommendation......................................................................................17
References.......................................................................................................................18

Investment analysis 4
Introduction:
This entire study has been done to identify the opportunities for an investor into the
Australian market. Through this study, it has been found that the Australian market is
performing well in the current scenario. Various tools are available into the market to
evaluate the best security into the market. In this report, fundamental analysis has been opted.
Fundamental analysis is a study in which various stocks are evaluates on the basis of their
worth in the market. For analyzing the worth, the final statements, industry situation,
company situation, economical condition etc has been evaluated. Further, for the conduction
of fundamental analysis, two methods of fundamental analysis have been evaluated. One is
top down analysis and other one is technical analysis.
In this report, various tools of fundamental analysis such as bottom up analysis and
top down analysis has been performed to identify and manage the performance of the
country, industry as well as the firms. In this report, firstly the Australian market has been
analyzed. Further, banking industry has been evaluated for this report. and two firms of the
industry which are commonwealth bank Australia and ANZ bank Australia has been taken
into the consideration. In this report various aspect of the industry has been analyzed such as
fiscal policies, inflation, GDP, economy performance, environmental condition, economical
condition, ratio analysis, income statement, cash flow statement, ratio analysis, balance sheet
analysis, DU Pont analysis etc has been evaluated (Sarsby, et al, 2014).
Top down analysis:
The top down analysis is the tool of fundamental analysis. In top down analysis, an
industry and entire movements are analyzed which have taken place into the security market
or the changes into the particular industry’s prospective rather than the individual security.
This analysis mainly depends upon the assumption that an individual company of an industry
cannot perform well if the industry in which company is operating, not performing well.
Further, it has been found that this is totally opposite to the bottom up analysis. For analyzing
the best result through top down analysis, it is required for the analyst to make better
situation. And for it, various tools must be analyzed in this report. Top down must be
conducted according to the industry situation and the prospect of the company. So analyst
must be aware about the situation of the industry (yasin, 2014).

Investment analysis 5
For preparing this report, banking industry has been taken into the context and further,
the two firms of the company are commonwealth bank Australia and ANZ bank Australia
(Seng & Hancock, 2012). Top down analysis has been done over both the companies of
banking industry which are commonwealth bank Australia and ANZ bank Australia to make
a better decision about the investment position of the company. In this report various aspect
of the industry has been analyzed such as fiscal policies, inflation, GDP, economy
performance, environmental condition, economical condition etc has been done (krnatz,
2016). This study has been conducted to identify the individual security performance in the
banking and financial industry. Top down analysis express about entire aspects which are
somehow related to the security such as the performance of the company, new policies and
strategies adopted by the company, management strength of the company, operations and
business functioning of the industry etc. this study has been performed for the investors so
that they can make a better decision about the investment into the particular security.
Banking industry of Australia:
The Australian market is performing well in the market and the impact of better
performance of the market is directly linked with the Australian banking industry. It has been
evaluated that the banking industry’s growth is enhancing rapidly. Further, the last few years
data have been analyzed of banking industry and it has been found that the banking industry
is enhancing rapidly. Banking industry is enjoying a great experience in the market and thus
the industry is a good option for the investors to invest their money (Nelson, Balakrishnan &
Sidhu, 2012).

Investment analysis 6
(Analysis, 2017)
The above table has also been evaluated and it has been found that the Australian
banking industry is earning more profits than any other company worldwide. The Australian
market has also left the China, UK, US etc countries behind and reaches on the top.
Currently, the profits earned by the banking industry of Australia are 2.9% which is more
than any other country’s profits. The performance of the banking industry depict about a
better investment opportunity into the banking industry of Australia.
Future projections:
Further, the Australian market has been analyzed to identify the future changes of the
industry as well as the performance of the industry. Through the reasrch over the banking
industry, it has been found that the industry is performing super in current scenario and future
prospect of the industry is also depicting about a great industry situation. It has been
evaluated that the risk and return of the industry is managing effectively through the
companies and thus the industry would grow further rapidly (Zhang, Fonslow, Shan, Baek &
Yates III, 2013). Currently, the Australian banking industry is on the top in terms of profits
and the policies and strategies of the company are also in favor and so the industry’s
performance and profitability would enhance in near future (Nelson, Balakrishnan & Sidhu,
2012).

Investment analysis 7
`further, various other articles and news have been studied and it has been found that
the banking industry is one of the top profitable industry of the Australian market and the
GDP ratio of the industry is also higher and thus it could be expressed that this industry
would offer high return to its investors with less situated risk (Benchmark, 2017).
(Benchmark, 2017)
Banking sector of Australian market is attractive and managing the operations and
performance quickly. It has also been evaluated through this study that the industry would
perform effectively in the future.
(Analysis, 2017)
Inflation rate:

Investment analysis 8
In addition, Australian market’s inflation rate has been evaluated to analyze the
performance and the investment opportunity into the Australian market as well as the banking
industry of Australia (Seng & Hancock, 2012). Inflation rate of a country depict about the
changes into the prices and economy. Through the below given chart, it has been found that
the inflation rate of current quarter has been reduced. This has been reduced due to various
government policies. Thus the industry is a good option for the investors to invest their
money
GDP:
In addition, Australian market’s GDP rate has been evaluated as well as the banking
industry contribution has also been analyzed to identify the performance and the investment
opportunity into the Australian market as well as the banking industry of Australia (Seng &
Hancock, 2012). GDP rate of a country depict about the performance and profitability of the
economy. Through the below given chart, it has been found that the GDP rate of the country
is quite impressive and the Australia is on the num of 13th in the top world’s largest economy
(Luo, Ghassemlooy, Le Minh, Bentley, Burton & Tang, 2014). This has been enhanced due
to various government policies and performance of the industry. Thus the industry is a good
option for the investors to invest their money.
As well as it has also been evaluated that the banking industry’s contribution in the
total GDP of Australia is around 10% which is quite higher and thus it has been found that
this industry is a good option for the investors to invest the amount and manage the return
and risk situated with the investment.

Investment analysis 9
(Benchmark report, 2017)
Fiscal policies:
Lastly, Australian market’s fiscal policies have been evaluated to analyze to identify
the performance and the investment opportunity into the Australian market as well as the
banking industry of Australia (Seng & Hancock, 2012). Fiscal policies of a country depict
about the various changes into the policies of the company. Through the various studies, it
has been found that the fiscal policies of the country is in the favor of the Australian market
and currently the changes which have been made by the government has opened the various
opportunities for the FDIs (Hajkowicz, Cook & Littleboy, 2012). This has been enhanced due
to various government policies and performance of the industry. Thus the industry is a good
option for the investors to invest their money.
Bottom up analysis:
As discussed, the bottom up analysis is the tool of fundamental analysis. In bottom up
analysis, an individual stock or security is analyzed rather than the entire movements which
have taken place into the security market or the changes into the particular industry’s
prospective. This analysis mainly depends upon the assumption that an individual company
of an industry can perform well whether the industry in which company is operating, not
performing well. Further, it has been found that this is totally opposite to the top down
analysis. For analyzing the best result through bottom up analysis, it is required for the
analyst to make better situation. And for it, various tools must be analyzed in this report.

Investment analysis 10
bottom analysis must be conducted according to the industry situation and the prospect of the
company. So analyst must be aware about the situation of the industry (parker & Vansett,
2012).
For preparing this report, banking industry has been opted and further, the two firms
of the company are commonwealth bank Australia and ANZ bank Australia. Bottom up
analysis has been done over both the companies of banking industry which are
commonwealth bank Australia and ANZ bank Australia to make a better decision about the
investment position of the company. In this report, income statement, cash flow statement,
ratio analysis, balance sheet analysis, DU Pont analysis etc has been done (Lou, Zhang,
Zhang, Yao & Xu, 2012). This study has been done to identify the performance of individual
security in the banking industry. Bottom up analysis depict about entire aspects which are
directly or indirectly related to the security such as the performance of the company, new
policies and strategies adopted by the company, management strength of the company,
operations and business functioning of the company etc. this study has been performed for
the investors so that they can make a better decision about the investment into the particular
security.
Ratio analysis:
Ratio analysis is a study which tells the user about the various position of an
individual company. This analysis is performed by the investors, companies and financial
analysts to identify the position of the company in the market. In ratio analysis, 2 or more
aspects of income statement, balance sheet and cash flow statement are compared to reach
over a conclusion. For instance, current assets and liabilities are compared to identify the
current ratio of the company. Basically, these ratios are calculated by the investors,
companies and financial analysts to evaluate the company’s operational and financial
condition as well as the strength and weakness of the company in terms of managing the final
financial condition.
ANZ Bank Australia:
ANZ bank Australia is one of the best banks in the Australian market. The
management and performance of the company is quite impressive. Ratio analysis study has
been performed over the company to analyze the operational and financial condition as well
as the strength and weakness of the company in terms of managing the final financial

Investment analysis 11
condition (Morote et al, 2013). Following are the calculations of the analysis of ratios of the
company:
Computation of ratio analysis
Liquidity ratio 2016 2015
Current ratio 3.600124613 5.750542206
Quick ratio 3.575364413 5.710978381
Working capital 4,96,603.0 5,51,975.0
Profitability Ratios 2016 2015
Operating Profit Margin 2.243513802 1.357443321
Net Profit Margin 0.338170833 0.40928708
Return on Capital Employed 0.1 0.0
Return on Equity 0.098740877 0.130871487
Return on Total assets 0.006240238 0.008418923
Debt equity ratio
Capital structure ratio 2016 2015
Debt- equity 14.82325573 14.54491938
Interest coverage ratio
Efficiency ratio
Efficiency ratio 2016 2015
Receivable turnover ratio 0.028648229
Creditor turnover ratio 1.098434819 0.015646351
Inventory turnover ratio 2.265065409 0.019301994
Assets turnover ratio 0.018708211
Computation of return on capital invested
Particular 2016 2015
ROCI -263.8795987 -241.7157275
Through the above table, it has been analyzed that the performance of the company
has been enhanced from last year in terms of liquidity, profitability, solvency and efficiency.
The liquidity ratio of the company expresses that the company has reduced the current ratio
to manage the resources. Further, the profitability ratios over the company express about the
increasing profitability position of the company. Still the net profit of the company has been
reduced due to various operational expenses. In addition, debt equity ratio has been evaluated
which depict about the relation between the liabilities and assets. It depict that the debt and
equity ratio of the company is almost similar from last year.

Investment analysis 12
Commonwealth bank Australia:
Commonwealth bank Australia is one of the best banks in the Australian market. The
management and performance of the company is quite impressive. Ratio analysis study has
been performed over the company to analyze the operational and financial condition as well
as the strength and weakness of the company in terms of managing the final financial
condition (Morote et al, 2013). Following are the calculations of the analysis of ratios of the
company:
Computation of ratio analysis
Liquidity ratio 2016 2015
Current ratio 2.91616255 2.673539461
Quick ratio 2.883303411 2.641758711
Working capital 4,62,142.0 4,00,155.0
Profitability Ratios 2016 2015
Operating Profit Margin 0.380104681 0.369853372
Net Profit Margin 0.281042079 0.27058651
Return on Capital Employed 0.0 0.0
Return on Equity 0.157858021 0.175983674
Return on Total assets 0.010185644 0.010563904
Debt equity ratio
Capital structure ratio 2016 2015
Debt- equity 14.49808989 15.6589613
Efficiency ratio
Efficiency ratio 2016 2015
Receivable turnover ratio 0.050675078
Creditor turnover ratio 1.617127257 0.031456863
Inventory turnover ratio 2.174954909 0.028634582
Assets turnover ratio 0.03743875
(Morningstar, 2017)
Through the above table, it has been analyzed that the performance of the company
has been enhanced from last year in terms of liquidity, profitability, solvency and efficiency.
The liquidity ratio of the company expresses that the company has enhanced the current ratio
to manage the operations and production of the company. Further, the profitability ratios over
the company express about the increasing profitability position of the company. In addition,
debt equity ratio has been evaluated which depict about the relation between the liabilities
and assets. It depict that the debt and equity ratio of the company is almost similar from last