Financial Analysis of Bank of Queensland: A Case Study

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Finance for business
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Table of Contents
Abstract............................................................................................................................................3
Introduction......................................................................................................................................4
Bank of Queensland.........................................................................................................................5
Financial performance of the Bank of Queensland.........................................................................6
Analysis on management of cash..................................................................................................11
The sensitivity analysis..................................................................................................................12
The Systematic and unsystematic risk...........................................................................................19
The dividend ratio calculation and dividend policy of the bank of Queensland...........................20
Letter of Recommendations...........................................................................................................21
Conclusion.....................................................................................................................................22
References......................................................................................................................................23
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Abstract
In this entire study on the Queensland bank, the profitability and efficiency ratios was calculated
on the financial statements of the bank. All the different investment tools and techniques are
described in this study and how investors can earns higher revenues through these tools and
techniques had briefly explained in this study. Financial analysis is including various things
related to the finance department of a company which is directly affected on the financial
position of the company. Financial analysis is necessary to know about the stability of a
company through ratio analysis and other financial tools and techniques. This entire case study
provides an insight to investor about how to check profitability of a company.
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Introduction
Financial analysis is an important task from an investor’s perspective; financial statements
provide an overview of the profitability of a company. In this assignment, different tools, and
techniques used in the financial reports of the company to analyse the financial position of the
company. Investors must carefully measure all the financial statements of the company to check
whether a company is profitable or not. The main purpose of this report is to analysis the
financial position of the bank of Queensland so that an investor gets an insight about the
financial strength of the company. This report will be clearly demonstrated different tools and
techniques which are used by investors for knowing about the profitability of the company. This
entire assignment is clearly based on the financial statements of the Bank of Queensland. The
profitability and operating efficiency ratio are used to analyze the financial position of the bank
of Queensland that there is a brief discussion on the cash management system of the company.
There is a sensitive analysis also done to know about sensitivity in different units of the business.
The dividend policy of a company is creating a great influence on the behavior of investors
because a dividend policy revels the financial condition of the company such as stability and
instability in the company. The dividend payout ratio is also calculated on the financial
statements of the bank of Queensland to know about how much dividend bank of Queensland
pays to their shareholders.
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Bank of Queensland
The bank of Queensland is an Australian based banking company and the headquarters of the
bank of Queensland is located in Brisbane, Queensland. The major operation of the banks is in
the retail banking where the bank of Queensland provides lending and deposit services to their
customers. The bank of Queensland almost covers every part of Australian through 252 branches
across Australia including corporative branches as well as branches that are owned by the owner
managed. The bank of Queensland have top customer stratification achievement in the overall
banking system with 88% of bank customers are satisfied with the services of the bank and The
Bank of Queensland is one from many of the oldest bank in Australia. The bank of Queensland
was also suffered from the storm of different financial depressions in 1866 and the bank of
Queensland was established in 1863. The core activities of Bank of Queensland is providing
retail services to the customers of the banking sector and the bank of Queensland is working in
the financial sector of the Australia where a bank of Queensland provide every kind of financial
services to their customers.
The connectivity network of Bank of Queensland is broadly distributed in every state of
Australia which is providing a competitive advantage to the bank of Queensland. The branches
of the bank of Queensland are located in every part of the country which provides a better
customer network to the company. Customer satisfaction is also an important factor which
provides a competitive advantage to the company over the other company because most of the
customers of the bank are satisfied with the services of the company.
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Financial performance of the Bank of Queensland
Efficiency Ratios
Particulars 2016 2017 2018
Asset Turnover Ratio 0.01 0.01 0.02
Inventory Turnover Ratio 1.03 1.23 1.64
Receivables Turnover Ratio 4.35 5.35 5.89
Average Collection Period 22.33 25.66 24.41
2016 2017 2018
0
5
10
15
20
25
30
Efficiency Ratios
Asset Turnover Ratio
Inventory Turnover
Ratio
Receivables Turnover
Ratio
Average Collection
Period
Efficiency ratio
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Profitability Ratios
Particulars 2016 2017 2018
Gross Margin 96.33 87.66 83.78
Operating Margin 23.33 33.44 41.22%
Return on Assets 4.11 3.11 6.11
Return on Equity 9.44 10.01 11.65
2016 2017 2018
0
20
40
60
80
100
120
Profitability Ratios
Gross Margin
Operating Margin
Return on Assets
Return on Equity
Profitability Ratio
The asset turnover ratio is a indicate efficiency of a company, the asset turnover ratio indicates
how can a company generate their profit or revenue from existing assets of the company
(Paradiand Zhu, 2013). The asset turnover ratio is an important factor for an investor to analysis
because the asset turnover ratio shows how effectively a company utilizes their asset. It's
important for investors to analysis carefully the asset turnover ratio when an investor compares
the performance of companies that are working in the same sector (Obamuyi, 2013). The asset
turnover ratio of Bank of Queensland was around 0.01 in 2016, 0.02 in 2017 and 0.02 in 2018
and this is indicating a poor financial condition of the bank of Queensland because the bank is
not efficient in utilization of their asset, they cannot generate enough profit on their asset.
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Inventory turnover ratio is indicating the efficiency of a company in using the inventory of a
company. this ratio shows how many times a company is changing its inventory during the
operations of the business, it's important for a company to use inventory in a proper way so that
resources of a company can fully utilize in the operations of the business. The inventory turnover
ratio of Bank of Queensland was around 1.03 in 2016, 1.23 in 2017 and 1.64 in 2017 and this is
indicating a sufficient inventory turnover ratio because a high inventory turnover ratio shows a
good financial condition of a company. Thebank of Queensland is performing enough in this
section and if they improve their performance than investors might be happier with the
performance of the company.
The receivable turnover ratio is showing the efficiency of the business in the credit aspects of the
business, the receivable turnover ratio reflects the debt condition of a company. How easily a
company gets money from lenders is always a useful indication of the financial strength of a
company. The receivable turnover ratio of Bank of Queensland was around 4.35 in 2016 which
is indicating a good financial condition of the company (Chortareas et. al., 2012.). The receivable
turnover ratio of Bank of Queensland was around 2.39 in 2017 and 5.89 in 2019 that is indicating
a good financial condition of the bank. The receivable turnover ratio is always an important
factor for an investor to analysis because this ratio shows the debt recovering position of the
company which directly influences of the entire financial performance of the company.
The receivable turnover ratio and average collection period are directly inter-related with each
other, the average collection period ratio shows how timely a firm gets the amount from their
creditors. When 365 days divided by account receivable ratio days than a company gets average
time period of collecting amount like – the receivable turnover ratio of the bank of Queensland
was around 4.35 when 365 days is divided by 4.35 than outcome is around 84 days it means bank
of Queensland get their money in between 84 days (Kou et. al., 2014). The average collection
period is very crucial from an investor perspective because if a company cannot get their amount
on time than it shows a poor efficiency of the company.
Profitability ratios are indicating about profitability aspects of the business, the profitability
ratios are consist various ratios such as gross margin ratio, operating margin ratio, return on asset
ratio and return on equity, all these ratios define the financial position of the business in the
different units of the business.
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The gross margin ratio is a combination of net sales and the profit of a company when net profit
is divided by the net sales of the company than a company get a gross margin ratio. The gross
margin ratio is a better provide a better indication about the financial strength of a company
because the profitability aspect of a business is considered as an important factor for a business
than other factors related with business. The gross margin ratio of Bank of Queensland was
around 96.33 in the year which is indicating a really good position of the company in the
financial sector of the bank. The gross margin ratio of the bank of Queensland was around 87.66
in the year 2017 which is 9 percentages less than the previous year but still, this ratio is sufficient
from a bank perspective. The gross margin ratio of the bank of Queensland was around 83.78 in
the year 2018 which is again 4 percentages less than previous year it means the gross margin
ratio of the company is continuously decreasing according to the data of last three year. An
investor must carefully analysis the gross margin ratio of a company before investing because
this ratio directly makes a comparison between net sales and profit of the company.
The operating profit margin ratio provide an indication about how much a company gets to profit
from their operations of the business, this analysis is an important analysis from an investor
perspective this defines profitability of a company (Trujillo‐Ponce, 2013). The operating margin
of Bank of Queensland was around 23.33 in the year 2016 after that the gross margin ratio of the
bank was around 33.44 it means the ratio directly increases 10 percentage. The gross margin
ratio of the bank of Queensland was around 41.22 percentages it means the bank is continuously
improving its profit and also increases sales of the company in the same proportion. An investor
must critically analyze the situation of the bank and analysis of the financial position of the
company.
The return on asset ratio is indicating the revenue generation capacity of a company through its
asset. The return on asset is the best indicator of financial position because this ratio directly
defines how efficiently a company uses its asset in the operation of the business. The return on
asset ratio of the bank of Queensland was around 4.11 in the year, 3.11 in the year 2017 and 6.11
in the year 2018. The return on the asset of the company is continuously fluctuating as it can be
easily seen from the financial reports of the firm. The bank of Queensland is not utilizing their
asset properly as per the reports so this might make a negative impact on the goodwill of the firm
and investors are also not happy with the performance of the company.
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The return on equity is considered as the most important factor to analysis the financial
performance of a company in this analysis an investor assesses how much return a company gets
from shareholders investment in the firm. Investors always opt towards that company which
provides more return on the investment so they must opt towards that company which is
providing the best return to them. The return on equity of Bank of Queensland was around 9.44
in the year 2016, 10.01 in the year 2017 and 11.65 in the year 2018. The return on the asset of
the bank is continuously growing over the periods it means the bank is providing a good return to
their shareholders and investors might be happy with this performance.
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Analysis on management of cash
The marketable securities of the bank of Queensland presented into three ways financial assets
available for the sale, financial assets held for trading and derivative financial assets. The bank of
queens land has financial assets that are available for sale was around m$3946 in the year 2018
and for the year 2017 was around m$3934 and the financial assets which are held for trading
were around m$1385 in the year 2018 and m$1837 for the year 2017. The derivative financial
asset of the bank was around m$135 in the year 2018 and m$109 in the year 2017. The financial
assets which were held for sale are increases for the bank and the financial assets which were
held for trading are also increase. The derivate financial assets of the bank of Queensland also
increased from m$ 109 to m$135 and this is showing a sound financial condition of the bank.
Themarketable securities of the bank are increases from the past two years it means the bank is
doing some good investment and earning enough from those assets (Leary et. al., 2014). The
bank of Queensland has enough marketable securities which are providing them a financial
strength over other firms.
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The sensitivity analysis
Price of the product $20.00
Units to be sold 30
0,000
Time period = 4 years 4
Equipment Cost $2,000,000
Residual Value $200,000
Working Capital Requirement $600,000
Other Information-
Depreciation method Straight Line
Method
Variable cost per unit $12.00
Cash fixed costs per year $300,000
Discount rate 10%
Tax Rate 30%
Yearly Net Inflow $2,100,000
PV of Net
Inflow:
Year Income
Depreci
ation
Net
Income
After
Tax
Profit
Net Cash
Flow
DCF
@
10%
PV Net
Income
1 2,100,000 500,000 1,600,0 1,120,00 1,620,00 0.909 1,472,72
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