FINA2006 Principles of Finance: Case Study on Banking Sector Analysis

This finance report analyzes two case studies related to the banking sector, specifically focusing on ANZ Bank and Westpac Bank. The report begins with a detailed comparison of the two banks based on financial metrics such as total assets, shareholder's equity, market capitalization, net income, and dividends paid. Key calculations are performed, including the market to book value ratio, return on equity, dividends per share, sustainable growth rate, and intrinsic value per share, to assess the financial health and investment potential of each bank. The analysis reveals that, based on the calculations, ANZ Bank appears to be the more prudent choice compared to Westpac Bank. The second part of the report provides an overview of stock trend lines and the average yearly return on stock of ANZ Bank, comparing it with the S&P ASX200. The report suggests that investors can consider investing in ANZ banks and hold the stock for a period to gain returns. The report is based on the FINA2006 course and incorporates relevant financial ratios and concepts to evaluate the investment potential of the two banks.

Running head: FINANCE 1
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Contents
Case Study 1....................................................................................................................................3
Part 1)...........................................................................................................................................3
Part 2)...........................................................................................................................................3
Part 2................................................................................................................................................5
References........................................................................................................................................6

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Case Study 1
Part 1)
Description ANZ Bank Westpac bank
Total Assets (Book value) 981137 906626
Shareholder's Equity 60794 65507
Total liabilities (book value) 920343 841119
Number of shares (millions) 26.49 37.5
Market capitalization 8084200 10300000
Net income 5968 6784
Dividends paid 160 174
Calculations
Market to book value ratio ANZ Bank Westpac bank ANZ Bank Westpac bank
Market value of equity 8084200 10300000 8.24 11.36
Book value of equity 981137 906626
Return on Equity ANZ Bank Westpac bank ANZ Bank Westpac bank
Net income 5968 6784 9.82% 10.36%
Shareholder Equity 60794 65507
Dividends per share ANZ Bank Westpac bank ANZ Bank Westpac bank
Annual dividend 4471 6291 168.78 167.76
Number of outstanding shares 26.49 37.5
Sustainable growth rate per annum ANZ Bank Westpac bank ANZ Bank Westpac bank
Return on equity * Retention rate 9.82% 9.82% 2.46% 0.71%
(Net income - Dividend)/Net income 25.1% 7.3%
Intrinsic value per share ANZ Bank Westpac bank ANZ Bank Westpac bank
Expected dividend per share 1.74 1.6 12.43 7.48
(Cost of equity - dividend growth
rate) 14.00% 21.40%
Undervalue
d Undervalued
Part 2)
As per the calculations in the part 1 of the case study, five calculations have been
performed in order to identify which stock is feasible between the two stocks selected namely

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ANZ Banking and Westpac Banking respectively. The five categories that have been performed
are market to book value ratio, return on equity, and dividend per share, sustainable growth rate
and intrinsic value per share.
The market to book value ratio is the ratio that indicates whether the stock is expensive or
not. As per the current case study, the market to book value ratio is higher for Westpac and that
of Anz Bank is lower at 11.36 times and 8.24 times respectively. From the point of view of an
investor, the stock which is cheaper shall be selected and in that scenario ANZ bank is the
feasible choice to make (Fatoki & Nasieku, 2017).
Return on equity is the metric in that is used by the owners in order to find out how much
share is to be received by the shareholders, for the money invested in the business. The return on
equity for ANZ bank is 9.82% whereas that of Westpac bank is 10.36%. This implies that the
return to the shareholders of Westpac Bank is higher than ANZ bank. This also indicates that the
higher the returns, the higher are the level of satisfaction for investors. Clearly Westpac wins in
this area (Batavia & Nelson, 2017).
Dividend per share means the total amount that is attributable to the shareholders which
is outstanding for the company. Dividends are usually a cash payment paid to the investor in the
company. Dividends are simply profit sharing methods which allow a company to distribute
profits to its shareholders. The dividend per share of ANZ bank is 168 cents per share and 167
cents per share for Westpac Bank. This implies, that dividend per share of ANZ bank, is higher
than Westpac Bank (Şahin & Ergün, 2018).
Sustainable growth rate is the maximum increases in sales that business which can
achieve without supporting the additional debt and equity financing. The sustainable rate helps in

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minimizing the leverage and bankruptcy. The sustainability rate of ANZ bank is 2.46% and that
of Westpac Bank, 0.71% (Westpac Bank, 2019).
The intrinsic value per share of ANZ bank is 12.43 whereas the current trading price is
15.68. On the other hand, the intrinsic value of Westpac Bank is 7.48 and this share is also
undervalued, as the current share price is 16.87 times. Therefore, in terms of the share price,
ANZ is still better and cope up with the market securities (ANZ Bank, 2019).
Hence, from the overall analysis it can be stated that ANZ bank is more prudent choice
than Westpac Bank.
Part 2
From the overall calculations it can be stated that the trend lines of the stock are below
S&P ASX200 and needs to vitalize it to be compete well. The average yearly return on stock of
ANZ Bank is less than S&P ASX200 at 1.019 and 1.035 respectively. The risk factor of beta is
also 0.34, which states that the company has the average risk, with an unsystematic risk of 0.058.
Hence, from the overall analysis it can be stated that investors can invest in ANZ banks and shall
hold the stock for some time to gather the returns effectively (Şahin & Ergün, 2018).

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References
ANZ Bank, (2019). Annual Report. Retrieved from
https://www.anz.com/content/dam/anzcom/shareholder/ANZ-2019-Annual-Report.pdf
Batavia, C., & Nelson, M. P. (2017). For goodness sake! What is intrinsic value and why should
we care?. Biological Conservation, 209, 366-376.
Fatoki, O. I., & Nasieku, T. (2017). The influence of market to book value of equity on capital
structure choice in Nigeria. Scientific Research Journal, 18-23.
Şahin, A., & Ergün, B. (2018). Financial Sustainable Growth Rate and Financial Ratios: A
Research on Borsa İstanbul Manufacturing Firms. Journal of Business Research
Turk, 10(1), 172-197.
Westpac Bank, (2019). Annual Report. Retrieved from
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2019_Westpac_Group_Annual_Report.pdf