Finance for Business: Company Performance Analysis Report - HI5002

This report provides a comprehensive analysis of the Commonwealth Bank's financial performance. It begins with an introduction to the company's services, followed by a detailed financial analysis that includes the calculation and interpretation of liquidity ratios (current and quick ratios) and capital structure ratios (debt ratio and debt-to-equity ratio). The report then delves into non-current asset analysis and assesses the impact of various scenarios through scenario analysis, focusing on the sensitivity of the Net Present Value (NPV) to changes in sales, selling price, variable costs, and fixed costs. Furthermore, the report examines the company's share or bond issuance and the movement of the PE ratio and share price. The analysis concludes with recommendations and a summary of the key findings, supported by relevant references and appendices. The report aims to provide a thorough understanding of the company's financial health and strategic position.

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Higher-Education Faculty
Assignment Cover Sheet
Subject Finance for business
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Assignment Title Company Performance Analysis
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Finance for business
Abstract
The report has been made on the commonwealth bank and in that, all of the important financial
information which is relevant has been used. There is the identification of the main service and
all of the important information in relation to that had been provided. There is the determination
of the ratio which is maintained by the company. The financial position is evaluated with the
help of that and further decisions are made. The analysis is made of all the assets which are
involved and the need of the same has also been identified. There is the most sensitive element
which is identified and that is determined to be the change in the selling price. The bonds which
are issued and all of the information concerning them have been collected. There is the
identification of the trend which is involved in the PE ratio and the share price and by that further
trend is identified.
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Finance for business
Table of Contents
Abstract............................................................................................................................................2
Introduction......................................................................................................................................4
Financial analysis.............................................................................................................................4
Service provided by the company................................................................................................4
Performance ratios.......................................................................................................................4
Non-current asset analysis...........................................................................................................7
Scenario analysis.........................................................................................................................8
Share or bond issuance..............................................................................................................10
PE ratio and share price movement...........................................................................................10
Recommendations..........................................................................................................................12
Conclusion.....................................................................................................................................12
References......................................................................................................................................14
Appendix........................................................................................................................................16
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Finance for business
Introduction
Business is required to be managed in the most effective manner and for that, there is the need to
perform the proper analysis. In that, there will be consideration of the various relevant aspects.
This report will be covering all of them with respect to the commonwealth bank. In this, the
information will be included with about the product or the service which is provided by the
company. There will be calculation which will be performed and in that ratios will be calculated.
The company is required to manage the non-current assets in the most adequate manner and for
that, an analysis of the same will also be performed. There will be consideration of the various
changes which takes place in the variable cost and to evaluate it in an effective manner there is
the consideration of the scenario analysis which will be performed. The issue which has been
made by the company for the shares or bonds will be taken into account. All of the changes
which are taking place in the share price will be identified and with that, the PE ratio will be
calculated.
Financial analysis
Service provided by the company
Commonwealth bank is involved in providing the financial services and in that there are various
categories which are involved. There is the stream in which the personal loans are provided by
the company. There are various options which are provided to the customers and they are given
the choice to choose the most appropriate from them. There is the fixed rate loan in which the
interest will be charged at the fixed rate for all the periods which are involved (Commonwealth
bank, 2019). There is the variable-rate loan also in which the repayment can be made at different
rates and the flexibility will be provided to the consumers. There is the secured car loan also in
which car is taken as the security and in exchange for it, there is a low rate at which the interest
is charged by the company. This is beneficial for those consumers who are not having an
adequate amount to pay a higher interest.
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Finance for business
Performance ratios
The performance of business fluctuates with time and it is required that there shall be proper
analyzation which shall be performed in this respect. This will be done with the help of the ratio
analysis in which there will be various ratios which will be calculated (Kaur, 2016). The
information which is available in the reports will be used and various types of ratios will be
calculated. In this analysis the company will be using all of the available data in that context and
then by the help of that various calculations will be made possible. They will then be used to
analyze the various aspects and the performance of the company will be managed with the help
of that as there will be undertaking of the best decisions which will help in making
improvements. There will be consideration of the major aspects and they are described below in
detail.
Liquidity ratios
The business involves various assets and liabilities and it is required that there shall be a proper
balance which shall be maintained among them and for that proper comparison among them shall
be carried out. There are various obligations which the company will be required to meet and
that will be made possible when the adequate resources will be maintained (Williams and
Dobelman, 2017). There will be consideration of the current assets and current liabilities which
are involved and with that, the evaluation will be made possible. The calculation of the various
ratios is made for the same and that is presented below:
Particulars Formula 2017 2018 2019
Current ratio Current assets/current
liabilities
3.06 3.16 3.32
Quick ratio Quick assets/Current
liabilities
2.40 2.63 2.71
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Finance for business
2017 2018 2019
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Current ratio
Linear (Current ratio)
Quick ratio
Linear (Quick ratio)
The ratios have been calculated and in that there is an increasing trend which has been noted.
The ratio is increasing and it shows that the company will be able to manage all of the liabilities
effectively. There will be consideration of the assets as the ratio is increasing and is higher than
the standard which is set. This shows that the company has involved more amounts in the current
assets and there is the need to use that amount which is blocked. It can be invested in someplace
where the additional returns will be made on the same. The ratio is still maintained and this
shows that the company will be making all of the payments as and when they will become due.
There will be proper use of the funds which are available and that will be in the interest of the
company in ling run.
Capital structure ratios
In the business, there are various sources from which the funds will be acquired and in that main
are the debt and equity. Together they both comprise the capital structure of the company and it
will be required to be balanced in an effective manner (Delen, Kuzey, and Uyar, 2013). There we
need to ascertain the part of each so that further decisions can be made and for that, the ratios
which are calculated are presented below:
Particulars Formula 2016 2017 2018
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Finance for business
Debt ratio Total liabilities/total
assets
0.93 0.93 0.93
Debt to equity Total liabilities/total
equity
14.34 13.37 13.02
2017 2018 2019
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
Debt ratio
Linear (Debt ratio)
Debt to equity
Linear (Debt to equity)
It can be noted that the debt ratio is constant in all the years and this is because of the similar
increase or decrease in the amount of the total assets and total liabilities (Commonwealth bank,
2019). The debt to equity ratio is declining which shows that the debit balance in the capital
structure is reducing. The company will be required to pay less amount of the interest and there
will be fewer obligations which will be met.
Non-current asset analysis
The company carries various operations and in that there is a need for the maintenance of the
assets. There will be various equipment which will be required to be maintained and they will be
identified to be the non-current assets (Christensen and Nikolaev, 2013). Company will be
required to make adequate investment in the same and by that, all of the work will be carried in
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Finance for business
an effective manner. This will be increasing the efficiency of the company and there will be
higher returns which will be made available.
Commonwealth is a bank in which there will be various equipment, which will be involved and
it is required that evaluation of them and the change which is taking place in them shall be made
effectively. There are various loans, bills, and receivables which will be covered and in that there
is an increase which is taking place. The loans are provided by it to the consumers and they will
be repaying it at the time it becomes due. The plan and property are also held by the company
and there is a decline which is noted in the same from $2576 to $2383 in 2019. The company is
required to maintain the same and for that, there will be need to make the investment in them so
that they can be maintained at an appropriate level. In addition to them, there are various
investments which are maintained by the company and the same is increasing. There is the
appropriate level at which all of the assets are maintained by the company and this will be
maintained in the future also. There will be effective decisions which will be taken by the
company and by that there will be growth which will be maintained.
Scenario analysis
The company is required to analyze the various options which are available and for that there
will be use of the effective techniques. In that, there is the calculation of the net present value
which will be used to make the correct decisions (Ruiz et al., 2012). The result which is obtained
by the company under this method will be affected by various factors and for that, it is required
that all of them shall be identified together with the impact which will be made by them. There
are many variables which are involved and they will be changing continuously. They will be
making an impact on the NPV which is made by the project. To deal with this it will be required
that all of the scenarios shall be evaluated and this will be done with the help of the scenario
analysis. In that, the change in the variables will be considered and with that different net present
values which will be gained will be identified.
The change which is being made in the NPV will be identified and the same will then be
compared with the change which is taking place in the variable. By this, the level of the change
will be determined and it will be identified that which of the variable is affecting the results the
most (Yu et al., 2014). The variable which is identified is considered to be the most sensitive
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Finance for business
variable and the change will be noted in an effective manner. The proper process for the same
has been performed and the results are provided below.
Worst case options:
Particulars Original Option
1
Option 2 Option 3 Option
4
NPV 6592661 4679131 1808836 3722366 6380047
% Change in NPV (A) -29.025 -72.563 -43.538 -3.225
Input which is changing Sales
units
selling
price
variable
cost
fixed
cost
% change in Input (B) 20 20 20 22.22
Sensitivity (A/B) -1.4513 -3.6281 -2.1769 -0.1451
Best case options
Particulars Original Option
1
Option 2 Option 3 Option 4
NPV 6592661 8506191 11376487 9462956 6805275.76
% Change in NPV (A) 29.0252 72.56288 43.5377 3.2250171
Input which is changing Sales
units
selling
price
variable
cost
fixed cost
% change in Input (B) 20 20 20 22.22
Sensitivity (A/B) 1.4513 3.6281 2.1769 0.1451
The calculation for the NPV is made at all the options which are available and they are shown in
Appendix 1. The findings which are made from the analysis are presented below and in them, all
the results for the worst case and best case are presented. The findings have been obtained and
from them, it is ascertained that the most sensitive element is the selling price. With the change
in the same, there is the highest level of impact which is to be made on the net present value. If
the same is increase there will be an increase in the NPV and if the decrease will be made in the
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Finance for business
same then the company will be having the less amount as returns. By the help of the analysis, the
company will be able to manage the performance in the coming period as there will be effective
decisions which will be made. They will be made in such manner that the highest return is made
from the project which will be undertaken.
Share or bond issuance
A company is required to make the issue of the share of the bond in which all can invest and by
that, the value of the business is increased. In the commonwealth bank also there is such issue
which has been made recently. The international bonds have been issued in 2019 and they are
issued at the rate of 3.35%. The total amount, for which the issue of the bond has been made,
amounts to $750 million. These are the bonds in which the investment will be made currently
and they will be maturing in 2024 (Cbonds, 2019). The selling price of the bonds was 99.941.
The issue has been made by the clear stream banking and Euroclear bank. This issue has been
made by the company and by that the funds are collected which will be used by the company in
carrying out of the additional activities by which more funds will be acquired.
PE ratio and share price movement
The movements which take place in the share price are required to be analyzed and in that there
is the collection of the information which is available in relation to the same. There will be the
identification of the same and then the trend which is prevailing in the same will be taken into
consideration. By the help of that, it will be analyzed whether the company will be benefitting
the coming period (Sun, 2012). There is the need to take them into account as the value of the
business is determined with the help of them. There will be a trend which will be identified and
then all of the future decisions will be taken and the plans will be made by which the overall
increment in the value of the business is made.
There will also be an identification of the price-earnings ratio that is maintained by the company.
It is the ratio by which the relation between the price of the share and the earning which is made
on them is identified (Yahoo finance, 2019). There will be consideration of the earning per share
and it will be compared with the market price per share. They both will be used and then the PE
ratio will be calculated. There will be comparison which will be made between the ratio and the
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Finance for business
market price and it will be identified that they are convergent or divergent. The calculation of the
ratio is presented below.
Particulars 2017 2018 2019
MPS 83.73 74.79 82.3
EPS 549.9 518.8 473.7
Price-earnings
ratio
0.15 0.14 0.17
2017 2018 2019
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.20
Price earnings ratio
Price earnings ratio
Linear (Price earnings
ratio)
Share price movement
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Finance for business
(Source: Market index, 2019)
All of the changes which are taking place in the earnings and the profits have been ascertained
and with that, the calculation has been made for the PE ratio. It has been identified that there is a
decline in the ratio is 2018 and then again the increase is made in 2019. This is because of the
earning which is also moving in the same direction. There is the convergent relation that is
present among the PE ratio and the market share price and this can be noted in the graphs which
are presented above. It has been found that the ratio is also moving in the same manner and there
is the decline from 0.15 to 0.14 in 2018 and then it increased to 0.17 in 2019 (Commonwealth
bank, 2018). They are moving in the one direction and this shows that there is the direct relation
and with the change in the market price of share there will be the same movement which will be
made in the ratio which is identified.
Recommendations
The analysis has been made and in that, all of the important areas which need to be considered
have been identified. There is the need for the proper evaluation and that helps the company in
making of the proper decisions. This will be improving the decisions and the position of the
business in the coming period. It has been identified that the position in terms of the profits is
maintained effectively. There is the effective liquidity which is maintained but the scope is there
that the amount which is blocked as liquid funds can be used as the level which is maintained is
high and that much of the funds are not required. The amount will be used for some other
beneficial task which will raise the level of earnings for the company. This will be making the
improvement in the position of the company and by that, there will be long term success which
will be maintained.
Conclusion
The report has elucidated about the financial position of the commonwealth bank. In this, the
main service which is provided by the bank has been identified and there is the proper
description which is provided in that respect. The ratios have been calculated and with the help
of them, there is the identification of the profitability and liquidity position of the company. The
scenario analysis has made the company to identify the element which will be affecting the
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