Financial Statement Analysis and Performance of Commonwealth Bank

This report provides a comprehensive financial analysis of the Commonwealth Bank, Australia, examining its performance through income statements, balance sheets, and financial ratios. The analysis includes a horizontal analysis of the income statement, highlighting trends in revenue and net income. The balance sheet analysis focuses on the bank's assets, liabilities, and equity, noting changes over the specified periods. Key financial ratios, such as long-term debt to equity, total debt to equity (gearing ratio), liquidity coverage ratio, return on equity, earnings per share, and capital ratio, are calculated and interpreted to assess the bank's financial health and stability. The report concludes by summarizing the bank's performance, emphasizing its strengths and weaknesses, and highlighting areas for potential improvement. The analysis is based on the financial data available for the specified period, providing a snapshot of the bank's market position and financial standing.

Running head: ACCOUNTING AND FINANCE FOR MANAGERS
Accounting and Finance for Managers
Name of the Student
Name of the University
Author Note

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Executive Summary
Every organization whether it is any bank or company need to be properly evaluated and
analyze their financial data so that transparency be maintain and also get to know their
upsides and downsides of their performance. The purpose of making this report is to
understand the financial data and its statements importance. Further, to understand the
application to analyze the financial statement and the bank’s performance with the help of
vertical, horizontal income statement analysis and balance sheet of the bank. Several financial
ratios has also used in their evaluation. The organization here chosen for this report is
Commonwealth Bank, Australia to know their performance and their current status in the
market. However, in the report it seems that the bank has some good as well as some weak
points that further need to be analyzed.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Analysis Tools........................................................................................................................4
Income Statement...................................................................................................................4
Balance Sheet.........................................................................................................................6
Financial Ratios......................................................................................................................8
 Long Term Debt to Equity ratio..................................................................................8
 Total Debt to Equity Ratio (Gearing Ratio)................................................................8
 Liquidity Coverage Ratio............................................................................................9
 Return on Equity (Cash basis).....................................................................................9
 Earnings per Share.....................................................................................................10
 Capital Ratio..............................................................................................................10
Conclusion................................................................................................................................10
Appendix..................................................................................................................................12
References................................................................................................................................15

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Introduction
Any company or an organization needs a depth analysis of their financial statement to
know and understand the financial performance of their company. This step helps the
investors as well to review the growth and development of the company through the
performance as well as the decisions they have taken for the benefit of the company. Here,
the managers of the company is highly responsible to present an accurate financial statement
of the company to their respective directors. So that the profit and loss of the company can
analyzed, any shortcoming in the financial performance would overcome with some
necessary measures and decisions by the company for the profit to their company as well as
to their investors (Ferrouhi, 2014). This report represents and overall performance of an
Australian organization. The organization chosen for this report is “Commonwealth Bank”
and the financial analysis of this Bank done based on some relevant income statements,
discussion on analysis on vertical and horizontal as well as different financial ratios status for
the recent years.
Overview
Commonwealth Bank is an Australian Bank, which provides several banking and
financial products as well as retail business services and institutional clients in different
countries. The bank serves other countries also such as New Zealand, Asia Pacific and UK.
The various banking products and services includes transactions and savings account, term
deposits, credit cards, loans such as personal and home loan, overdrafts, financial planning
services and also international online banking services (Commbank.com.au, 2019). Further,
the company assists the institutional and corporate clients in order to manage the cash flow as
well as the liquidity.

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Discussion
Analysis Tools
There are mainly three analysis tools namely: Horizontal (Trend) Analysis that
evaluates a number or a sequence of financial statements over a period of time. Vertical
Analysis that reflects every item as a percent of amount in a financial statement and Ratio
Analysis that shows the relationship of the selected items in a ratio of the stated financial
statement data (Massari, Gianfrate & Zanetti, 2014). These all are necessary tools for proper
analysis of financial statement and to find the ratio to their respective items mentioned in the
statements of the bank or a company.
Income Statement
Income statement analysis result from comparing different items available within a
statement. This helps in understanding the cost structure of the business and the ability to
generate income while seeing the performance over various periods. In this report, the bank
income statement several items included in it for that a proper analysis of income statement
includes different ratios extracted from it (Gitman, Juchau, & Flanagan, 2015). . This has
discussed in the part of ratio analysis. Evaluation of the Commonwealth’s Income statement
from the method based on Horizontal analysis. The given data in the figure below shows the
total revenue in the June 2019 as $19.83 billion that is less than as compare to December
2018, which was $21.05 billion also Net income in the year 2019 decrease to $3.97 billion
from earlier $4.60 billion.

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The bank has adopted AASB 9 Financial instrument and AASB 15 revenue from
customers on 1 July 2018 as this has reflected in the current year amount of the Income
Statement.
Period Ending: 2019
30/06
2018
31/12
2018
30/06
2017
31/12
Net Interest Income 8986 9134 9085 9257
Interest Income, Bank 16752 17836 16963 17181
Total Interest Expense 7766 8702 7878 7924
Loan Loss Provision 624 577 483 596
Net Interest Income After Loan Loss
Provision 8362 8557 8602 8661
Non-Interest Income, Bank 3079 3210 3229 3633
Non-Interest Expense, Bank -6090 -5355 -5606 -5497
(Refer to Appendix 1)
From the Comprehensive Income Statement, which shows the bank, has evolved $7
million of profit in the foreign currency (gained $3million on 2018, June 13 and loss made of
$29 million in 2017, June 30). Further, the debt investment securities gained $7 million on
revaluation. In the year ended on 30 June 2018, the bank has faced a loss of $9 million in
revaluating available for sales investment net of tax.

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(Refer to Appendix 2)
Balance Sheet
Balance sheet analysis of the shows their assets, liabilities and equity. The process of
analyzing the balance sheet results the actual figures of the mount related to their revenues,
assets and liabilities of the bank. Every organization along with the bank has mandatory to
prepare the balance sheet of their recognized organization so that they disclose all its assets
and liabilities during a period of time. In the given figure below graph shows that the total
assets in December 2018 was $980.43 billion while in June 2109 it decreased to $976.50
billion. Further, total liabilities in Dec.2018 was $912.40 billion that have positively decrease
to $906.91 billion.

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However the Net assets in the year 2019 reflects its value lower than the year 2018
but, Commonwealth Bank has further increased figure of net loans in the current year as
comparatively it is high from the previous year.
Period Ending: 2019
30/06
2018
31/12
2018
30/06
2017
31/12
Total Current Assets - - - -
Total Assets 976502 980430 975165 961930
Cash & Due from Banks 37480 72465 72513 71450
Other Earning Assets, Total 118805 115904 115245 119213
Net Loans 755141 726006 716491 709143
Property/Plant/Equipment, Total - Net 2383 2417 2576 2635
Property/Plant/Equipment, Total - Gross - - - -
Accumulated Depreciation, Total - - - -
Goodwill, Net - 6022 6941 6868
Intangibles, Net 7965 2139 2082 2170
Long Term Investments 3001 2831 2842 2750
Other Long Term Assets, Total 18226 16951 17093 16186
Other Assets, Total 33501 35695 39382 31515
Total Current Liabilities - - - -
Total Liabilities 906908 912405 907859 896393
(Refer to Appendix 3)
The bank has decreased its total liabilities from the previous year
(Commbank.com.au, 2019). Apart from this, the bank capital as shown it has considered as
an authorized Deposit-taking institution that has regulated through APRA (Willcocks &
Reynolds, 2015). It is ensuring that the bank has enough capital that protects the deposit
holders even it face any unexpected losses.
Financial Ratios
 Long Term Debt to Equity ratio
This ratio has computed by considering the organization’s long-term debt that have to
divide it with the value of common equity. With the recent data of the stock market, it has
stated that the Long term Debt to Equity Ratio of the year 2019 of Commonwealth banks

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stands at 1.91% that reflects a positive position as it is less than 2% that is ideal considered
percentage of this ratio. However, the bank may have a high LT Debt ratio.
Long term Debt to equity Ratio = Long Term Debt / Equity (including shareholder’s
equity)
= 186956 / 976502
= 1.91:1
 Total Debt to Equity Ratio (Gearing Ratio)
The debt equity ratio has computed by total debt of the bank divided by total equity. It
shows that if an organization or a company have more than 1% to 1.5% of debt equity ratio
then it shows that it has more amount of debt in respect to equity. With the recent data of the
stock market, it has stated that the Gearing Ratio or Debt to Equity Ratio of the year 2019 of
commonwealth bank is 2.96% that does not reflect that the banks creditors and investors has
a balanced ratio respect to its assets. These issues and lack of proper interpretation and
evaluation by the bank must be critically analyzed. Therefore, they prevent themselves from
the occurrence of hurdle in near future.
Total Debt to Equity Ratio = Debt/ Equity
= 206055 / 69594
= 2.96:1
MRQ refers in the below figure to Most Recent Quarter showing the percentage to the
ratio referring to two different periods of the bank.

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Quick Ratio MRQ - -
Current Ratio MRQ - -
LT Debt to Equity MRQ 281.78% 268.49%
Total Debt to Equity MRQ 308.2% 290.13%
 Liquidity Coverage Ratio
This ratio shows the bank is having the quality of liquid asset to a high level that is able to
meet the short-term obligations at liquidity stress period (Μακρίδου, 2017). The
commonwealth group has maintained the liquid coverage ratio of 132% average for the
quarter ended on June 2019 that shows a well above of the minimum requirement of 100%.
Therefore it shows a strength in respect to the bank.
 Return on Equity (Cash basis)
It based on the Cash Net Profit after tax minus other equity to be distributed amongst the
shareholders that is use to apply on the shareholders equity after excluding some other items
such as non-controlling interests, other equity instrument and some treasury shares. That
refers to the shareholders long term sustainable returns that stands as 12.5% in the year 2019.
Further, it measures the profitability of the bank that reflects the net profit earned as an
investment of the shareholder’s equity percentage.
 Earnings per Share
It measures the growth of the bank earnings that can compute through dividing the net profit
after tax by Number of share issued. In other words, it measures the ability of a company to
generate profits to shareholders. In the year 2019, it has stated as 480.8 by the company
shown in the financial report. The profit they are making for the shareholders not only reflect
the changes in them are of the reason of the changes in profit but also it is also due to the
issuance of new share’s and all their effects. Therefore, a good earnings per share of bank

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reflects its strength to maintain their shareholders wealth in an accurate manner and also
builds trust among the investors.
 Capital Ratio
The capital ratio of the commonwealth’s bank measures the ability of the bank to absorb the
unexpected losses (Commbank.com.au, 2019). It compares its core capital with risk-weighted
assets. The bank reflects its capital ratio in a good state at 10.5%that shows a string
benchmark. This is somehow a positive aspect for the Commonwealth Bank, Australia.
Conclusion
It has concluded that the fiscal year of the commonwealth Bank, Australia ended on
30 June 2019 has increased its interest income to 1% as shown in the financial statement as
$34.59 billion. Net interest income had decreased after the loan loss provision to 2%, which
has shown as $ 34.59 billion. Retail banking segment, business and Private banking has also
decreased its figure. Based on this report of the financial analysis of commonwealths bank
that the bank has increased the level of its earning and has declared a high dividend share
(Bergmann, 2016). However, the bank has not met every conditions in a positive figure as
discussed above so, the investors must look two times for the further investment or
relationship with the bank so that they can earn profit and their money be in safe hand
(O'Byrne & Daymon, 2014). The financial statement of the commonwealth bank shows that it
has kept their investors’ money in less safely and high risk position without the overall

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hedging techniques even though they have used some but it is not enough to run a huge
organization and must considers the money of their investors in a more safer way. The
accounting and financial data are so important in today’s generation as it reduces many
uncertainty and fraudulent activities. Addition to this the bank has prepared all the required
financial data that helps in maintaining a transparency amongst all including their investors.