Financial Analysis Report: Commonwealth Bank of Australia, MBA403

This report presents a financial analysis of the Commonwealth Bank of Australia (CBA), based on its most recent annual report. The analysis evaluates key financial indicators such as income, net profit margin, return on equity, and price-to-earnings ratio to assess the bank's performance. It also considers non-financial indicators like customer service improvements and community involvement. The report compares financial data from 2018 and 2019, highlighting trends and providing insights into the company's efficiency and shareholder returns. The analysis also discusses the impact of penalties and the composition of the board of directors. Ultimately, the report concludes with an investment recommendation, suggesting that investing in CBA could be a good option for investors, despite recent challenges. This report is contributed by a student to Desklib, a platform offering AI-based study tools.

Running Head: BUSINESS AND CORPORATION LAW 0
Financial and Economic Interpretation and communication
2/14/2020
Student’s Name

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Executive summary
Every investor wants to invest in the entities that may provide a good return to them.
Commonwealth Bank of Australia (CBA), one of the companies listed on the Australian Stock
Exchange has been selected hereby as an organization of choice. The main activity of CBA is to
provide integrated financial services to customers that include premium, retail, business, and
institutional banking, share broking products and other related services. The purpose of this
financial analysis report is to check the past trends of the company, reasons thereof and potential
future outcomes.

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Contents
Executive summary.........................................................................................................................1
Analysis...........................................................................................................................................2
Recommendation/conclusion...........................................................................................................4
References........................................................................................................................................6

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Analysis
In the presented report, the focus shall be centered on the latest annual report of commonwealth
bank of Australia, where key financial, as well as non-financial performance indicators, would be
discussed to check the position and performance of the company. The report will be written for
an external investor where a conclusion summarizing investment-related advice will be drawn
upon.
Starting the discussion from financial indicators, which are the most important aspect for an
investor this is to state that the bank is doing well where the income of the same has been
increased to $32960 from $32531 last year. Not only in the income of the bank but also the
earnings of the whole group, a positive shift may be seen this year which seems to be a good
indication in financial results in the first instance. Nevertheless, the other side of the coin is also
important to have a look after which is expenses affecting net profit directly. Every investor,
invest his/her money to a business to gain something in return in the form of dividend or increase
in the share price. Hence, profit and return on investment-related issues have been selected here
as financial performance indicators. The first ratio to discuss here is the net profit ratio, which
indicates a relationship between net profit and sales. Since the organization selected hereby is a
bank hence net sales of the same are presented in the form of net interest income under annual
report. This ratio shows that in comparison to net sales of the company, how much net profit the
same has earned. It helps to identify the overall efficiency of an entity (accountingcapital.com,
2020). In 2018, the net profit margin of the bank was 54%. It means out of total earnings of the
company, 54% was profit and the rest was expenditure such as operating expenses, interest, and
tax. The ratio has been decreased to 48% in 2019. It clearly shows that the company was not as

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efficient in 2018-2019 (current year) as the same was in 2017-2018 (past year)
(Commbank.com.au, 2019). Nevertheless, the effective interest income of the same was higher
in the current year in comparison to last year yet the net profit ratio was not good due to high
interest and other operating expenses.
The other financial ratio to discuss here is the return on equity. This ration shows the capability
of a firm to earn profits from money invested by shareholders. The ratio was 14% for the
financial year ended in June 2018 that means the company could earn a 14% amount as profit out
of the total investment of equity. This ratio has been decreased to 12% in the financial year
ended in June 2019. This ration again shows a negative result in the financial performance of the
company where the bank proved less efficient in its operations. As mentioned above, an investor
always remains interested in the share prices and dividend that he/she is entitled to receive hence
the price to earnings ratio is selected as the next financial performance indicator. The P/E ratio of
the company has been increased in 2019 to 18.76 that indicates a positive future performance.
The reason behind the high P/E ratio is the high market price of the share. However, earning per
share of the bank was decreased in current year to $4.73. It means the investors are likely to earn
less from their investment in comparison to the last year where EPS was $5.18. The bank has
declared $4.31 for the financial year ended June 2019. The most interesting fact from the point of
investor is that in the current as well as in the last financial year, the bank has provided the same
amount of dividend to its shareholders $4.31. It means investors are getting similar returns on
their investment. These are some of the performance indicator, which gives an idea about the
working condition of the company.
Moving the focus towards non-financial indicators this is to state that it is serving better
outcomes to customers and to simplify and improve their experience, the bank has removed ten

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types of banking fees. During the current year, 1.2 million new personal transaction accounts
have been opened. During the last as the well current year, the company has taken many steps for
the betterment of the community. For instance, the same is addressing financial abuse in
addition to providing support to communities. To discuss the current strategy of the business this
is to state that the same is becoming a better bank by delivering sustainable and better outcomes
to shareholders, community, People, and customers. It clearly shows that the bank is being better
considering the interest of all the stakeholders. It affects the business of the bank in a positive
matter that lastly gives benefit to shareholders as their dividend is directly affecting from profits
of the bank. In recent times, the company has faced huge penalties that affected the profits of the
company in the current year (Doran and Janda, 2018). Otherwise, the amount of dividend per
share could be more than the paid ones. On the board of the company, the majority of the
directors are independent which has expertise in a different field. This can be understood as the
core strength of the company. Another strength of the bank is its customer who is still having in
the operations of the same even after negative findings of the royal commission.
Recommendation/conclusion
After discussing and reviewing financial as well as the non-financial performance of the
company, this is to suggest that investing in CBA can be a good option for investors. Even after
the penalties, the bank has managed to provide a similar level of dividend as last year. In
addition to this, the total sales of the bank also been increased to the current year. It shows that
the company is doing well but was not able to earn good profits due to high expenses, which are
not likely to occur in the coming future considering the strategy and operations of the company.

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The share price of the company also been increased this year which provides a positive
indication for the investment (au.finance.yahoo.com, 2020).

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References
accountingcapital.com. (2020) what is net profit ratio. [online] Available
from:https://www.accountingcapital.com/ratios/net-profit-ratio/ [Accessed on 14/02/2020]
au.finance.yahoo.com. (2020) Commonwealth Bank of Australia (CBA.AX). [online] Available
from: https://au.finance.yahoo.com/quote/CBA.AX/chart?
p=CBA.AX#eyJpbnRlcnZhbCI6ImRheSIsInBlcmlvZGljaXR5IjoxLCJ0aW1lVW5pdCI6bnVsb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k
NCQS5BWCJ9LCJwZXJpb2RpY2l0eSI6MSwiaW50ZXJ2YWwiOiJkYXkiLCJ0aW1lVW5pdC
I6bnVsbCwic2V0U3BhbiI6bnVsbH1dfQ%3D%3D [Accessed on 14/02/2020]

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Commbank.com.au. (2019) 2019 Annual report. [online] Available
from:https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
annual-reports/CBA-2019-Annual-Report.pdf [Accessed on 14/02/2020]
Doran, M., and Janda, M. (2018) Commonwealth Bank to pay $700m fine for anti-money
laundering, terror financing law breaches. [online] Available
from:https://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-fine-
money-laundering-breach/9831064 [Accessed on 14/02/2020]