Financial Performance Evaluation: Scotia Bank Analysis Report

This report provides a comprehensive financial analysis of Scotia Bank, evaluating its performance based on the provided financial statements. The analysis includes a detailed examination of key financial ratios, such as long-term and short-term solvency ratios, to assess the bank's financial health and stability. The report presents a graphical overview of Scotia Bank's financial situation, highlighting trends in earnings per share, capital ratios, and dividend growth. Furthermore, it compares Scotia Bank's performance against industry averages, using industry ratios to benchmark its financial standing. Based on the findings, the report offers strategic recommendations for improving Scotia Bank's financial performance, addressing both positive aspects and areas needing attention. These recommendations focus on enhancing liquidity, managing debt, and optimizing shareholder returns, aiming to guide the bank towards sustainable growth and improved financial outcomes. The report concludes with an overall assessment of Scotia Bank's financial position, summarizing key strengths and weaknesses and emphasizing the importance of strategic financial management for future success.

Financial Management

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Contents
Introduction.................................................................................................................................................2
Ratio Analysis.............................................................................................................................................2
Financial Situation.......................................................................................................................................4
Industry Ratio..............................................................................................................................................6
Recommendations.......................................................................................................................................7
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9

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Introduction
Financial Analysis is the procedure of examining and summarizing the financial status of
the company. There are various techniques to determine the financial status such as ratio
analysis, horizontal analysis, vertical analysis and the others. These techniques help to determine
the financial position of the firm which is required to be estimate for it (Robinson, 2020). In this
paper, the discussion is made on the topic of financial analysis. In this paper, Scotia Bank has
been taken into consideration to determine the financial position.
Scotia Bank is a multinational bank of Canada. It is considered as the 3rd bank in Canada
in terms of deposits and market capitalization. It deliver the services to 25 million consumers
across the world as it offers the range of goods and services containing personal and wealth
management, corporate, commercial banking and investment banking. It achieves the success in
business with the help of 88000 of employees with the volume of assets of $998 billion
(Scotiabank, 2018).
Ratio Analysis
Ratio Analysis 2017 2018
Long Term Solvency
Ratio
Debt to equity ratio Total Debt 223618 246091
Total Equity 61625 67680
3.63 3.64

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Debt to Assets Ratio Total Debt 223618 246091
Total Assets 915273 998493
0.24 0.25
Short Term solvency
Ratio
Current Ratio Current Assets 98464 100262
Current
Liabilities 694996 754776
0.14 0.13
Quick Ratio Quick Assets 59663 62269
Current
Liabilities 694996 754776
0.09 0.08
According to the ratio analysis, it is observed that the bank short term solvency ratio has
been decreases due to increasing current liabilities. Although, the amount of current assets has
been increases but the margin of increasing the current assets has is less as compare to the
increasing percentage of current liabilities. It has been estimated that the amount of current
liabilities is high such as 694996 and 754776 in 2017 and 2018 respectively as compare the
amount of current assets such as 98464 and 100262 in 2017 and 2018 in a respective manner
(Scotiabank, 2018b). The amount of quick assets has been increases from 59663 to 62269 in
2017 and 2018 which states the company can pay the current liabilities for smooth operations but

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it has been found that it has high amount of liabilities which the bank cannot pay by using the
assets. The liquidity position has been decreases due to increasing current liabilities (Cleartax,
2018).
According to the determination of long term solvency ratio of the bank, it has been seen
that the amount of total debt has been increases from 223618 to 246091 in the year 2017 and
2018 respectively. It has been estimated that the amount of total equity is less as compare to the
amount of debt which depicts that the bank issues the shares less for raising the capital instead of
borrowing the money from third parties. As compare to the previous year, the bank issues the
shares with the large amount but still the amount of liabilities is high as compare to the amount
of equity. It states that the company can face the challenges in the coming future related to
financial crisis such as high chances of insolvency (Accounting Tools, 2018).
In terms of Debt to Asset ratio, it has been analyzed that the bank has the capability to
pay the liabilities amount with the use of total assets. The amount of total asset is high as
compare to the amount of liability which represents its ability to pay the liabilities.
Financial Situation
The financial situation of Scotia Bank is not good as it has high amount of high and short
term liabilities. Apart from it, it also borrows the money on loan to finance the operation
activities. The financial situation of the company represents in graphic:
Long term solvency ratio states that the company has high amount of debt as compare
to the amount of equity. It affects the profit as it has high to pay the liabilities with the interest
amount .

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2017 2018
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Long Term Solvency Ratio
Debt to equity ratio
Debt to Assets Ratio
Short term solvency ratio graph states that the company liquidity position is not good as
it has high amount of current liabilities as compare to current assets.
2017 2018
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
Short Term Solvency Ratio
Current Ratio
Quick Ratio
It has been found that the company earning per share ratio has been growing as per the
passage of time such as $7.11 in the year 2018. The increasing earnings per share ratio states that
the company capacity to earn revenue has been increases which are beneficial for the company.
The dividend share price is also $3.28 in the year 2018 (Scotiabank, 2018b). It states that the
company has high value or goodwill in the market. The capital ratio of the company is 11.1

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which define the strong capital position that helps to operate the business smoothly without any
issue.
(Source: Scotiabank, 2018b)
Industry Ratio
Ratio’s Company Industry
Debt to equity ratio 10.74% 13.6%
EPS 6.72 5.98
Operating Margin 37.21% 35.31%
Dividend growth rate 6.61% 8.09%
Payout ratio 44.69% 48.82%
The industry average ratio of the company has been used in this section to compare the
financial performance. The debt to equity ratio of industry is 13.6% and the firm is 10.72%
which states that the company has to improve the ratio by reducing liabilities as it has high
amount of liabilities. It has been seen that the company earning per share ratio is 6.72 in the year

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2018 but industry average ratio is 5.98 which states that the firm has the more ability to generate
earning (Investing, 2018). According to earning per ratio, it is observed that the company has the
capability to generate the revenue even it is better from industry average ratio. According to
operating margin ratio, it has been found that the industry average is 35.31% and the company is
37.21% which depicts that the company has less financial risk just because of high earning
capacity and strong capital position. The operating margin ratio of the company is high as
compare to the operating margin ratio of industry which states the good financial position.
Dividend growth rate of the company is less as compare to industry average ratio such as 6.61%
and 8.09% respectively (Duggan, 2020). The payout ratio of the firm is also less as compare to
the industry ratio which means it provides the more return to shareholders.
Recommendations
 It is recommended that the bank has to invest in current assets in order to enhance the
volume of current assets. The high amount of current assets helps the bank to maintain
the liquidity position by paying all the short term expenses and obligations.
 It is also suggested that the bank has to improve the equity amount in order to reduce the
risk of financial crisis which have been increases by increasing the amount of liabilities.
Issuing the shares instead of borrowing the money on loan helps to enhance the capability
of the firm to pay all the short and long term obligations (Schroeder, Clark, & Cathey,
2019)
 By comparing the industry ratio with company ratio, it is observed that the firm payout
ratio is less as compare to industry average ratio which states that it pays the high amount

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to shareholders which affects its financial situation. It is suggested that the organization
has to pay less amount to shareholders in order to improve the payout ratio. Apart from it,
it can also control its other expenses so that the amount of net profit has been increases
and it can provide the high amount of return to shareholders to build the strong relation
with them.
Conclusion
From the above evaluation of ratios, it is concluded that the financial status of Scotia
Bank is not too good but its capacity to earn the income is high which is beneficial for it. By
comparing the financial performance with the industry, it has been seen that the company has
high amount of liabilities and expenses which affects its financial position. It is recommended
that the bank has to control the expenses and pay less to shareholders to improve the financial
position.

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References
Investing. (2018). Bank of Nova Scotia (BNS). Retrieved From:
https://www.investing.com/equities/scotiabank-ratios
Duggan, W. (2020). 7 Solid Dividend Stocks Worth Your Attention. Retrieved From:
https://money.usnews.com/investing/stock-market-news/slideshows/dividend-stocks-
with-low-payout-ratios
Scotiabank. (2018b). 2018 Annual Report. Retrieved From:
file:///C:/Users/SystemJP/AppData/Local/Temp/BNS_Annual_Report_2018.pdf
Scotiabank. (2018a). About Us. Retrieved From:
https://www.scotiabank.com/ca/en/about.html
Cleartax. (2018). Liquidity Ratio, Formula With Examples. Retrieved From:
https://cleartax.in/s/liquidity-ratio
Robinson, T.R. (2020). International financial statement analysis. John Wiley & Sons.
Accounting Tools. (2018). Solvency ratio. Retrieved From:
https://www.accountingtools.com/articles/solvency-ratio-definition-and-usage.html
Schroeder, R.G., Clark, M.W. & Cathey, J.M. (2019). Financial accounting theory and
analysis: text and cases. John Wiley & Sons.