Financial Analysis and Performance of Westpac Group: A Report

This report offers a comprehensive financial analysis of the Westpac Group, an Australian banking group. It begins with an introduction to the company, followed by an analysis of its competitive forces using Porter's Five Forces framework, assessing the impact of new entrants, suppliers, buyers, substitute products, and existing competitors. The report then scrutinizes doubtful accounting policies, specifically focusing on provision for impairment charges and the valuation of financial assets. It compares Westpac's financial performance between 2015 and 2018, evaluating operating income, profit, and balance sheet metrics. The conclusion recommends investing in Westpac due to its favorable operating conditions and expected future growth.

Running head: FINANCIAL ANALYSIS OF WESTPAC GROUP
FINANCIAL ANALYSIS OF WESTPAC GROUP
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1FINANCIAL ANALYSIS OF WESTPAC GROUP
Table of Contents
Introduction................................................................................................................................2
Westpac Group.......................................................................................................................2
Discussion..................................................................................................................................3
Competitive forces analysis of Westpac Group.....................................................................3
Doubtful accounting policies of Westpac Group...................................................................7
Financial performance of Westpac Group.............................................................................7
Conclusion and Recommendation..............................................................................................8
References and Bibliography.....................................................................................................9

2FINANCIAL ANALYSIS OF WESTPAC GROUP
Introduction
The report titled “Financial Analysis Of Westpac Group” is prepared to analyse the
financial performance of the Westpac Group. The objective of the report is to analyse the
financial performance of any Australian company. Hence, this report choose the Westpac
Group as an Australian company to complete the report. The report provide the brief
background as the induction of the Westpac Group. Further, the report analyse the
competitive forces of the Westpac Group using the Porter’s five forces framework. This
report also analyse the financial information provided by the company in the annual report of
2018 to identify the accounting policies of the Westpac Group that should be closely watched
by the auditors and analyst. Further, this report analyse the financial performance of the firm
by comparing the financial position and performance of Westpac Group in 2018 with the
2015. Lastly, the report provides clear recommendation to the investors of the Westpac
Group in the basis of the conclusion of the report.
Westpac Group
The Westpac Group is an Australian banking group founded in the year of 1817 as the
Bank of New South Wales. The Bank of New South Wales was renamed as the Westpac
Banking Corporation after being merged with the Commercial Bank of Australia in 1982
(Westpac 2019). This is the first bank of Australia hence the oldest one. This is also one of
the largest bank of Australia as well as New Zealand. The vision of the bank is “to be one of
the world’s great service companies, helping our customers, communities and people to
prosper and grow.” While, the mission of the company is to deliver its vision in the both
Australia and New Zealand market. The Westpac Company provides the board range of
financial and banking services in both the above stated market along with the business,
institutional and consumer banking services and several wealth management services.

3FINANCIAL ANALYSIS OF WESTPAC GROUP
Discussion
Competitive forces analysis of Westpac Group
To analyse the competitive forces analysis of Westpac Group, this report use the five
forces framework of Porter to analyse the competitive forces of the Westpac Group. This
framework of the Porter analyse the competitive forces of the Westpac Group in the basis of
the five different forces in terms of the profitability and attractiveness. This analysis helps the
management to make several strategic decision regarding the business operation of the firm.
The following are analysis of Westpac Group in the basis of the five force: -
Threats of new entrants
In this force, the framework analyse the effect of the new entrants on the performance
of the Westpac Group. The following points analyse the effect of new entrants in the
performance of the Westpac Group: -
 It is difficult to achieve the scale of economies in which the Westpac Group operates
for the new entrants. This economy is only possible to those who produce in large
capacitates to have the cost advantages. The service providing cost become very high
for the new entrants. This is the biggest threats for the new entrants.
 The product difference in this industry is also very high. The Westpac Group sells the
diversified product than the standards product. The customers of this industry also
looks for the diversified product as per their convenience (Pattipeilohy 2016). This is
also a challenge for the new entrants as this is not an easy task to diverse its product in
the initial phase of the business.
 The capital requirement in this industry is also very high. As the entire industry is
fully operates in the capital fund hence the required capital become very high in the
initial stage of the business. It is another threat for the new entrants.

4FINANCIAL ANALYSIS OF WESTPAC GROUP
 The access of distribution network in this industry is an easy process for the new
entrants. They can easily access the distribution chain by setting up few retail outlets
and the selling the product type. This helps the new firm to simulate its product in the
market. This easy access to the distribution network makes the new entrants strong.
 Lastly, the government policy of this sector is not suitable for the new entrants as the
paper work requirement and the restrictions are very. This makes the new entrants a
weak force.
Bargaining power of suppliers
The bargaining power of suppliers can be analysed by the following points: -
 The number of suppliers of the industry in which Westpac Group operates have the
higher number of supplier than the number of customer. This high number of supplier
reduces the bargaining power of the suppliers (Fabbri and Klapper 2016). This also
helps the Westpac Group to switch with the other suppliers. Hence, the bargaining
power of suppliers force become low.
 The product supplied by the suppliers are many standard product with lost switching
cost. This also make easy for Westpac Group to switch the supplier. This also make
the barging power of the supplier cost low.
 The supplier in this industry have the less credibility as the supplier fails to provide
the threat for forward integration towards the Westpac Group. This also decrease the
force of bargaining power of supplier.
Bargaining power of buyer
The followings points analyse the force of bargaining power of power: -
 In the industry of Westpac Group, the number of supplier is high but the number of
producer is very low compared to buyers. Hence, the customers hardly have the

5FINANCIAL ANALYSIS OF WESTPAC GROUP
control in the cost of product. This also reduce the force of the bargaining power of
the buyers.
 The differentiation in the product inn this industry is very high, which makes
difficult to the customer to find the same product from the different supplier (Easton
and Sommers 2018). Hence, the barging power of the customer become low in this
industry.
 The average customer’s income of this industry is very low. This shows that the
customer choose the low price products, which reduces the bargaining power of the
buyers.
 The buyer want the quality product and services in the lowest cost in this industry.
This reduces chances of switching as there is quality service provider in the less cost.
This also reduces the purchasing power of the buyers.
Threat of substitute product
The threat of the substitute product for the industry of Westpac Group can be analysed
as the following points: -
 In this industry, the available substitutes of the product is very low. The low profit-
earning corporations also produce the available substitute products (Dertwinkel-Kalt
2015). This shows that the threat of the substitute products have low force in this
industry.
 The available substitutes of the product have the low quality along with the high
price. The Westpac Group sale the high quality product in the low price compare to it
substitute product, which decreases the force of the threat of substitute product.
Competition among the existing firms

6FINANCIAL ANALYSIS OF WESTPAC GROUP
The competition among the existing firms in the industry of Westpac Group is
analysed in the following points: -
 The number of the competitor of Westpac Group is very low. The few available
competitors of the firm also does not operate in such large scale in which the
Westpac Group operates.
 There is very few competitors are present, which have the larger market share as the
Westpac Group have. Hence, the competitor of the Westpac Group is competing
directly although they competes for becoming the market leader.
 The growth rate of the industry in which Westpac Group operate is very high. This
high growth rate indicates that the level of competition is very low.
 The fixed cost of Westpac Group’s industry is very high. The completion become
high when the demand of the products starts falling and the company need to reduce
the product price.
 The exit barrier of this industry is also very high as this required high cost as capital
to operate (Brede and Henn 2018). The government policy of also make the exit
barrier higher. Hence, the firm needs to continue the production even in the low
profit margin. This make the completion among the existing firm strong.
The above five forces of the Westpac Group analysis reveals that the industry of the
Westpac Group have the only one strong force that is competition among the existing firm.
The rest forces of the industry is very weak. Hence, the high growth in the performance of
Westpac Group can be expected in the near future.
Doubtful accounting policies of Westpac Group
In the basis of the annual report of the Westpac Group for the year 2018, the
following two account need the close watch of the auditor and the analyst of the firm: -

7FINANCIAL ANALYSIS OF WESTPAC GROUP
 Provision for impairment charges: - This report recommend the auditor and analyst
to closely watch the provision for impairment charges of the Westpac Group
(Westpac 2019). This report highlights this policy of Westpac Group because of the
subjective and complex judgements made by the Westpac Group in determining the
necessity and the size of the impairment provision for the loans.
 Valuation of financial assets: - The accounting policy that this report recommends to
auditor and analyst to watch closely is the valuation of financial assets. The reason
behind highlighting this policy is the magnitude of financial instruments are held at
fair value is material and the judgement and complexity is involved in the estimation
of fair value of financial instruments.
Financial performance of Westpac Group
To analyse the financial performance of the Westpac Group, this report compare the
financial performance and the financial position of the firm for the year 2018 with the 2015
(Westpac 2019). This report calculates the change in the value of operating income, profit
before tax, net profit and the earnings per share of the profit statement and the total asset, net
asset, total liability and the equity of the Westpac Group from the balance sheet of the firm.
To understand in the better way this report also represent the change in percentage.
The net operating income of the Westpac Group is increased in the year of 2018 by
2.27%. The operating expenses of the firm also increased by the 2.31%. The profit before tax
and the net profit of the Westpac Group shows the growth of 2.76 % and 0.38 % respectively.
Only the earnings per share is decreased by the 7.34 % in the year 2018 compared to 2015.
On other hand, the balance sheet of the firm shows the growth of 8.30 % in the total
asset of the firm along with the 7.49 % growth in total liability. The net asset of the Westpac

8FINANCIAL ANALYSIS OF WESTPAC GROUP
Group reported the growth of 19.77 % and the total equity as 21.51 % growth in the year
2018 compared to year 2015.
Conclusion and Recommendation
In the basis of the above discussion, this report concludes that the external factor does
not have strong forces in the industry of the Westpac Group. Hence, the Westpac Group is
expected to grow more in the near future. In the basis of the annual report 2018, the auditor
need to observe the provision for impairment charges and the valuation of the asset as there is
changes of the material misstatement. The financial performance of the Westpac Group
showed the growth in the last three years and expected to be grow more in the future. Hence,
this report strongly recommends to invest in the Westpac Group as the company has well
future prosperities. All the operating condition are in favour of the company, which ensures
the growth of the firm in the future.

9FINANCIAL ANALYSIS OF WESTPAC GROUP
References and Bibliography
Brede, M. and Henn, C., 2018. Finland’s public sector balance sheet: A novel approach to
analysis of public Finance. International Monetary Fund.
Dertwinkel-Kalt, M., Haucap, J. and Wey, C., 2015. Raising rivals’ cost through buyer
power. Economics Letters, 126, pp.181-184.
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.
Fabbri, D. and Klapper, L.F., 2016. Bargaining power and trade credit. Journal of corporate
finance, 41, pp.66-80.
Mathooko, F.M. and Ogutu, M., 2015. Porter’s five competitive forces framework and other
factors that influence the choice of response strategies adopted by public universities in
Kenya. International Journal of Educational Management, 29(3), pp.334-354.
Pattipeilohy, C., 2016. A comparative analysis of developments in central bank balance sheet
composition.
Phadermrod, B., Crowder, R.M. and Wills, G.B., 2019. Importance-performance analysis
based SWOT analysis. International Journal of Information Management, 44, pp.194-203.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.
Vivalt, E. and Macdonald, B., 2017. The impact of new products on ethical beliefs. OSF
Preprints. November, 9.
Westpac 2019. [online] Westpac.com.au. Available at:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2018_Westpac_Annual_Report.pdf [Accessed 22 May 2019].

10FINANCIAL ANALYSIS OF WESTPAC GROUP
Westpac 2019. [online] Westpac.com.au. Available at:
https://www.westpac.com.au/docs/pdf/aw/ic/Westpac_FY15_financial_results.pdf [Accessed
22 May 2019].
Westpac 2019. Westpac - Personal, Business and Corporate Banking. [online]
Westpac.com.au. Available at: https://www.westpac.com.au/ [Accessed 22 May 2019].
Wilmers, N., 2018. Wage stagnation and buyer power: How buyer-supplier relations affect
US workers’ wages, 1978 to 2014. American Sociological Review, 83(2), pp.213-242.
Yang, H., Luo, J. and Zhang, Q., 2018. Supplier encroachment under nonlinear pricing with
imperfect substitutes: Bargaining power versus revenue-sharing. European Journal of
Operational Research, 267(3), pp.1089-1101.