Assignment 2: Analyzing Financial Performance and Stock Price of NAB

This report investigates the relationship between financial performance and the stock price of National Australia Bank (NAB). It begins with an executive summary and introduction that establishes the rationale, aim, and research questions, followed by an extensive literature review covering theoretical aspects and a conceptual framework. The research employs a secondary data collection method, analyzing NAB's annual reports to assess the relationship between factors like liquidity, profitability, market valuation, and growth, and their impact on stock price over a five-year period. The findings and analysis section presents the relationships between these financial performance factors and NAB's stock price. The discussion then delves into these relationships. The report concludes with a summary of the key findings and a list of references. The report follows the structure of a professional research report. The report includes tables and figures to support the analysis.

Running Head: ASSIGNMENT 2
Impact of Financial Performance on the Stock Price of a Bank: A Case Study of National
Australia Bank
Student’s Name:
Teacher’s Name:
University:
Date:

2ASSIGNMENT 2
Executive Summary
The following report takes into account the varied and robust relationship of the financial
performance and the banks stock price, in respect of the case study of National Australia Bank.
The aim that has been determined to examine the connection between the variables which are
independent and dependent in nature, which that are interrelated with each other. The research
question intends to understand the effective relationship among two variable and factors that
influence the stock price. It was determined from the analysis and discussion that there is a
constructive relationship amongst the stock price and financial performance of National
Australia Bank.

3ASSIGNMENT 2
Table of Contents
1.0 Introduction................................................................................................................................5
1.1 Background............................................................................................................................5
1.2 Rationale................................................................................................................................5
1.3 Aim and Research Question..................................................................................................5
2.0 Literature Review......................................................................................................................7
2.1 Theoretical Review................................................................................................................7
2.1.1 The Financial Performance and the Stock Price Movement..........................................7
2.1.2 The Factors of Financial Performance and Stock Price..................................................8
2.2 Conceptual Framework........................................................................................................11
3.0 Research Method.....................................................................................................................13
3.1 Research Data Collection Method.......................................................................................13
3.2 Data Analysis Method.........................................................................................................14
4.0 Finding and Analysis...............................................................................................................15
5.0 Discussion................................................................................................................................19
5.1 The Relation between the Financial Performance and the Stock Price...............................19
5.2 The Relationship between the Factor of Financial Performance and the Stock Price.........19
6.0 Conclusion...............................................................................................................................21
7.0 References................................................................................................................................22

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Table of Figure
Figure. 1: Conceptual Framework.................................................................................................12
Figure. 2: Stock Price Relation with Liquidity..............................................................................15
Figure. 3: Stock Price Relation with Net Profit.............................................................................16
Figure. 4: Stock Price Relation with Market Valuation................................................................17
Figure. 5: Stock Price Relation with Growth.................................................................................18

5ASSIGNMENT 2
1.0 Introduction
1.1 Background
A company is able to significantly improve its competitiveness and performance with a
strong and effective financial background. There are various factors that has a relation with the
growth of a company relatively in a financial prospect, but the most duly noted factor is the
relation between the financial performance of the company and the stock price. A company tends
to see an overall rise in the stock price when there is a relatively good performance (Anwaar,
2016). They both are considered as the most relative variable, where the stock price is considered
as the variable which is dependent and the financial performance is considered as the variable of
independent nature.
1.2 Rationale
The stock price relatively moves in the same direction as the performance of financial
aspect of the company. The market demand drastically changes with the general financial
performance. Relative increase in financial performance will increase the market demand and the
stock price will increase relatively. The financial performance relies on many aspects such as the
liquidity, inflow and outflow of cash and profitability (Bahmani-Oskooee & Saha, 2015). A fall
in profit will drastically impact the financial performance and the market will react negatively,
which will lead to a fall in the share price. A company always intends to improve its performance
as it will help in securing better relation with the stakeholders.
1.3 Aim and Research Question
This study intends to set an aim to determine the relationship between financial
performance and stock price, taking into consideration of a case study of National Australia

6ASSIGNMENT 2
Bank. In respect of the aim that has been set, two research question has been duly set, which are
to be achieved in this study.
Research Question No. 1: What is the relation between financial performance and stock price?
Research Question No. 2: What is the relationship between factor of financial performance and
the stock price?

7ASSIGNMENT 2
2.0 Literature Review
2.1 Theoretical Review
2.1.1 Financial Performance and the Stock Price Movement
According to Puspitaningtyas, (2017), market demand for a stock is solely dependent on
efficiency of the financial performance. If price of the stock tends to increase, it will effectively
reflect a good financial position of the company. Having a strong stock price will help in
increasing the company relation with the shareholder and build a better ground for the future of
the organization. On the other hand, as per Sui & Sun, (2016), stated that the company value is
drastically reflected by the stock price. The investors are more expected to invest in the
company, which has an effectively good financial backbone. The agency theory states that a
company with good financial performance will have an upright financial ratio, which will help
the investors to have healthier relationships with the management of the corporation. A good and
strong financial ratio will effectively create a positive impact on the market and will be
appreciated by the participants of the market for increasing the share price.
In the context of Bosse & Phillips, (2016), the financial performance is also dependent on
the management and having effective corporate factor by a company in respect of the
shareholders. The company must make amendments and plans keeping the shareholders in
priority, as when it is reflected and added to the financial statement, it improves the market
situation of the organization and improves stock price of the business. On the contrary, as per
Nollet, Filis & Mitrokostas, (2016), proper investment is made after analyzing the financial
performance and determining positive value of the firm respectively. Information that is of
financial aspect is used by the investors for making proper investment opportunity. The increase
in the investment provides a strong sign to the market and creates an upward rise in the stock

8ASSIGNMENT 2
price. This shows that there is a rationally optimistic relation among financial performance and
the stock price of the stated organization.
2.1.2 The Factors of Financial Performance and Stock Price
There are varied factors in the financial performance of a firm, which has a direct relation
with the stock price. According to Wang, Dou & Jia, (2016), the factors that has been considered
in this study are the use of growth which is determined with the help of the sales, the profitability
which is achieved with the return in respect of indicators in equity, liquidity by the help of
current ratio and market value of the corporation with the help of earning per share. This is the
major factors that help in the improvement of the financial position of the business and improves
stock price.
Stock Price and Liquidity
In the context of Sayari & Omri, (2017), the liquidity is one of the major factors for a
company as it enhances the capability of the company to meet short term liabilities and manage
the current asset in a significant manner. Having low liquidity will lead to a poor financial
condition for the company as they will not be able to meet their financial need. A strong financial
condition will improve the company capability to meet the liabilities and improve the overall
asset. This states that strong liquidity will create a better sense among the investors about low
risk in the organization and increase the stock price due to the high performance in respect of
liquidity. Positive relation between stock price and liquidity is effective, which is a factor of
financial performance. The liquidity of a company is determined with the help of the ratio
between current assets and the current liabilities.

9ASSIGNMENT 2
Stock price and Profitability
As per the context of Purnamawati & Ayu, (2016), one of the most crucial factors for a
company is to have good profitability, which shows an upward trend for the investors. It is
considered as one of the most effective factors as it states the return in respect of the invested
capital by the shareholders. The equity indicator is one of the most elegant ways of determining
the profitability relation with the share price. Ratios such as the return on equity support in
improving the considerate of overall profitability of the business and reflects the financial
condition. There is a positive relationship between stock price and profitability, which shows that
the market reacts positively when there is a growth in the profitability and the stock price
increases rapidly. The rise in the return on equity ratio helps an organization to see a structural
growth and positive return in respect of the stock price.
Stock price and Market Valuation
In the context of Agarwal et al., (2016), the financial performance intends to consider
market valuation as a major factor in respect of the stock of the company. The market valuation
is determined with the help of earning per share, which is another factor for determining the net
profit of the company. The decision is made more robustly about the company with the proper
market valuation. The market valuation helps in evaluating the available profit in the books of
the company, which will be duly distributed among the shareholder. Positive relation is
estimated among the stock price that is listed in the market and the market valuation. The
activities of the company improve when there is an increase in market valuation. A high market
valuation creates a notion of a high return in the market about a strong performance in the
financial aspect of the company and relatively increase the price of the stock.

10ASSIGNMENT 2
Stock Price and Growth
The studies of Pradhan, Arvin & Ghoshray, (2015), stated a company need to maintain its
competitive position in the relevant industry in a significant manner. There is a rational need for
meeting the growth rate of the industry and improve consistently to achieve a better result and
maintain a competitive advantage. The most effective way of judging the economic growth is by
the rise in the sales in the financial statement of the company. The figure for the sales changes
rapidly every year and with a high sales figure, the company can gain more profit and meet the
debts and expenditure more prominently. There is a rational positive relation among price of the
stock and the growth of the corporation as the market demand will increase drastically when the
sales figure increase. This will create a positive trend in the market and increase the stock price
due to heavy demand and strong financial position.

Factors of Financial Performance
Growth
Market Valuation
Liquidity
Profitability
Stock Price
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2.2 Conceptual Framework

12ASSIGNMENT 2
Figure. 1: Conceptual Framework
The following conceptual framework in figure 1, states the relation between various
factors of the financial performance of a company, which are growth, market valuation,
profitability and liquidity and how it directly relatively relates to the stock price.