Financial Statement Analysis of Auswide Bank and Bank of Queensland

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Running Head: Financial Statement Analysis
FINANCIAL STATEMENT ANALYSIS

1
Financial Statement Analysis
Executive summary
The study has provided a detailed understanding of the subject knowledge two organisations
listed on Australian Stock exchange have been selected. These have been observed to be Auswide bank
ltd and Bank of Queensland. Financial statement analysis helps in analysing the financial performance of
the companies on a yearly basis. It helps in understanding the profitability arising from the operations of
the organisation as well as the worthiness of the stocks to be considered by the investors. In this study,
in order to evaluate the financial statement analysis various financial aspects have been considered. The
study has evaluated the importance of ownership governance structure, performance ratios and optimal
capital structure of the two companies. On the basis of the above evaluation it can be said that both the
companies Auswide and Bank of Queensland have a similar type of financial performance.

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Financial Statement Analysis
Table of Contents
Introduction.................................................................................................................................................3
1. Brief overview of the two companies......................................................................................................3
2. Ownership-governance structure............................................................................................................4
3. Key ratios for past 4 years.......................................................................................................................6
i) Ratios....................................................................................................................................................6
ii) Relationship between Return on shareholders’ equity and Return on assets.....................................9
4. Significant factors influencing share price of the company...................................................................10
5. Investment.............................................................................................................................................10
i) Beta value...........................................................................................................................................10
ii) Required rate of return......................................................................................................................10
iii) Types of investment approach..........................................................................................................11
6. Dividends and share prices....................................................................................................................11
i) Average growth rate of dividends......................................................................................................11
ii) Expected price of share.....................................................................................................................11
iii) Comparison of share prices..............................................................................................................11
7. Capital structure....................................................................................................................................11
i) Capital structure.................................................................................................................................11
ii) Adjustments in capital structure........................................................................................................12
8. Recommendation..................................................................................................................................12
Conclusion.................................................................................................................................................12
Reference list.............................................................................................................................................13
Appendices................................................................................................................................................15

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Financial Statement Analysis
Introduction
Financial statement analysis helps in analysing the financial performance of the companies on a
yearly basis. It helps in understanding the profitability arising from the operations of the organisation as
well as the worthiness of the stocks to be considered by the investors. It has provided a detailed
understanding of the subject knowledge two organisations listed on Australian Stock exchange have
been selected. These have been found out to be Auswide bank ltd and Bank of Queensland. The
problem statement of the study is to analyse the importance of financial statement analysis.
1. Brief overview of the two companies
The chosen organisations have been found out to be Auswide bank limited and Bank of
Queensland. Both the companies operate under the banking sector of Australia. Their core activities and
respective markets have been explained below;
Auswide bank limited:
Core activities
Core activities of the bank include offering financial services of varied ranges and also offer
various banking products to its large base of customers. It lends, accepts deposits and also foreign
exchange facilities (Auswidebankltd.com.au , 2019).
Markets
It operates in a total of 23 places in Australia only and it operates in the market of Bundaberg
central, and Queensland (Auswidebankltd.com.au , 2019).
Historical factors
In the year 2015 and it changed its name from wide Bay Australia to Auswide bank ltd and
entered into a partnership with Money place which helped it in funding purpose. Therefore it expanded
its operation in the year 2015. It also merged with Brisbane's professional credit union
(Auswidebankltd.com.au , 2019).
Bank of Queensland:
Core activities

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Financial Statement Analysis
Core activities of Bank of Queensland include offering financial service such as providing
mortgage facility and approving various types of loans such as home loan, car loan and personal loan.
On the other hand it also offers products such as insurance cover and others (Boq.com.au, 2019).
Markets
Its market of operations has been seen to lie within the domestic region of Australia. However it
has been seen that under its various subsidiaries operate such as BOQ specialist, St Andrew’s insurance
and BOQ finance. Therefore it can be said that the company operates in the market of Brisbane and
Queensland. On the other hand it has its headquarters in Brisbane, Australia (Boq.com.au, 2019).
Historical factors
Historical factors have been seen to be similar to that of Auswide Bank ltd. this is because it was
involved in the purchase of Virgin Money in the year 2013 (Boq.com.au, 2019). On the other hand, it has
been seen that due to its good financial performance in the year 2014, it was awarded business leader
of Queensland (Boq.com.au, 2019).
2. Ownership-governance structure
Auswide bank limited:
Name of shareholders
There are two substantial shareholders in the market that have been observed to be National
Nominees Ltd ACF Australian Ethical investments limited and RE Hancock. Both the shareholders have
more than 5% of shareholding in the bank. On the other hand, other shareholders have been reported
to hold less than 5% of shares. In case of the substantial shareholders, it has been seen that none of
them are related to the business (Auswidebankltd.com.au , 2019).
People in the firm
Chairman and CEO
Auswide Bank limited has John Humphrey as the Chairman and Martin Barrett is the Managing
director (Auswidebankltd.com.au , 2019).
Board members
The board of directors include 5 members out of which one is the chairman and the managing
director. Others include Barry Dangerfield, Greg Kenny and Sandra Birkensleigh. All three are non-
executive directors. None of the board of directors hold substantial or even less than 5% of shareholding
in the company (Auswidebankltd.com.au , 2019).

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Financial Statement Analysis
Bank of Queensland:
Name of shareholders
The substantial shareholder in Bank of Queensland has been found out to be The Vanguard
Group Inc. This is because it holds a total number of shares 19929774 (Boq.com.au, 2019).
It has been seen that the total number of share held by The Vanguard Group Inc has been seen to be
more than 20%. However it has been found out to be a non family company that is it is not related to
the businesses of Bank of Queensland and it also does not provide any form of services to it.
On the other hand there are no such firms or shareholders that hold more than 5% of shareholders.
Other group of shareholders have been found to hold less than 5% share in the Bank (Boq.com.au,
2019).
People in the firm
Chairman and CEO
The chairman of the Bank is Roger Davis and its managing director that is Job Sutton is also the
CEO (Boq.com.au, 2019).
Board members
The board of directors include a total of 9 members. Out of the total of 9 members in the board,
8 members have been observed to be non-executive directors and only one is executive members.
Executive directors in the board are itself the CEO that is Job Sutton. The other members includes Bruce
Carter,Richard Haire, Warwick Negus, John Lorimer, Karen Penrose, David Willis, Michelle Tredenick,
and Margaret Seale (Boq.com.au, 2019).
None of the board of directors has been seen to have a substantial shareholding in the
company.

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Financial Statement Analysis
3. Key ratios for past 4 years
i) Ratios
Figure 1: Determination of ratios for Auswide Bank ltd
(Source: learner)
Figure 2: Auswide Bank ltd’s ROA and ROE
(Source: learner)

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Financial Statement Analysis
Figure 3: Determination of ratios for Bank of Queensland
(Source: learner)
Figure 4: Bank of Queensland’s ROA and ROE
(Source: learner)

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Financial Statement Analysis
Return on assets
In case of Auswide Bank ltd, return on assets has been determined to showcase an
increasing trend over the years. On the other hand in case of Bank of Queensland, it shows a
fluctuating trend over the period of four years. However in case of Bank of Queensland it has
been seen to be higher in comparison to that of Auswide bank. This means that the Bank of
Queensland is able to generate high amount of sales from that of assets (Loughran & McDonald,
2016).
Return on shareholder’s equity
Return on shareholders’ equity has been observed in case of both the banks and it
shows that for Auswide Bank it has increased over the period of five years. In case of Bank of
Queensland, it has been seen to be of fluctuating nature. However in the same of Return on
assets, return on equity is higher for the Bank of Queensland. If the return on equity is higher
than it mean that the company is able to generate high profits from the shareholders
investments (Maaloul & Zéghal, 2015).
Gearing ratio
Figure 5: Auswide Bank ltd’s Gearing ratio
(Source: learner)

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Financial Statement Analysis
The gearing ratio for Auswide and Bank of Queensland describe that high dependence is on the
assets of the company and liabilities are lower in amount to that to assets. However in case of Auswide
Bank it has observed to decrease in the year 2018. In relation to the Bank of Queensland it has been
seen to be decreasing nature too. This means the dependence has shifted from assets to liabilities more.
Figure 6: Bank of Queensland’s gearing ratio
(Source: learner)
Equation
The equation has been seen to be fulfilled by the elements of balance sheet and income
statement in case of both the banks. It has been seen that net profit after tax is seen to have increased
over the years and is positive in case of Auswide Bank. This means that shareholders investment has
been profitably used. On the contrary, it has been seen that the net profit after tax has been higher in
comparison to that of the Auswide bank’s profit.
ii) Relationship between Return on shareholders’ equity and Return on assets
Total assets to shareholders equity capture the financial leverage that a firm is exposed to
(Legrand, 2017). It has been seen that in case of the Banks, the ratio is more than standard level of 2
times. Therefore it can be said that business is more financed by assets and less by equities. However in
case of Auswide bank it is higher. High total assets to owner’s equity mean that there are high amount
of total assets used by a firm. Therefore it reduces the return generated on total assets. On the other

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Financial Statement Analysis
hand less equities means return on equity would be increased considerably. As a result in case of both
the banks the return on equity is higher than that of the return on assets.
4. Significant factors influencing share price of the company
Significant factors include mergers with related organisations and also purchase of a
considerable amount or portion of shares in other companies as well as a complete restructure. In
relation to Auswide Bank the partnership with Money place in the year 2015 has helped in increasing
the share prices of the company (Auswidebankltd.com.au , 2019). Moreover the firm also went a
complete restructure from that of Wide Bay Australia to Auswide bank ltd. There has been a purchase of
Virgin Money in the year 2013 in case of Bank of Queensland (Boq.com.au, 2019). This has helped in
increasing the confidence of the shareholders.
5. Investment
i) Beta value
The beta value for Auswide bank is 0.36 and in case of Bank of Queensland it has been observed
to be 1.13 (Reuters.com , 2019).
ii) Required rate of return
Figure 7: Required rate of return
(Source: learner)

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Financial Statement Analysis
iii) Types of investment approach
The investment appraisal used by both the Banks is not found to be conservative nature. This is
because both the banks have maintained a moderate level of working capital (Lang & Stice-Lawrence,
2015).
6. Dividends and share prices
i) Average growth rate of dividends
The dividend for Auswide bank is 0.16 per share and 0.18 per share for the years 2019 and 2018.
Therefore the growth rate in dividends is -11.1%. On the other hand for Bank of Queensland, the
dividend for 2018 is 0.38 per share and in 2019 it has been 0.34. This means the average growth rate is -
10.53%.
ii) Expected price of share
The constant growth rate in dividends has been used to calculate the expected share price. The
formula is expected share price = dividend rate / required rate of return - growth rate in dividends.
Therefore the expected price for Auswide bank is $0.92 and for the Bank of Queensland it is $1.59.
iii) Comparison of share prices
The current share price for Bank of Queensland is $9.05 per share however the expected share
price is $1.59. Therefore it can be said that the shares are highly overvalued in the market. On the other
hand, share price of Auswide Bank is currently $4.99. This means that the shares are highly overvalued.
This is due to the fact that the expected price is $0.92.
7. Capital structure
i) Capital structure
Auswide Bank
In case of this bank the gearing ratio indicates that the capital structure of the firm is close to
stable. This is because the ratio is 0.92. This means that business is more financed by assets and not
equities or long term loans.