Analysis of Financial Statements: Westpac, ANZ, and Commonwealth Bank

This report provides a comprehensive financial analysis of Westpac, ANZ, and Commonwealth Bank, focusing on their equity, liabilities, and cash flow statements from 2016 to 2018. The analysis includes an examination of the companies' debt-equity ratios, highlighting the high leverage within...Read More

Corporate Accounting

CORPORATE ACCOUNTING 1
Executive Summary
The main aim of this report is to develop the understanding of analysis of financial statement
of the company. In this report, the analysis of Westpac, ANZ and Commonwealth has been
done in order to analyse the financial position of the companies. The analysis states that the
companies have high leverage in the context of equity and liability. The different items of
cash flow statement have been discussed in this report which states that the companies have
less capital. The analysis of comprehensive income statement has different items which are
not recorded in the income statement. The companies have deferred tax and liabilities which
analysed the consumption and saving of company in the context of tax.

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Contents
Introduction................................................................................................................................1
Equity and Liabilities.................................................................................................................1
Cash flow statement...................................................................................................................1
Comparative Analysis............................................................................................................1
Income statement.......................................................................................................................1
Accounting for Corporate Income Tax......................................................................................1
Conclusion..................................................................................................................................1
References..................................................................................................................................1

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Introduction
Financial analysis refers to an assessment of the viability, stability, and profitability of a
business. In this report, the financial analysis has been done in order to analyse the profit and
stability of the company. In this report, three companies have been taken into consideration to
analyse the financial position such as Westpac, ANZ, and Commonwealth. Westpac is an
Australian bank and the provider of financial services which was founded in 1817 (Westpac,
2018). Commonwealth Bank of Australia is an Australian multinational Bank with the
business across New Zealand, United Kingdom and United States. It earned $26.005 billion
revenue (The Commonwealth, 2018). ANZ is an Australia and New Zealand Banking Group
and it is the third largest bank in the term of market capitalisation (ANZ. (2018) History.
This report is divided into four parts to analyse the financial statement. In the first section,
equity and liabilities of the company have been analysed. The second section is based on the
cash flow statement of the company in order to analyse the financial position as well as
stability in the market. The third section of the report has discussed about the items of income
statement in order to analyse the profitability of the company. The corporate income tax has
been discussed in the last section of the report.
Equity and Liabilities
Westpac

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Equity components 2016
($m)
2017 ($m) 2018 ($m)
Ordinary share capital 33469 34889 36,054
Treasury shares and RSP treasury
shares
(455) (495) (493)
Reserves 727 794 1077
Retained earning 24379 26100 27883
Non-controlling interests 61 54 52
Total Equity 58,181 61,342 64573
From the above table, it is seen that ordinary share capital has been increasing in all the three
years. The reason can be increase in earning or due to increase in the selling stock shares that
will ultimately increase the profitability of the company. While concerning reserves of the
company from the above table, it can be seen that the reserves has increased in 2017 and
2018 when as compared to 2016 (Westpac, 2017). Moreover, with the increase in ordinary
share capital, the reserves have also increased in 2018. The company has a potential to
expand and diverse its business due to increasing retained earnings.
Total Liabilities 2016
($m)
2017 ($m) 2018 ($m)
Payment due to financial
institutions
18209 21907 18137
Deposit and other borrowings 513071 533591 559285
Other financial liabilities at fair 4572 4056 4297

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value through income statement
Derivative financial instruments 36076 25375 24,407
Debt issues 169902 168356 172596
Current tax liabilities 385 308 296
Life insurance liabilities 12,361 9019 7,597
Due to subsidiaries - - -
Provisions 1,420 1462 1928
Deferred tax liabilities 36 10 18
Other liabilities 9004 8783 9,193
Loan capital 15805 17666 17,265
Total 781021 790533 815019
From the above consolidated table of all the three years of 2016, 2017, and 2018, it can be
interpreted that two major components of long-term liability include Deposit and other
borrowings and debt issues. The proportion of total long-term debt has been increasing in
2017, 2018 as compared to 2016 (Westpac, 2016). Whereas, the current and deferred tax
liabilities have shown a decrease in recent two years. It is quite possible that the company is
increasing its total debt so that it can save tax by showing interest as expense.
Commonwealth Bank
Total Equity 2016 ($m) 2017 ($m) 2018 ($m)
Ordinary share
capital
33845 34971 37270
Reserves 2734 1869 1676
Retained profits 23435 26274 28360
Non-controlling 550 546 554

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interests
Total 60564 63660 67860
From the table given above, it can be depicted that total equity has increased in last three
years. The increase is consistent as it is raising with almost same sum. It is very clear after
viewing the capital structure of the companies that total equity remains less than debt and
borrowings. It is analysed that the reserves of the company have been decreasing, as the
amount in reserves in 2018 was almost one-third of 2016. Moreover, retained earnings show
a consistent increase in 2016, 2017, and 2018 (Commonbank, 2016).
Total Liabilities 2016 ($m) 2017 ($m) 2018 ($m)
Deposits and other
public borrowings
588045 626655 622234
Payables due to
other financial
institutions
28771 28432 20899
Liabilities at fair
value through
Income Statement
10292 10392 10247
Derivative liabilities 39921 30330 28472
Bank acceptances 1431 463 379
Due to controlled
entities
- - -

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Current tax
liabilities
1022 1450 952
Deferred tax
liabilities
340 332
Other provisions 1656 1780 1889
Insurance policy
liabilities
12636 12018 451
Debt issues 161284 167571 172294
Managed funds units
on issue
1606 2577
Bills payable and
other liabilities
9889 11932 11596
Liabilities held for
sale
- - 14900
Loan capital 15544 18726 22992
Total liabilities 872437 912658 907305
From the above table of all the three years of 2016, 2017, and 2018, it can be interpreted that
two major components of long-term liability consists of Deposits and other borrowings and
debt issues. It has been interpreted that very less amount is charged from the company as tax
because the company belongs to financial sector and they maintain a high leverage situation.
(Commonbank, 2017). It can be seen that Deposits and other public borrowings have been
increasing from 2016 to 2017 but it has shown a decrease in 2018 with a very small change.
ANZ

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Capital 2016 ($m) 2017 ($m) 2018 ($m)
Ordinary share
capital
28765 29088 27205
Reserves 1078 37 323
Retained earnings 27975 29834 31715
Non-controlling
issues
109 116 140
Total Equity 57927 59075 59383
Form, the above table, it is clear that Ordinary share capital of the company has been
fluctuating as it was $28765m in 2016 increased in 2017 and due to some reasons declined in
2018. From the annual report, it is interpreted that the decrease in equity was due to current
on-market buy-back in regards to ordinary shares of $3.0 billion. The report reveals that the
company bought back $1,880 million worth shares in 2018 that resulted in 66.7 million
shares, which are being cancelled during the year. Moreover, the reserve section of the
company is not at all consistent. As seen in the table, the reserves dropped drastically in 2017
(ANZ, 2018). Non-controlling issues depict share in net assets of controlled entities that are
attributable to equity shareholders who the company do not own indirectly or directly.
Therefore, it is important to see that overall heading of equity has increased in 2017 as
compared to 2016 and remained almost consistent in 2018.
Total Liabilities 2016 ($m) 2017 ($m) 2018 ($m)
Settlement balances
owed by ANZ
10625 9914 11810
Collateral received 6386 5919 6542
Deposits and other 588195 595611 618150

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borrowings
Derivative financial
instruments
88725 62252 69676
Current tax
liabilities
188 241 300
Deferred tax
liabilities
227 257 59
Liabilities held for
sale
- 4693 47159
Policy liabilities 36145 37448 -
External unit holder
liabilities (life
insurance funds)
3333 4435 -
Payables and other
liabilities
8865 8350 6788
Employee
entitlements
543 530 540
Other provisions 666 628 1038
Debt issuances 113044 107,973 121179
Total liabilities 856942 838251 883241
While analysing the above table, two most important component of liabilities are Debt
issuances, Deposits, and other borrowings. Form the above table, it can be interpreted that
long-term debt has been increasing in 2018 as compared to 2016 and 2017. It has shown a
significant change in debt in 2017 as compared to 2016 (ANZ, 2016). The other component is

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Deposits and other borrowings, which has been increasing consistently throughout all the
three years. It is important to know that banking industry always maintains a high proportion
of debt as seen in the table above but the company is able to maintain a level of consistency.
Comparison of debt-equity ratio
Company 2016 2017 2018
Westpac 14.44 13.90 13.63
Commonwealth 15.50 15.46 14.49
ANZ 15.82 15.54 15.97
From the above comparison of debt-equity ratio of the three companies from the financial
sector for three years from 2016 to 2018. It is seen that the debt-equity ratio of banking sector
is much higher than other sectors. Many economist have believed that it is optimal for the
banks debt-ratio to have high debt-ratio. Economists researched a model named “Modigliani
and Miller” which provides idealised baseline to analyse the bank capital structure in such a
market where a liquid financial claim is demanded. This model assumes various risk
associated with the banking operations. It also excludes deposit insurance, any other
distortions, agency problems, and taxes, which will ultimately lead to opt for levered capital
structure. According to the above table, it is clearly seen that all three companies have same
debt-equity ratio. In 2016, debt-equity ratio of ANZ is higher between Westpac and
Commonwealth. In 2017, ANZ has higher leverage ratio but commonwealth is much far
behind. At last, all the three companies maintains a leverage of 14 to 15 per cent (ANZ,
2017).

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Cash flow statement
I Cash Flow from operating activities
Depreciation
Depreciation, depletion and Amortization are the means of allocating the cost of asset over its
useful life (Gordon, Henry, Jorgensen, & Linthicum, 2017). In the last years, the amount of
depreciation is fluctuating which states that the decreasing and increasing state of asset.
When the assets are decreases then the amount of depreciation is increases. Common wealth
and ANZ did not record any amounts as per the depreciation, and Amortization.
Provision for Credit
Provision for credit losses is treated as an expense in the financial statement. In the case of
Common wealth, Provision for credit is increases in decreases in the year of 2017 due to
decreasing the amount of 1095. In ANZ, the provision for credit is decreases by the amount
of 1198 which reflects that the company has less credit risk.
Cash Flow from Investing Activities
Purchase of investment
Investment is the purchase of goods that are not consumed today but is useful for future. As
per the analysis of years, it has been seen that the investment is increases in 2017 due to high
investment in the market funds. In the year 2016, 2017, the common wealth did not invest in
their does not invest in their shares. ANZ also invest in the shares as per its decreasing shares
in the market.
Acquisitions and Disposable

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Acquisition means that the company acquire the other business in order to earn the profit. As
per the annual report of Westpac, the company stop acquiring in 2017 due to minimum fund.
Common Wealth is acquired less amount which reflected from its decreasing amount of
acquisition. ANZ stop acquiring the shares from the others.
Cash Flow from Financing Activities
Long term debt
Long term debt is the amount which is owned by the company for a period of exceeding 12
month. The debt rate is increases in the year of 2017 as compare to the 2016 in order to
acquire the capital. In common wealth, the long term debt is increases with the higher amount
as per the continuous year.
Cash Dividend paid
Cash Dividend is money paid to the stakeholders out of the corporations current earning or
accumulated profits. The amount of cash dividend is increases in the year 2017 due to
investing in equity shares. In common wealth and ANZ, the cash dividend paid is fluctuated
due to increasing equity share.

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It has been analysed that the operating activities of ANZ is negative in the last three years due
to increasing credit in the company. The investing activities of the company are negative in
2016 and 2017 but after that the amount of investing activities is increases. The investment of
the company is decreases due to less capital for the investment in funds. The financing
activities of the company are decreases which reflect that the company borrow less amount
on loan.
Westpac
It has been analysed that the company has positive operating activities in the last three years
which states that the company generate the cash from the different sources. The investing
activity of the company is negative which reflects that the company invest more in the share
due to which it will earn high profit in future. The financing activity of the company is
decreases continuously even in the negative amount.
Common Wealth
ANZ
Commonwealth
Bank Westpac
2016 2017 2018 2016 2017 2018 2016 2017 2018
Net Cash Provided by Operating
Activities
-1,929 -1,198 -1,198
-
1256 -1095
-
1079
5,49
7
2,820 19,802
Net cash used in Investing
Activities
-14,410 -12,830 166
-
2,032
-677
-
1,002
-
7,24
5
-
1,698
-1,620
Net cash used in Financing
Activities
1,958 -6,667 2,620 1,620
10,47
2
-934
4,57
3
552
-
11,092

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It has been seen that the operating and investing activities of the company is in the negative.
The company invest more in the plant and equipment due to which the amount of cash is
reduces. The company paid more credit due to which the net operating activity is negative in
the last three years. In 2016, the company paid more amount as compare to the 2017 and
2018 (Commonbank, 2017). .
Comparative Analysis
By comparing the cash flow activities of the companies, it has been analysed that the ANZ
invest more in order to buy the plants and equipment’s as compare to the others. Common
wealth and Westpac invest in plants and equipment but less than the ANZ. In the 2018, ANZ
sold the assets and invest less in the plants and equipment due to which the amount is
converted into positive from -12,830 to 166. But Common wealth and Westpac are still
investing in purchasing the assets. ANZ Company paid the large amount of loan due to which
in the year 2017 the cash is reduces. Commonwealth was also paid the dividend but in the
year 2018 paid more. Westapac also paid large amount 11092 billion in the year 2018 which
is large as compare to the other companies. Westpac generate the large amount as compare to
the ANZ and common wealth as per the operating activities of the company with the positive
amount.
Income statement
Comprehensive Statement

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(Source: Common wealth, 2018)
(Source: ANZ, 2018)

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(Source: Westpac, 2018)
Items that may be reclassified subsequently to profit or loss, Items that will not be reclassified
subsequently to profit or loss, other comprehensive income for the year (net of tax) are the
main items which are recorded in the comprehensive statement. Under these items
Gains/(losses) on available-for-sale securities, Income tax on items taken to or transferred
from equity and own credit adjustment on financial liabilities designated at fair value are
recorded in the comprehensive statement.
VIII
The comprehensive income of the company states those item which are not included in the
normal income statement. The particular items are not recorded in the income statement and
Profit and loss account just because of affected of profit and loss account. The statement of
comprehensive income statement is advance statement as compare to the normal income

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statement. It records the different incomes and expenses that cannot be bring together in the
normal income statement and requires the calculation separately. The calculation of these
incomes and expenses affects the net income of the income statement and it is noted that the
amount of net income should not be affected.
VIII
The above statements represent the sum of special incomes and the expenses of the
companies. The net comprehensive income statement of Common Wealth, Westpac and ANZ
are 9399, 6732, and 8367. The changes of these items have been seen when the
implementation of accounting policies has been carried and which reflect the comparative
analysis.
The comprehensive income statement also state that the reserve moments in order to adjust
the losses and the other cumulative expenses. In ANZ comprehensive statement, the reserve
moments has been showed with the amount of 137 in million which reflects that the company
adjust their losses. The reserve moment is not available in the Commonwealth and Westpac
(Westpac, 2018).
Westpac transfer the loss and expense to the income statement in order to adjust these losses
and expenses. But in the Commonwealth and ANZ are not transfer the expenses and losses to
the income statement. ANZ made the reserve moment in order to adjust the losses and
expenses.
If these items were included in the income statement and profit and loss statement then the
value of net income is affected. It is noted that the amount of net income should not be
affected because the charges are tax is be charged on the net amount of income. The profit
amount of the company is also share between the shareholders and these reserves and

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incomes are not core items which are necessary to divide between the members. If these are
recorded in the income statement then the amount of profit of shareholder would be affected.
IX
No, the comprehensive statement will not be included in the assessment of the performance
of manager. These incomes and expense are not in the manner of unadulterated due to which
the performance of manager will be evaluated. The manager of the company is assessed on
his work done and accounted for his capacity to devise the methodologies and to record the
exchange accurately. Assessment of performance of manager will be the risk for the company
in recording and posting the entries in the proper account.
Accounting for Corporate Income Tax
XI
Westpac, Commonwealth and ANZ have 3632, 4026, 2784 tax expenses in the last financial
year of the companies.
XII
Calculation of Effective Tax Rate
Westpac Commo ANZ

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n
Wealth
Effective Tax
Rate=
INCOME
TAX 3632 4026 2784
EARNIN
G
BEFORE
TAX 11731 13420 9895
Rate 31% 30% 28%
The effective tax rate of the Westpac, ANZ, Commonwealth are 31%,30%, and 28%in the
respective manner and Westpac has the highest percentage of effective tax rate.
XIII
Deferred Tax is an amount of tax which is the difference between the accounting income and
the taxable income. The accounting income is calculated and recorded as per the Companies
Act and the calculation of taxable income is based on Income Tax Act. The deferred tax asset
means reduction in taxable income and deferred tax liabilities means the amount of tax is
going to pay. The deferred tax asset is reported on the asset side and deferred tax liabilities
reported on liability side (Accounting Tools, 2018).
Deferred Tax Liability was $59m and Deferred Tax Asset was $900 m of ANZ Company in
the year of 2018 which reflects that the company save more from the taxable charges. In the
case of Commonwealth, the deferred tax liability was $ 1439 m and deferred tax asset was nil
which reflects that the company has to pay more tax in future. In the case of Westpac, the

CORPORATE ACCOUNTING 21
deferred liability was $18m and deferred tax asset was $1180m which states that the company
save more in tax in future (Merz, & Overesch, 2016).
XIII
No, there is no increase and decrease in the deferred tax liability and deferred tax asset in the
companies.
XIV
Calculation of Cash Tax Rate
Cash tax 2018 Westpac ANZ
Commonwealt
h
2018 2018 2018
Opening balance provision of tax 308 241 1450
Add: Current tax 2018 3519 3004 969
Less: Deferred tax 2018 1180 900 1439
Add: Deferred liability 2018 18 59 0
Less: Closing balance provision of
tax 296 300 952
Cash tax 2369 2104 28
Cash tax rate
Cash tax 2369 2104 28
Net profit before tax 11731 9895 247
20.19% 21% 11.34%

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Cash Tax of Westpac, ANZ, Commonwealth are 2639, 2104, and 28 million respectively and
Commonwealth have high cash tax rate of 21% (Collins, 2018).
Cash Book is different from the book tax rate because the company has to pay 30% tax in a
situation which affects the profit of the company. Cash tax rate is company pay tax annually
as per the asset and liabilities of the company but in Book Tax rate the company has to pay
30%.
Conclusion
From the above analysis, it has been concluded that the company is in the position of
stability. The cash flow statement analysis states that the company invest more in the assets
and shares. By analysing the equity and liabilities, it has been analysed the companies have
high financial leverage. The income statement analysis states that the items of comprehensive
statement are not included in the income statement. The deferred tax liability and asset has
been analysed which reflects that the company paid more tax and less save in the terms of tax
income.

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References
Accounting Tools. (2018). Accounting for deferred taxes. Retrieved from:
https://www.accountingtools.com/articles/accounting-for-deferred-taxes.html
ANZ. (2017). 2017Annual Report. Retrieved from:
https://shareholder.anz.com/sites/default/files/2017_anz_annual_report.pdf
ANZ. (2018). 2018 Annual Report. Retrieved from:
https://shareholder.anz.com/sites/default/files/anz_2018_annual_report_final.pdf
ANZ. (2018). History. Retrieved from: https://shareholder.anz.com/our-company/history
ANZ. (2016). 2016 Annual Report. Retrieved from:
https://shareholder.anz.com/sites/default/files/anz_-_annual_report_2016.pdf
Collins, J. (2018). How to Compute Cash Taxes. Retrieved from:
https://www.sapling.com/8007127/compute-cash-taxes
Commonbank. (2016). Annual Report 2016. Retrieved from:
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
2016-asx/2016_Annual_Report_to_Shareholders_15_August_2016.pdf
Commonbank. (2017). Annual Report 2017. Retrieved from:
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
annual-reports/annual_report_2017_14_aug_2017.pdf
Commonbank. (2018). Becoming a simpler bank. Retrieved from:
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/
results/fy18/cba-annual-report-2018.pdf

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Gordon, E.A., Henry, E., Jorgensen, B.N. & Linthicum, C.L., (2017). Flexibility in cash-flow
classification under IFRS: determinants & consequences. Review of Accounting
Studies, 22(2). 839-872.
Kennon, J. (2018). Assets, Liabilities, and Shareholder Equity on the Balance Sheet.
Retrieved from: https://www.thebalance.com/assets-liabilities-shareholder-equity-
explained-357267
Merz, J. & Overesch, M., (2016). Profit shifting & tax response of multinational
banks. Journal of Banking & Finance, 68. 57-68.
The Commonwealth. (2018). About us. Retrieved from: http://thecommonwealth.org/about-us
Westpac. (2016) 2016 Westpac Group Annual Report. Retrieved from:
file:///C:/Users/SYSTEM~1/AppData/Local/Temp/2016_Westpac_Annual_Report-
1.pdf
Westpac. (2017) 2017 full year financial results. Retrieved from:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
ASX_FY17_Financial_Results_Bookmarked.pdf
Westpac. (2018). About us. Retrieved from:
https://www.westpac.com.au/about-westpac/westpac-group/
Westpac. (2018). Strength Service Trust?. Retrieved from:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2018_Westpac_Annual_Report.pdf

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