Business Finance Evaluates The Financial Statement – Analysis Of Bendigo And Adelaide Bank Ltd And Bank Of Queensland Ltd

Company Overview

Discuss about the Business Finance Evaluates The Financial Statement.

Business finance is a branch of finance which is used to evaluate the fund of the company. Business finance evaluates the financial statement and the transaction of an organization to evaluate the performance of the company and make a conclusion about the process of the company. Business finance follows process of financial analysis to evaluate the financial performance and the position of an organization (Bierman, 2010). Financial performance evaluation makes it easy for the stakeholders of the company to analyze that whether the company is performing well in the market or not. It is essential for the internal management of the company as well as the external parties of the company to evaluate the performance of the company (Baker and Nofsinger, 2010). This offers a good base to the parties to make better decisions. The report has been prepared to evaluate the financial performance of BENDIGO AND ADELAIDE BANK LTD and BANK OF QUEENSLAND LTD.

It is an Australian financial institution which is operating its business in retail sector of Australia. The company is a result f merger of Bendigo bank and Adelaide bank. The merger has taken place in 2007. Headquarter of the bank is in Bendigo, Australia. The main products of the bank are banking services, financial services and other services which are related to banking (Home, 2018). The bank is currently serving its services through 400 outlets in Australia. The merger has helped the company to grow the market as well as the market base of the company has also been enhanced (Bloomberg, 2018).

The bank of Queensland is an Australian financial institution which is operating its business in retail sector of Australia. The company is one of the oldest financial institutions in the market of Queensland (Home, 2018). The company has been established in 1874 and currently, it has a network of 252 branched which includes the 166 owner managed branches and 78 corporate branches. Headquarter of the bank is in Queensland, Australia. The main products of the bank are consumer banking, finance and insurance, commercial banking, credit cards etc. The bank has surveyed and it has been found that 88% customers of the company are satisfied with the services of the company (Bloomberg, 2018). The total revenue of the company briefs about the better performance of the company.

In the report, performance of both the banks, BENDIGO AND ADELAIDE BANK LTD and BANK OF QUEENSLAND LTD have been identified to evaluate the investment position of the company. The financial performance of the company has been evaluated on the basis of ratio analysis study. Ratio analysis is a process to evaluate the quantitative position of an organization. It is used to analyze the related factors of financial position of an organization. It also helps an investor to evaluate 2 or more companies together to reach over a conclusion about the better investment choice. Ratio analysis evaluates the liquidity, profitability, efficiency, market value and the long term solvency position of an organization and offers information about the financial position of an organization (Gibson, 2011).

Bendigo And Adelaide Bank Ltd

In the report, ratio analysis study has been performed on BENDIGO AND ADELAIDE BANK LTD and BANK OF QUEENSLAND LTD to make a conclusion about the better investment choice. Liquidity position, profitability position, efficiency position, market value position and the long term solvency position has been calculated of both the companies to recognize the performance of the company. Following is the study of ratio analysis over both the companies:

Short term solvency position is a study to analyze the capability of an organization to meet the short term debt financial obligations of the company. Basically, short term solvency position ratios seek to evaluate the ability of the company to avoid the short term financial distraction of the company. Short term solvency position of both the companies is as follows:

Liquidity Ratios		2016	2017	2016	2017
Current Ratio
Current Assets /		7,979.00	7,338.00	5,578.00	5,938.00
Current liabilities		61,792.00	64,172.00	46,928.00	47,308.00
Answer:		0.13	0.11	0.12	0.13
Acid test ratio
Current Assets – Inventory /		7,900	7,260	5,398	5,829
Current Liabilities		61,792	64,172	46,928	47,308
Answer:		0.13	0.11	0.12	0.12

(Morningstar, 2018)

Current ratio of an organization briefs about the capability of the company to meet short term obligations of the company. It measures the entire current assets of the company to pay current liabilities (Brigham and Daves, 2012). The current ratio of BENDIGO AND ADELAIDE BANK LTD is 0.13 in 2016 and 0.11 in 2017 whereas the current ratio of BANK OF QUEENSLAND LTD is 0.12 and 0.13 in 2016 and 2017 respectively.

It explains that the short term debt position of BANK OF QUEENSLAND LTD is higher and it express that the company is managing the current assets and liabilities in a better way. The risk position of BANK OF QUEENSLAND LTD is lower than the BENDIGO AND ADELAIDE BANK LTD (Annual report, 2017).

Acid test ratio of an organization briefs about the capability of the company to meet short term obligations of the company. It measures only those current assets who could be liquidate at any time of the company to pay current liabilities. The acid test ratio of BENDIGO AND ADELAIDE BANK LTD is 0.13 in 2016 and 0.11 in 2017 whereas the current ratio of BANK OF QUEENSLAND LTD is 0.12 and 0.12 in 2016 and 2017 respectively (Annual report, 2018).

It explains that the short term debt position of BANK OF QUEENSLAND LTD is higher and it express that the company is managing the current assets and liabilities in a better way. The risk position of BANK OF QUEENSLAND LTD is lower than the BENDIGO AND ADELAIDE BANK LTD (Damodaran, 2011).

On the basis of liquidity ratios of the both the companies, it has been evaluated that the financial position and the short term debt management policies of BANK OF QUEENSLAND LTD is way better and thus the investment into the company BANK OF QUEENSLAND LTD is better as the risk of company is lower in terms of liquidation management.

Bank Of Queensland Ltd

Long term solvency position is a study to analyze the capability of an organization to meet the Long term debt financial obligations of the company. It evaluates the debt and the total equity of the company and measure the cash flow of the company on the basis of the debt and equity of the company (Brown, 2012). Basically, Long term solvency position ratios seek to evaluate the ability of the company to avoid the Long term financial distraction of the company. Long term solvency position of both the companies is as follows:

Long term solvency position		2016	2017	2016	2017
Gearing ratio
Long term liabilities /		1,672	1,818	338	562
Capital employed		6,789	7,244	3,925	4,350
Answer:	%	0.246	0.251	0.086	0.129
Interest Coverage Ratio
EBIT /		416	430	479.00	452.00
Net Finance Costs (used net interest expense)		222	243	96	169
Answer:	times p.a	1.874	1.770	4.990	2.675

(Morningstar, 2018)

Gearing ratios explains about the equity position and debt position of an organization. It measures the total long term liabilities of the company and the capital of the company which has been raised by the company to manage the activities and long term investment of the company (Brooks, 2015). It explains about the financial leverage position of an organization. The gearing ratio of BENDIGO AND ADELAIDE BANK LTD is 0.25 in 2016 and 0.25 in 2017 whereas the gearing ratio of BANK OF QUEENSLAND LTD is 0.086 and 0.12 in 2016 and 2017 respectively.

It explains that the gearing position of BENDIGO AND ADELAIDE BANK LTD is higher and it express that the company is managing the total equity and total long term liabilities in a better way. The risk position of BENDIGO AND ADELAIDE BANK LTD is lower than the BANK OF QUEENSLAND LTD.

Interest coverage ratio is used to determine the interest expenses and the debt of an organization. It explains about the interest expenses and EBIT of an organization. It measures the total interest amount which would be paid by the company from the operating profits. It explains about the financial leverage position of an organization. The interest coverage ratio of BENDIGO AND ADELAIDE BANK LTD is 1.87 in 2016 and 1.77 in 2017 whereas the gearing ratio of BANK OF QUEENSLAND LTD is 4.9 and 2.67 in 2016 and 2017 respectively (Yahoo finance, 2018).

It explains that the gearing position of BANK OF QUEENSLAND LTD is quite higher and it express that the company has managed the long term solvency position in a better way. The company is enough capable to pay all the interest expenses to the debt holders of the company.

On the basis of long term solvency ratios of the both the companies, it has been evaluated that the financial position and the long term debt management policies of BANK OF QUEENSLAND LTD is way better and thus the investment into the company BANK OF QUEENSLAND LTD is better as the risk of company is lower in terms of paying the expenses to the related parties.  

Financial Analysis (Ratio Analysis)

Asset utilization is a study to analyze the sales, revenue etc of an organization on the basis of its inventory, receivables etc. these ratios often use an indicator of the efficiency which is used by the company to develop the assets to generate the revenue. Basically, asset utilization position ratios seek to evaluate the ability of the company to manage the assets and revenue in a proper form so that the position of the company could be enhanced. Asset utilization position of both the companies is as follows:

Asset Efficiency Ratios		2016	2017	2016	2017
Trade payable payment period ratio
Accounts payable/		803	861	506	915
Cost of sales		1,423	1,454	1,075	1,048
Answer: (note the above needs to be x 365)		205.97	216.1382	171.80	318.68
Inventory Turnover (days)
Average Inventory /		79	78	180	109
Cost of Sales	# days	1,423	1,454	1,075	1,048
Answer:  (note the above needs to be x 365)		20.26	19.58	61.12	37.96
Receivables Turnover (days)
Average trade debtors /		1,310	1,332	180	109
Sales revenue  (note used operating revenue)	# days	1,423	1,454	1,075	1,048
Answer:  (note the above needs to be x 365)		336.02	334.37	61.12	37.96

(annual report, 2017)

Trade payable payment period ratio explains about the efficiency position of an organization to maintain the cash conversion cycle. It evaluates the total times period in which the creditors of the company gets the credit amount from the company. The more the payable days are the better for the company (Besley and Brigham, 2008). The trade payable payment period of BENDIGO AND ADELAIDE BANK LTD is 205.97 days in 2016 and 216.14 days in 2017 whereas the payment period days of BANK OF QUEENSLAND LTD is 171.8 days and 318.68 days in 2016 and 2017 respectively.

It explains that the payment payable position of BANK OF QUEENSLAND LTD is higher and it express that the company is managing the payment payable days in a better way.

Inventory turnover period ratio explains about the efficiency position of an organization to maintain the cash conversion cycle. It evaluates the total times period in which the inventory of the company is replaced by the new inventory. The less the inventory turnover days are the better for the company (Higgins, 2012). The inventory turnover period of BENDIGO AND ADELAIDE BANK LTD is 20.26 days in 2016 and 19.58 days in 2017 whereas the inventory turnover days of BANK OF QUEENSLAND LTD is 61.12 days and 37.96 days in 2016 and 2017 respectively.

It explains that the inventory turnover position of BENDIGO AND ADELAIDE BANK LTD is lower and it express that the carrying cost of the company is lower as well as inventory is maintained by the company at minimum level.

Receivable turnover period ratio explains about the efficiency position of an organization to maintain the cash conversion cycle. It evaluates the total times period in which the debtors of the company would pay the debt amount to the company. The less the receivable collection days are the better for the company (Bromwich and Bhimani, 2005). The receivable turnover period ratio of BENDIGO AND ADELAIDE BANK LTD is 336.02 days in 2016 and 334.37 days in 2017 whereas the inventory turnover days of BANK OF QUEENSLAND LTD is 61.12 days and 37.96 days in 2016 and 2017 respectively.

Short Term Solvency Position

It explains that the receivable turnover position of BANK OF QUEENSLAND LTD is lower and it express that the amount would be received by the company quickly. It would assist the company to maintain the lower working capital for the daily activities of the company.

On the basis of asset efficiency ratios of the both the companies, it has been evaluated that the financial position and the working capital management policies of BANK OF QUEENSLAND LTD is way better and thus the investment into the company BANK OF QUEENSLAND LTD is better.

Profitability position is a study to analyze the capability of an organization to generate the profit in context of the total sales, assets, capital, debt etc of the company. Profitability ratio measures the total performance of the company to evaluate the changes into the turnover and the level of profits of the company (Higgins, 2012).  Basically, profitability position ratios seek to evaluate the company’s ability to manage and enhance the performance of the company. Profitability ratio position of both the companies is as follows:

Profitability Ratios:		2016	2017	2016	2017
Return on Capital employed
Operating profit /		416	430	479	452
Capital employed (total assets – current liabilities)		6,789	7,244	3,925	4,350
Answer:	%	6.13%	5.94%	12.20%	10.39%
Net Profit Margin
Net profit /		416	430	338	352
Sales Revenue (note used operating revenue)		1,423	1,454	1,075	1,048
Answer:		29.2%	29.6%	31.4%	33.6%
Operating profit margin
Operating profit /		416	430	479	452
Sales Revenue	%	1,423	1,454	1,075	1,048
Answer:		29.23%	29.57%	44.56%	43.13%

Return on capital employed is measure to evaluate the profitability and the efficiency position of the company.  It measures the total profit generated by the company in context with the total capital of the company. ROCE measures the total profit which could be generated by the company against all the investments (Davies and Crawford, 2011). The ROCE ratio of BENDIGO AND ADELAIDE BANK LTD is 6.13% in 2016 and 5.94% in 2017 whereas the ROCE of BANK OF QUEENSLAND LTD is 12.20% and 10.39% in 2016 and 2017 respectively.

It explains that the ROCE position of BANK OF QUEENSLAND LTD is better and it express that the 10.39% profits would be generated by the company against the total invested capital. It would assist the company to maintain and enjoy the better profitability position.

Net profit margin is a ratio to measure and to evaluate the profitability and the efficiency position of the company.  It measures the total profit generated by the company in context with the total sales of the company. Net profit measures the total profit which could be generated by the company against the total sales (Horngren, 2012). The net profit margin ratio of BENDIGO AND ADELAIDE BANK LTD is 29.2% in 2016 and 29.6% in 2017 whereas the net profit margin of BANK OF QUEENSLAND LTD is 31.4% and 33.6% in 2016 and 2017 respectively.

Long Term Solvency Position

It explains that the net profit margin position of BANK OF QUEENSLAND LTD is better and it express that the 33.6% profits would be generated by the company against the total turnover. It would assist the company to maintain and enjoy the better profitability position.

Operating profit margin is a ratio to measure and to evaluate the profitability and the efficiency position of the company.  It measures the operating profit generated by the company in context with the total sales of the company. Operating profit measures the total profit which could be generated by the company against the total sales (Hillier, Grinblatt and Titman, 2011). The operating profit margin ratio of BENDIGO AND ADELAIDE BANK LTD is 29.23% in 2016 and 29.57% in 2017 whereas the net profit margin of BANK OF QUEENSLAND LTD is 44.56% and 43.13% in 2016 and 2017 respectively.

It explains that the net profit margin position of BANK OF QUEENSLAND LTD is better and it express that the 43.13% operating profits would be generated by the company against the total turnover (Madhura, 2011). It would assist the company to maintain and enjoy the better profitability position.

On the basis of profitability position ratios of the both the companies, it has been evaluated that the financial position and the profitability performance of BANK OF QUEENSLAND LTD is way better and thus the investment into the company BANK OF QUEENSLAND LTD is better as the profits of the company are higher.

Market value position is a study to analyze the capability of an organization in the industry. It measures the earnings per share, market stock price etc of the comapny to evaluate the changes into the market position of the company.  Basically, market value position ratios seek to evaluate the ability of the company to manage the performance in the industry. Market value position of both the companies is as follows:

Market position		2016	2017	2016	2017
Earnings per share
Net income		416	430	338	352
Weighted average shares outstanding		460	472	376	387
Answer:		0.904	0.911	0.899	0.910
Dividend coverage ratio
Net income /		416.00	430.00	338.00	352.00
Dividend paid to shareholders		238	217	180	188
Answer:		1.748	1.982	1.878	1.872

(Bloomberg, 2018)

“Earnings per share” is a part of company’s profit which is allocated to every outstanding share of equity of an organization. It measures the market performance and the investment position of an organization. The Earnings per share ratio of BENDIGO AND ADELAIDE BANK LTD is 0.904 in 2016 and 0.911 in 2017 whereas the earnings per share of BANK OF QUEENSLAND LTD is 0.89 and 0.91 in 2016 and 2017 respectively.

It explains that the Earnings per share position of BANK OF QUEENSLAND LTD and  BENDIGO AND ADELAIDE BANK LTD  is same and it express that both the companies would offer $ 0.91 to the stockholders of the company (Titman and Martin, 2014). It explains that the investment into both the company would offer the same return.

Dividend coverage ratio is a market ratio which measures that how much profit has been given by the company as dividend amount to the stockholders of the company. It measures the market performance and the investment position of an organization. The dividend coverage ratio of BENDIGO AND ADELAIDE BANK LTD is 0.57 in 2016 and 0.51 in 2017 whereas the earnings per share of BANK OF QUEENSLAND LTD is 0.53 and 0.53 in 2016 and 2017 respectively.

It explains that the market position of BANK OF QUEENSLAND LTD is higher and it express that the company would offer 53.4% of total profits to the stockholders of the company. It explains that the investment into the company, BANK OF QUEENSLAND LTD would offer the better returns.

On the basis of market position of the both the companies, it has been evaluated that the financial position and the market position of BANK OF QUEENSLAND LTD is way better and thus the investment into the company BANK OF QUEENSLAND LTD is better as the risk of company is lower in terms of paying the expenses to the related parties.

On the basis of short term solvency position, long term solvency position, market position, profitability position and efficiency position of the both the companies, it has been evaluated that the financial position and the performance of BANK OF QUEENSLAND LTD is way better and thus the investment into the company BANK OF QUEENSLAND LTD would offer better return to the investors as well as the risk position of the investors would also be lower.

To recommend, the investors should invest into the BANK OF QUEENSLAND LTD as it would offer better return to the investors as well as the risk position of the investors would also be lower.

Conclusion:

To conclude, both the banks, BANK OF QUEENSLAND LTD and BENDIGO AND ADELAIDE BANK LTD are operating their business in Australian market in the same industry. The financial analysis study on both the company explains that the performance of the bank, BANK OF QUEENSLAND LTD is better than the other bank and thus the investment into the company would be a better option.

References:

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