Financial Analysis Report Of Commonwealth Bank, ANZ Bank, And National Australia Bank

Corporate accounting and capital investment

The intent of this paper is to prepare the financial analysis report of three major companies of the Australian market. The companies that are selected for this paper are Commonwealth Bank, Australia, and New Zealand Bank and National Australian Bank. The paper will provide the details of the financial positioning of all three businesses in the market with the help of their comprehensive financial statements, cash flow statements, etc. The paper is based on corporate accounting, which is one of the exclusive parts of accounting, majorly operates accounting for the businesses, preparing their cash flow statement and accounts, and interpretation of the financial position of the businesses and accounting for precise events such as absorption, amalgamation, the creation of consolidated balance sheets (Goyal and Goyal, 2012). A public company generally means a business that is allowed to provide registered security to the public for sale, through country’s stock exchange, but many comprise companies trading stocks over the counter through different investment bankers who uses services of non-exchange quotation like the Pink Sheets and OTCBB. Corporate accounting properly understands the organization’s financial problems and provides solutions to prevent them (Rajasekaran, 2010). Capital investment is one of the essential portions of the corporate decisions like if dividends must be provided to the shareholders or not, if the planned investment option must be accepted or not, and handling short-term liabilities and investment (Dagwell, Wines and Lambert, 2015).

Commonwealth Bank

The Commonwealth Bank is one of the famous Australian multinational bank operates in New Zealand, U.S, Asia, and U.K. It offers variety of financial services comprising banking, and retail, broking services, insurance, superannuation, funds management, and investment (Commonwealth Bank, 2019a). The bank is known as the largest listed company of Australia on the country’s stock exchange with brands comprising ASB Bank (New Zealand), Bankwest, Commonwealth Insurance (CommInsure), Colonial First State Investments, and Commonwealth Securities (CommSec). Besides this, the Commonwealth Bank is known as the Southern Hemisphere’s largest bank (Commonwealth Bank, 2019b).

The Australia and New Zealand Bank generally called as the ANZ. In terms of market capitalization, the ANZ is known as the Australian third largest bank, just after Commonwealth Bank and Westpac Banking Corporation (ANZ, 2019a). The bank’s operations in Australia cover the highest portion of the business, with retail and commercial banking dominating. Besides this, in the New Zealand market ANZ is the largest bank as it manages two branches in the country that are National Bank of New Zealand and ANZ. In 2012, the National Bank was retired, with numerous branches closing and others converted into the branches of ANZ (ANZ, 2019b).

Details of Commonwealth Bank

National Australia Bank is the fourth largest financial institution of Australia in regards to earnings, market capitalization, and consumers. It was positioned at 21^st across the globe considering the market capitalization and 41^st largest bank in terms of operations evaluated by 2014 total assets. As of 2014, the bank has 1590 service center and branches (NAB, 2019a).   

Commonwealth bank (Equity)

Equity	2018 ($m)	2017 ($m)	2016 ($m)
Ordinary Share Capital	37270	34971	33845
Reserves	1676	1869	2734
Retained Profits	28360	26274	23435
Non-Controlling interest	554	546	550
Total	67860	63660	60564

The above table is presenting the details of the equity of Commonwealth Bank that is Ordinary Share Capital, Reserves, Retained Profits, and Non-Controlling Interest. From the above analysis, it could be observed that the total equity of the bank is increasing at the same amount. The capital structure of the company depicts that the equity is less than borrowings and debt. Besides this, the above table reflects that the reserves of the bank are decreasing from $ 2734m in 2016 to 1676 in 2018, which depicts that the company is regularly involved in the investment in different areas. In regards to the retained earnings, there is a consistent increase from 2016 to 2018 (Commonwealth Bank, 2018).

Liabilities	2018 ($m)	2017 ($m)	2016 ($m)
Payables due to other financial institutions	20899	28432	28771
Bank acceptances	379	463	1431
Deposits and other public borrowings	622234	626655	588045
Derivative liabilities	28472	30330	39921
Liabilities at fair value through Income Statement	10247	10392	10292
Due to controlled entities	–	–	–
Current tax liabilities	952	1450	1022
Deferred tax liabilities	–	332	340
Other provisions	1889	1780	1656
Insurance policy liabilities	451	12018	12636
Managed funds units on issue	–	2577	1606
Debt issues	172294	167571	161284
Liabilities held for sale	14900	–	–
Bills payable and other liabilities	11596	11932	9889
Loan capital	22992	18726	15544
Total Liabilities	907305	912658	872437

The above table is representing the total liabilities of the Commonwealth Bank of 2016, 2017, and 2018. From the above analysis, it could be said that the company is liable to pay less amount of tax due to its business nature as it is involved in the financial segment and maintaining high leverage conditions. The deposits and another public borrowing of the bank have increased from 2016 to 2018 that is 588045 to 622234 respectively (Commonwealth Bank, 2016).

Equity	2018 ($m)	2017 ($m)	2016 ($m)
Ordinary Share Capital	27205	29088	28765
Reserves	323	37	1078
Retained earnings	31715	29834	27975
Non-controlling interest	140	116	109
Total Equity	59383	59075	57927

The above table is depicting the information on the equity of Australian and New Zealand Bank and changes are taking place in its portfolio. From the analysis, it can be noticed that the total equity of the bank is decreasing because of current on-market buy-back in terms of ordinary shares of $3.0 billion. Besides this, the condition of ordinary share capital is fluctuating. There is a sever decreasing in the reserves of the Bank from 2016 to 2018 that is 1078 m to $ 323m which reflects that company is involved in different types of investment for the future growth and development (ANZ, 2017).

Liabilities	2018 ($m)	2017 ($m)	2016 ($m)
Settlement balances owed by ANZ	11810	9914	10625
Collateral received	6542	5919	6386
Deposits and other borrowings	618150	595611	588195
Derivative financial instruments	69676	62252	88725
Current tax liabilities	300	241	188
Deferred tax liabilities	59	257	227
Liabilities held for sale	47159	4693	–
Policy liabilities	–	37448	36145
External unit holder liabilities (life insurance funds)	–	4435	3333
Payables and other liabilities	6788	8350	8865
Employee entitlements	540	530	543
Other provisions	1038	628	666
Debt issuances	121179	107,973	113044
Total liabilities	883241	838251	856942

The above table is representing the total liabilities of Australian and New Zealand Bank to analyze its financial position and performance in the industry. From the above table, it could be depicted that long-term liabilities of ANZ bank in 2018 is increasing in comparison to the amount of 2017 and 2016. Besides this, there is a fluctuation in the debt issuances as in 2016 it was $ 113044, in 2017 it decreased to $ 107,973, and in 2018 it again increased to $ 883241 (ANZ, 2018). In addition, the other borrowings and deposits of the bank are increasing continuously. From the above analysis, it could be said that the banking industry maintains a high proportion of debt so as commonwealth bank is maintaining its consistency in terms of liabilities.     

Equity	2018 ($m)	2017 ($m)	2016 ($m)
Ordinary Share Capital	35,982	34,627	34,285
Reserves	46	237	629
Retained Profits	16,673	16,442	16,378
Non-Controlling interest	11	11	23
Total Equity	52,712	51,317	51,315

Details of ANZ Bank

The above table is presenting the information related to the equity of National Australia Bank of the year 2016, 2017, and 2018. This depicts that the reserves of the bank are regularly decreasing because the company is putting its efforts to pay off its liabilities. This also depicts that the required cash is also decreasing which permit the bank to provide more loans to businesses and customers (National Australia Bank, 2017). Non-controlling interest is also called as the minority interest, is the position of the ownership whereby a shareholder possesses less than 50% of the outstanding shares which allows no control to the shareholders on the company’s decisions. The above table is reflecting that the Non-controlling interest of National Australia Bank is decreasing from 2016 to 2018, which is a positive sign for the company.

Liabilities	2018 ($m)	2017 ($m)	2016 ($m)
Due to other banks	38,192	36,683	43,903
Trading instruments	22,422	27,187	41,559
Other €financial liabilities	30,437	29,631	33,224
Hedging derivatives	2,547	1,674	3,402
Deposits and other borrowings	503,145	500,604	459,714
Current tax liabilities	103	230	297
Provisions	2,196	1,961	1,432
Due to controlled entities	140,222	124,871	–
Bonds, notes and subordinated debt	140,222	124,871	127,942
Other debt issues	6,158	6,187	6,248
Other liabilities	8,376	7,980	7,674
Total liabilities	753,798	737,008	725,395

The above table is discussing the liabilities of National Australia Bank, which is comprised of long-term as well as short-term liabilities. The above table reflects a drastic decline in the trading instrument of National Australia Bank that is in 2016 the trading instrument was of $ 41,559, in 2017 $ 27,187, and $ 22,422. The decreasing trading assets reflect that the company is not involved in the investment activities and using its reserves in paying off its liabilities (National Australia Bank, 2018).

Company	2018
Commonwealth Bank	13.37024757
ANZ	14.87363387
NAB	14.30031112

The company’s Debt equity ratio is computed by dividing the total liability of the company by its total shareholder’s equity. This information is accessible on the balance sheet of the company (White, 2018). The above debt-equity ratio is evaluating the financial leverage of three banks that is Commonwealth, ANZ, and NAB. The above analysis is depicting that the debt-equity ratio of the banking sector is higher in comparison to other different sectors.

The cash flow statement analyses how a business handles its cash position, how it arrange cash to pay its liabilities and fund its operating expenses. The CFS accompany the balance sheet and profit/loss statement and is an obligatory portion of the financial report of the company (Ramachandran and Kakani, 2010).

The operating activities of the cash flow statement comprise the sources and uses of the cash from the activities of the business. In similar words, it identifies the amount of cash generated from the service or product of the company (Klammer, 2018).

Interest Received

The interest received of Commonwealth Bank in 2016 is $ 34,047m, in 2017 $ 33,536m, and in 2018 $35,801m. It could be observed that the interest received by the company is increasing from 2016 to 2018, which reflects that the company is involved in the investment activities. The cash flow statement of ANZ bank has not reflected any information regarding interest received (ANZ, 2016). On the other side, the interest received by National Australia Bank in 2016 was $ 28,338, in 2017 $ 27,176, and in 2018 $ 28,340. From the information, it could be said that there are little fluctuations in the amount received as interest by the bank, which means in 2018 company has increased its level of investment in comparison to 2017 investment.

Details of National Australia Bank

Depreciation

Depreciation is a method of accounting of assigning the tangible asset cost over its valuable life and is utilized to account for declines in the value. The amount of depreciation of ANZ bank in 2016 was $ 1,475m, in 2017 $ 972m, and in 2018 $ 1,199m. On the other side, Commonwealth Bank and National Australia Bank do not reflect any amount of depreciation in their cash flow statements (NAB, 2016).  

Cash flow from investing activity is the second portion of the CFS and comprised of plant, equipment, and cash spent on the property (Jury, 2012).

Proceeds from sale or maturity

The inflow of cash related to the received aggregate amount by the by the company by selling or maturity of the marketable securities during the period. The net proceeds from the sale or maturity of Commonwealth bank in 2016 was $ 405m, in 2017 it was $ 381m, and in 2018 $ 155m (Commonwealth Bank, 2017). The net proceeds of ANZ bank in 2016 was $ 23,745m, in 2017 $ 19,751m, and in 2018 it is 20,592. This data is reflecting that the company is involved in selling its property and assets in order to pay off its liabilities by generating cash.

Cash flows from financing activities are the third portion of the CFS. This section offers an overview of the cash utilized in business financing.

Dividend

A dividend is paid by the businesses to its shareholders, typically said the distribution of profits. The time business earns surplus in the financial year, it is capable to re-invest its earned surplus in the business and pay the profit’s portion to the shareholders as a dividend. Commonwealth Bank has paid dividends to its shareholders in 2016 it paid $ 5,827m, in 2017 $ 6,084m and in 2018 $ 5,366m (Commonwealth Bank, 2018). Australian and New Zealand Bank has paid dividends to its shareholders in 2017 $ 4,386m and in 2018 $ 4,563m.

Long-term Debts

Long-term debt is said to be the amount owed by the business for a period of exceeding 12 months. The commonwealth bank has replaced its short-term wholesale deposit funding with long-term debt issues in order to enhance funding stability.

Comparative Analysis of Cash Flow Statement
	Commonwealth			ANZ			NAB
	2018	2017	2016	2018	2017	2016	2018	2017	2016
Net Cash Provided by Operating Activities	-1079	-1095	-1256	-1198	-1198	-1929	-9,196	13217	14460
Net cash used in Investing Activities	-1002	-677	-2034	166	-12830	-14410	-954	-313	-9970
Net cash used in Financing Activities	-934	10472	1620	2620	-6667	1958	4926	-331	9496

It could be observed that the investing and operating activities of Commonwealth Bank are being represented in the negative amount. The company is involved majorly in the purchase of equipment and plant because of which the present cash is low. Besides this, the bank is trying to reduce its liabilities, which is being reflected in the operating activity.

Equity of Commonwealth Bank

In comparison to the Commonwealth Bank and NAB, the operating activities of the bank are negative because the liabilities are increasing. The investment of the company is also decreasing due to lack of funds. Besides this, the decreasing financing activities are depicting that company borrow limited amount as loan.

In the initial year that is 2016 and 2017 the operating activities of the National Australia Bank are positive, but in 2018 it becomes negative. Besides this, the investing activity of the company is also negative which reflects that the company is trying to pay its debts by selling its assets and equipment (National Australia Bank, 2017).

From the above analysis, it could be said that Australian and New Zealand Bank is involved in the high investment to purchase the equipment and plants in comparison to other banks. On the other side, Commonwealth Bank and National Australia Bank are investing fewer amounts in the purchase of equipment and plants. In 2018, the investment of ANZ bank decreased on the plant and equipment, which could be observed from the positive amount of investing activity that is $166m (ANZ, 2018). However, the remaining banks are still involved in the purchase of plant for the businesses. In 2017, the cash of ANZ is also reducing because the company is paying its loan.

Comprehensive income is mostly recorded in the financial statements to comprise all other expenses, losses, revenues, and gains that have affected the stockholder equity account in the financial year. In addition, it includes extra details to the equity section of the balance sheet in order to reflect what events altered the shareholder’s equity beyond traditional net income recorded in the income statement (Bellandi, 2012).

Comprehensive income statement items are not recorded in the profit/loss statement or income statement because it only identifies expenses and income at the time they are earned or incurred, numerous other sources of expenses and revenue are left off the statement since they have not been realized yet. Creditors and Investors desire to understand how other items influence the equity account even when they are not included on the bottom line (Shamrock, 2012).

No, comprehensive income is not included in the evaluation of the supervisors and managers performance as these expenses and incomes may occur and may not and in this way, they are not the complete source or the elements of the assessment of the managers. The performance of the managers is assessed based on the responsibilities accomplished and skills to divide the methodologies. In any case, they will remain at risk for posting and recording their entries in the accounts (Narayanasamy, 2014).

Liabilities of Commonwealth Bank

The tax expenses are shown in the latest financial statement that is 2018 of Commonwealth Bank, Australian, and New Zealand Bank, and National Australia Bank is $ 4026m, $2784m, and $ 2455m respectively (Commonwealth Bank, 2018).

		Commonwealth ($m)		ANZ ($m)		NAB ($m)
Effective Tax rate	Income Tax	4026		2784		2455
	Earning Before Tax	13420		9895		8400
		30%		28%		29%

The Effective rate of Commonwealth Bank is 30%, Australian and New Zealand Bank is 28%, and National Australia Bank is 29% (ANZ, 2018). From the data, it has been clearly reflected that the Commonwealth has the highest rate of Effective tax rate.

Deferred Tax is the tax effect of provisional differences between the accounting income, which  is computed by considering the provisions of Companies Act, 2013 and taxable income that is computed by considering the provisions of Income Tax Act, 1961  (Harumova, 2017). The amount of deferred tax asset is always listed on the balance sheet’s asset side and deferred tax liabilities are listed on the balance sheet’s liability side.

Commonwealth Bank

The Deferred Tax asset in 2018 of Commonwealth bank is $ 1439m and Deferred Tax liability is nil, which depicts that the company has to pay more tax in the coming future (Commonwealth Bank, 2018).  

Australian and New Zealand Bank

Deferred tax asset in 2018 of ANZ is $ 900m and deferred tax liability of the company is $ 59m, this depicts that the company is saving more from its taxable charges (ANZ, 2018).  

National Australia Bank

The deferred tax asset in 2018 of NAB is $ 2381m and deferred tax liability is $ 298m this depicts that the company will save more in tax in the coming future (NAB, 2018).

No, the deferred tax liability and deferred tax asset are not increasing or decreasing in the company’s financial reports.

Cash Tax 2018	Commonwealth	ANZ	NAB
	2018	2018	2018
Opening Balance provision of Tax	1450	241	2544
Add: Current Tax 2018	969	3004	2739
Less: Deferred Tax 2018	1439	900	2381
Add: Deferred liability 2018	0	59	298
Less: Closing Balance Provision of tax	952	300	2634
Cash tax	28	2104	566

Cash tax of Commonwealth Bank, Australian, and New Zealand Bank, and National Australia Bank are $ 28m, $ 2104m, and $ 566m respectively.

Cash tax rate
Cash Tax	28	2104	566
Net Profit before tax	247	9895	8400
	11%	21%	7%

The cash tax rate of Commonwealth Bank, Australian and New Zealand Bank, and National Australia Bank is 11%, 21%, and 7% respectively. Australian and New Zealand Bank have the highest cash tax rate that is 21% (ANZ, 2018).

The provisional variance between book income and taxable income are because of the items of expenses or revenue that are documented in one period for taxes, but in a different period for the books. Book recognition can come after or before tax recognition. (BPP Learning Media, 2012).

Conclusion

The above report has presented the detailed concept of corporate accounting and the aspects that the included in it. The paper is based on three Australian listed banks that are Commonwealth Bank, Australian, and New Zealand Bank, and National Australia Bank. The paper has discussed four major elements of corporate accounting that are Equity and Liabilities, cash flow statement, another comprehensive income statement, and accounting for corporate tax income. From the equity and liabilities part, it has been identified that business has high financial leverage. Besides this, it has been identified that the comprehensive statement items are not listed in the profit/loss statement or income statement.

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