Bank of Queensland Limited
Financial management is an evaluation approach which evaluates the final statement of a business in context with collecting the financial information to recognize the overall financial performance of the company. The financial analysis process is applied by the companies to recognize the changes into the performance of the company and the future changes evaluation in the company. In the process of financial evaluation, the final statement and the stock price of the business have been calculated and on the basis of that the performance of the business is recognized (Gibson, 2011). In the report, financial performance of Bank of Queensland and Westpac bank has been evaluated.
The final financial statement and the stock price of both the companies of last 3 years have been collected and various financial evaluation tool has been applied on the collected data and information to reach over a conclusion that which company is best in order to make an investment and get higher returns.
- Company analysis:
- Bank of Queensland:
Bank of Queensland limited is an Australian bank which offers various financial products and financial services of the Australian citizen along with various subsidiary companies. The company mainly operates in two segments which are banking and insurance. The bank offers the personal banking services to its clients such as saving and investment account, daily banking services, credit cards, home loans, car loans, personal loans, commercial insurance etc. the bank also offers the mobile banking and internet banking services to the bank. Till August 31, 2017, 74 corporate branches and 109 owned managed branches have been managed by the company along with the 2948 ATMs. The company has come into existence in 1874 (Bloomberg, 2018).
The main competitive advantage of the business is advanced technology which helps the business to improve the existence in the market and attract the stakeholders towards the business. The diversification strategies and continuous changes into the activities to meet the goals are also the competitive advantage of the business.
- Westpac bank:
Westpac banking corporation is also an Australian bank which offers similar services as bank of Queensland in Australian market such as various financial products and financial services. It is also offering its services into the Asian pacific region and New Zealand market. The company mainly operates in two segments which are banking and insurance. The bank offers its services through five divisions mainly which include consumer bank, BT financial group, business bank, Westpac New Zealand bank and Westpac institution bank. The Westpac bank is also offering the daily banking services to its customers same as the Bank of Queensland. The company has come into existence in Oct, 1982 (Bloomberg, 2018). Head office of the company is at Sydney, Australia.
The main competitive advantage of the business is its existence at international level, it helps the business to gab more market share and the customers from the different company as well as the activities of the different segments are quite attractive which impress the people to work with the bank. The diversification strategies and continuous changes into the activities to meet the goals are also the competitive advantage of the business.
- Performance ratios:
Westpac Banking Corporation
Ratio analysis is a tool of financial evaluation measurement which evaluates the quantitative information and data of an organization through the financial statement of the business to reach over a conclusion about the performance of the company. Ratio analysis process evaluates the various factors of the business’s financial and operating performance such as the liquidity, profitability, efficiency, solvency, gearing level etc to make a base for the stakeholders of the company to reach over a conclusion (Halili, Saleh and Zeitun, 2015).
The performance ratios of bank of Queensland and Westpac bank has been calculated in the report to measure that which bank is performing well and what is the investment level of the bank. The ratio analysis is as follows:
Liquidity ratios:
Liquidity ratios are the ratio which is used to calculate the debtor’s ability to pay off all the current debt obligation of the business without raising the additional capital from external sources. The liquidity ratios of Bank of Queensland and Westpac bank are as follows:
Current ratio:
Current ratio is calculated to measure the ability of a business to pay entire short term obligation. The current ratio considers the current assets related to the current liabilities of the business. Current ratio of Queensland explains that the company has improved the level from last 2 years in 2017. The current ratio of Queensland is 1.05 which explains that the short term debt would be paid by the company. Further, the current ratio of Westpac explains that the company has been similar in last 3 years (Morningstar, 2018). The current ratio of Westpac is 1.41 which explains that the short term debt would be paid by the company very easily.
Quick ratio:
Further, quick ratio is calculated to measure the ability of a business to pay entire short term obligation. The quick ratio considers the quick assets related to the current liabilities of the business (Higgins, 2012). Quick ratio of Queensland explains that the company has been similar in last 3 years. The quick ratio of Queensland is 0.92 which explains that the current liabilities are higher than the quick assets of the business. Further, the current ratio of Westpac explains that the company has been similar in last 3 years. The current ratio of Westpac is 1.31 which explains that the short term debt would be paid by the company very easily.
On the basis of the liquidity analysis on both the companies, it has been measured that the liquidity level of Westpac is better than the bank of Queensland due to the fact that Westpac has managed a good level of the assets against the liabilities and liquidity risk of the business is also lower. Thus, the investment into Westpac is better option.
Profitability ratios:
Profitability ratios are the ratio which is used to calculate the business ability to generate the earnings and net profit on the basis of the various associated expenses and the financial items. The profitability ratios of Bank of Queensland and Westpac bank are as follows:
Ratio Analysis
Figure 2: Profitability ratio
Net interest margin:
Net interest margin ratio is calculated to measure the ability of a business to manage the interest amount against the available loan to the customers. The net interest margin ratio considers the net interest margin and average loan of the business (Lord, 2007). Net interest margin ratio of Queensland explains that the company has been lowered from last 2 years in 2017. The net interest margin ratio of Queensland is 2.40% which explains the average profitability level of the business. Further, the net interest margin ratio of Westpac explains that the company has also faced lower profitability level. The net interest margin ratio of Westpac is 2.27% which explains that the net profitability level of the business has been downward.
Return on assets:
Further, return on assets ratio is calculated to measure the ability of a business to generate the profit against the total assets of the business. The return on assets ratio considers the net income and total assets. Return on assets ratio of Queensland explains that the ratio of the company is 0.7% which has not been changed in last 3 years. Further, the return on assets ratio of Westpac explains that the ratio of the company has been lowered a bit. The current return on assets of Westpac is 0.9% which explains that the net profitability level of the business has been downward (Morningstar, 2018).
On the basis of the profitability analysis on both the companies, it has been measured that the profitability level of both the companies are quite similar. Both the companies have affected due to the some industrial factor. Due to which, the profitability level has been reduced.
Capital structure ratios:
Capital structure ratios are the ratio which is calculated to measure the capital structure and risk level of the business on the basis of thee available capital sources. The capital structure ratios of Bank of Queensland and Westpac bank are as follows:
Figure 3: Capital structure ratio
Loan to assets ratio:
Loan to asset ratio measures the total loan of the business in context with the available assets of the business. It calculates the capital adequacy level of the business (Lumby and Jones, 2007). On the basis of Queensland information, it has been measured that the total loan is 0.927 times of total assets of the business. Further, the Westpac evaluation expresses the 0.218 times outstanding loan of total assets. It express that the capital risk of Westpac is lower than the Queensland.
Tier 1 Capital:
Tier 1 capital ratio measures the core equity capital of the business in context with the risk weighted assets of the business. It calculates the risk level of the business in terms of capital position. On the basis of Queensland information, it has been measured that the tier 1 capital ratio is 0.09. Further, the Westpac evaluation expresses the tier 1 capital ratio is 0.11.
Capital adequacy ratio:
Capital adequacy ratio measures the total tier 1 and tier 2 capital of the business in context with the risk weighted assets of the business. It calculates the capital adequacy level of the business (Moles, Parrino and Kidwekk, 2011). On the basis of Queensland information, it has been measured that the Capital adequacy ratio of the business is 12.57%. Further, the Westpac evaluation expresses the 14.28% capital adequacy ratio. It express that the capital adequacy position of Westpac is better.
Liquidity Ratios
On the basis of the capital adequacy analysis on both the companies, it has been measured that the capital level of both the companies are quite similar. However, the policies of Westpac are more attractive than Bank of Queensland.
- Analysis of monthly share prices:
The monthly share price of both the banks has been measures against the all ordinary shares stock price. The stock price and the AORD price evaluation are as follows:
The report focuses on the changes into the stock price of Queensland and Westpac in last 3 years. Various article and news about the companies have been read which focuses on the reasons due to which the changes have taken place.
Queensland:
Firstly, the study has been done on the bank of Queensland and it has been found that the stock price of the company has been fluctuated at a great level in last 3 years. The changes were negative as well as positive. However, it has been found that with the changes into the AORD stock price, the bank of Queensland has also been fluctuated. It explains that the stocks are volatile but as well as they are connected to each other. It briefs the BOQ stock lead to the AORD’s stock (Madhura, 2014).
Further, the correlation of both the stock are 0.49 which explains that the stocks are quite correlated to each other change in one stock would directly lead to the change in other stock. The average price change explains about positive changes into the stock price of BOQ. The trends are positive into the stock price and explain that the stock would offer positive return to the shareholders and thus the company is a good choice for the purpose of investment.
Westpac bank:
Further, the study has been done on the Westpac bank and it has been found that the stock price of the company has been fluctuated at a great level in last 3 years. The changes describe about the positive changes into AORD as well as WBK stock which is 0.71% and 0.73%. However, it has been found that with the changes into the AORD stock price, the Westpac bank’s stock has also been fluctuated. It explains that both the stocks are volatile as the return of both the stock is similar. It further explains that the changes into WBK lead to the AORD.
Further, the correlation of both the stock are 0.55 which explains that the stocks are quite correlated to each other change in one stock would directly lead to the change in other stock. The trends are positive into the stock price and explain that the stock would offer positive return to the shareholders and thus the company is a good choice for the purpose of investment.
Conclusion:
Through, the report, it is concluded that the stock price of both the companies have been affected due to various internal and external reasons.
- Significant changes:
Bank of Queensland:
Yahoo finance (2018) explains that the stock price of the business has been changed by 0.73% in last 3 years. The various factors have influenced the stock price of the company. AFR (2018) explains that on 31-1-2016, the stock price of company has been lowered by 19.40% due to the notice about the change into the corporate governable of the business. The stock holders of the business has affected with this decision and started divesting into the company. Further, on 28/2/2018, the stock price of the business has again lowered by 13.22% (Morningstar, 2018). The reasons behind these changes were the industrial factors which have affected the entire banking industry and investors got affected due to it.
Profitability Ratios
Westpac bank:
Further, the stock price of Westpac has been calculated from Yahoo finance (2018) which explains that the stock price of the business has been changed by 0.73% in last 3 years. The various factors have influenced the stock price of the company. Montley fool (2018) explains that on 29-2-2016, the stock price of company has been improved by 13.69% due to the dividend announcement of the business. The stock holders of the business have motivated with the news and thus the stock price has been improved. Further, on 31/5/2018, the stock price of the business has again improved by 5.89%. The reasons behind these changes were the new project and technology advancement of the business which would improve the customer’s loyalty in the business (Bloomberg, 2018).
- Beta value and CAPM:
Reuters (2018) explains that the beta of bank of Queensland is 1.33 and the Westpac bank’s beta is 1.36. If the risk free rate and market risk premium of the business is 5% and 6% respectively than the CAPM of bank of Queensland and Westpac bank would be 6.33% and 6.36%. The CAPM calculations of both the companies are as follows:
|
Bank of Queensland |
|
|
Calculation of cost of equity (CAPM) |
|
|
Risk free rate (Bloomberg, 2018) |
5.00% |
|
RM |
6.00% |
|
Beta |
1.330 |
|
Required rate of return |
6.33% |
|
Westpac Bank |
|
|
Calculation of cost of equity (CAPM) |
|
|
Risk free rate (Bloomberg, 2018) |
5.00% |
|
RM |
6.00% |
|
Beta |
1.360 |
|
Required rate of return |
6.36% |
It explains that the BOQ has to pay 6.33% in order to improve the funds from the equity as well as the Westpac has to pay 6.36% to the shareholders of the business.
- Dividend policies:
Dividend policies brief the policies of the business to pay the dividend amount to the shareholders of the business. Mainly, relevant and irrelevant are the two dividend policies. Out of which, relevant dividend policy explains that the dividend should be paid by the company to attract the shareholders of the business and irrelevant dividend policy explains that company should rather than distributing the net profit as dividend amount, use it as retained earnings for future investment.
On the basis of the evaluation of BOQ, it has been found that the dividend payout ratio of the company is quite higher and explains that company is distributing the net profit to the shareholders of the company to attract the investors and the money. Company is following the relevant dividend policies. Dividend payout ratio of the company of last 3 years is 85.6, 87.2 and 92.5% respectively (Morningstar, 2018).
Further, the Westpac bank’s evaluation express that it has been found that the dividend payout ratio of the company is quite higher and explains that company is distributing the portion of net profit to the shareholders of the company to attract the investors and the money as well as retain some money for the future investment of the company. Company is following the relevant dividend policies. Dividend payout ratio of the company of last 3 years is 73.1, 76.6 and 84.6% respectively (Morningstar, 2018).
On the basis of both the evaluation, it has been measured that both the companies are following the relevant dividend policies. However, the dividend payout ratio of Bank of Queensland is higher than the Westpac bank and thus the investor attractiveness level of BOQ is higher than the Westpac bank.
- Further, the profitability analysis explains that the profitability level of both the companies is quite similar. Both the companies have affected due to the some industrial factor. Due to which, the profitability level has been reduced. Lastly, the capital adequacy analysis explains that the capital level of both the companies is quite similar. However, the policies of Westpac are more attractive than Bank of Queensland. So, the ratio analysis evaluation express that the Westpac is a better choice.
Further, the stock evaluation and significant factors briefs the overall position of both the companies is quite similar. The dividend policies evaluation brief both the companies are following the relevant dividend policies. However, the dividend payout ratio of Bank of Queensland is higher than the Westpac bank and thus the investor attractiveness level of BOQ is higher than the Westpac bank.
However, the overall evaluation express that the Westpac bank is better choice for the purpose of the investment and thus the investors should invest into the company for better returns.
References:
AFR, Bank of Queensland, Viewed on Aug 18 2018,
Bloomberg, Bank of Queensland, Viewed on Aug 18 2018,
Bloomberg, Westpac bank, Viewed on Aug 18 2018,
Gibson, C.H., 2011. Financial reporting and analysis. South-Western Cengage Learning.
Halili, E, Saleh, A and Zeitun, R. 2015. ‘Governance and Long-Term Operating Performance of Family and Non-Family Firms in Australia’, Studies in Economics and Finance, 32 (4), 398-421.
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Hogarth, R.M. and Makridakis, S., 2011. Forecasting and planning: An evaluation. Management science, 27(2), 115-138.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3.
Lumby,S and Jones,C,.2007. Corporate finance theory and practice, 7th edition, Thomson, London
Madura, J. 2014. Financial Markets and Institutions. Cengage Learning.
Moles, P. Parrino, R and Kidwekk, D,.2011. Corporate finance, European edition, John Wiley andsons, United Kingdom.
Montley fool, Westpac bank, Viewed on Aug 18 2018,
Morningstar, Bank of Queensland, Viewed on Aug 18 2018,
Morningstar, Westpac bank, Viewed on Aug 18 2018.
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