Executive Summary

This reports talk about one of the leading banks in Australia, which is Commonwealth bank.
There are some background analysis has been explained in the first part of this report, that will
contain each and ebanks introduction, CEO Names, their Salaries and other details such current
strategies of the bank etc. In this case it should be noted in this report further explained each and
share price performances of commonwealth banks and there is a comparison between the
commonwealth bank and ANZ bank. It has been stated bank by bank in this report and gave
some recommendation for the banks. Finally Profitability ratio, Stability Ratio and Liquidity
Ratio has been calculated and interpreted in this report.
Introduction

About Commonwealth Bank Australia

Commonwealth bank is an Australias leading provider of integrated financial services, including

retail, premium, business and institutional banking, funds management, superannuation,
insurance, investment and share-broking products and services. The Group is one of the largest
listed companies on the Australian Securities Exchange and is included in the Morgan Stanley
Capital Global Index. (Commbank, 2016). Mr. Ian Narev is the managing director and also CEO
of Commonwealth bank Australia. He started to work in these positions from 1 st of December
2011. The salary of Mr. Ian Narevs will be 7,900,000 AUDs. Mr. Ian Narev graduated from
Cambridge University as well as New York University (Heraldsun 2015).

Financial Highlights of Commonwealth bank Australia

The Commonwealth banks net profit after tax in the year of 2015 (As at 30 June 2015) increased
5% compared to the year of 2014. The net profit after tax was 9063 AUD. Further Return on
equity (ROE) was 18.2% and also Earnings per share of Commonwealth bank was 557.0 cents,
that is an increase of 4% when compared to 2014.

Source Commonwealth Bank Annual Report 2015

Commonwealth bank highlights at a glance

Description Common Wealth Bank

Product and service Business and Personal
Financial products and
Services
Chief executive officer Mr. Ian Narev

6,100 Shares
Number of shares held
by CEO

Salary of CEO 7,900,000 AUDs

Profit after tax 2015 12,190

Total assets 741,249

Number of employees 45,948 employees

Share price 52 week High 87.03

high/low Low 70.09
Source Commonwealth bank annual report 2015
Share Prices comparison between Commonwealth bank and ANZ Bank

This task talks about the share prices and its movement of all four banks and the comparison
between ASX 200, ASX200 is Leading share market index in Australia and it has 200 ASX stock
listed companies by the way of Float- Adjusted market capitalization. In the year of 2000 it is
replaced the All Ordinaries to become Australias primary investment benchmark and accounts
for 70% of the Australian equity market. This can be used as a basis of Multiple Index Product
and on the other hand indirect investment which can be available through ASX 200 listed
companies in stock market. Usually the companies which are listed in ASX 200 will generate
institutional interest, encourages investment and often entices research by stockbroking firms and
analysts. A five panel "Index Committee" rebalances the ASX 200 quarterly to ensure listing
criteria and liquidity are maintained (Marketindex 2016).Therefore author has done a critical
analysis on the stock movement in the each bank separately and compared the share performance
against ASX200 (Task C in the assignment guideline) and on the other hand explained the
gain/loss as per the critical evaluation of all the banks share prices (Task D in the assignment
guideline). Furthermore author has provided some recommendation to buy/sell/hold the share as
per the critical analysis (Task E in the assignment guideline).
Share Prices of Commonwealth Bank

As per the shares performed against ASX200, the prices are shows some fluctuations and in July
2015 it shows a highest rate of share price of 87 AUDs and in March 2016it shows a lowest share
price of 70 AUDs. This will further clear by the below graph

Further the ASX200 chart share price fluctuation of common wealth bank is given below.
As per the above graph of Commonwealth bank share price +10 has been reached in July 2015
and -10 February 2016. This performance is a very good performance and when comparing with
ASX 200 Commonwealth bank performance is fairly good in the stock market. Therefore
Commonwealth bank shares can be hold and keep it by the shareholders because these shares
will have a strong position in the market. The Commonwealth Bank's 2016 interim dividend will
be paid on 31 March 2016. Commonwealth Bank has been announced fully franked interim
dividend of $1.98 per share on 10th of February 2016; this is under the base of payable to owners
ordinary shares on the record date. And as per an article in a commonwealth bank website about
the Commonwealth Bank, it says that The dividend is unchanged from the 2015 interim
dividend paid on 2 April 2015. The dividend payout ratio (cash basis) is 70.8 per cent. Shares
purchased on or after the ex-dividend date of 16 February 2016 do not qualify for the dividend.
The Group's Dividend Reinvestment Plan (DRP) will continue to operate. Any change to your
participation must be received by the DRP Record Date of 19 February 2016. No discount will
be applied to shares issued under the DRP for this dividend. (Commonwealth, 2016, Website
Link - https://www.commbank.com.au/about-us/shareholders/shareholder-
information/dividend.html).
Share Prices of ANZ

ANZ history dates back over 180 years. As per their website they stated that they are committed
to building lasting partnerships with customers, shareholders and communities in 34 countries in
Australia, New Zealand, throughout Asia and the Pacific, and in the Middle East, Europe and
America. And they provide a range of banking and financial products and services to over 9
million customers. We employ over 50,000 people worldwide (ANZ 2016)

ANZ bank share prices are fairly played a good role in the market stock market, but ASX200 list
far beyond to ANZ banks, The reality of ANZ as per the critical analysis of stock movement in
the market is in the prospective risks for a bank like ANZ, Because day by day share prices are
going down, and which can be seen the below chart. This may be due to the reason of

Bad debt provisions from cycle lows

Regulatory constraints
Downside risk from any fall in house prices
Etc

The potential risk of higher bad debt provision materialized when it announced that the bad
credit charges that were $100m above market expectations for the 6 months ending March 31.
The driver of the downgrade is the resources sector weakness

Source - http://dividend.net.au/anz/

As per the below table it shows the full transparency of the stock prices which have been listed
the performance of ANZ and it can be seen a drop in the share prices in the market. What can be
the reason for this drop? It can be argued with the some analysis The corporate lending
environment is challenged, residential housing market is evidently slowing and banks are facing
higher capital requirements. All these factors are not conductive for earnings (Divident 2016).
The below table shows the share prices.

Adj
Date Open High Low Close Volume Close
02- 927380
05-16 24.02 25.99 22.78 25.48 0 25.48
01- 721030 23.166
04-16 23.14 24.75 22.06 24.27 0 65
01- 22.42 26.35 22.36 23.46 826070 22.393
 03-16 0 47
01- 885150 21.381
02-16 24.48 24.79 21.86 22.4 0 66
01- 771300 23.080
01-16 27.93 27.93 23.08 24.18 0 74
01- 621350 26.660
12-15 27.06 28.03 25.33 27.93 0 26
02- 892950 25.915
11-15 27.16 28 25.01 27.15 0 72
01- 787990 24.650
10-15 27.25 29.17 26.9 27.21 0 37
01- 886610 24.532
09-15 27.7 28.6 26.38 27.08 0 6
03- 107975 25.302
08-15 32.74 33.03 26.41 27.93 00 64
01- 581810 29.605
07-15 32.35 33.16 31.66 32.68 0 81
01- 592190 29.170
06-15 32.98 33.86 30.89 32.2 0 96
01- 843430 30.067
05-15 33.86 34.63 31.7 33.19 0 83
01- 490960 29.646
04-15 36.32 37.25 33.82 33.99 0 54
02- 501290 31.957
03-15 35.36 37.19 34.9 36.64 0 9
02- 618870 30.824
02-15 33 35.87 33 35.34 0 02
29- 151966 28.783
01-15 32.39 33.27 32.35 33 00 04

Comparison between Commonwealth bank and ANZ share prices

As per the critical analysis of both share prices movement between the share prices,
commonwealth bank shows steady share price compared to ANZ, on the other hand share price is
higher for commonwealth bank. Furthermore when comparing to ASX200 list of companies in
Australian stock exchange commonwealth bank will be closer to the ASX200 performance. But
ANZ performance is poor and also it shows a decline in the share prices for last one year, which
can be seen in on the above table.
Identification of key financial Data

The table shows the key financial data of each bank the key financial datal are as follows
Revenue, Interest Expenses, EBIT, NP Before Tax, GP Before Tax, Total Assets, Total Liabilities,
Total Equity

Description Commonwealth ANZ

Revenue 20,638 8,262
Interest Expenses 3,230 2,155
EBIT 12,190 5,310
NP Before Tax 9,137 4,901
GP Before Tax 10,141 7,201
Total Assets 741,249 747,719
Total Liabilities 637,190 645,128
Total Equity 17,751 43,127

Ratio Analysis

There are 3 types ratios have been calculated for each bank separately.

1. Profitability ration
2. Stability Ratio
3. Liquidity Ratio

Profitability Ratio

Profitability ratios compare income statement accounts and categories to show a company's
ability to generate profits from its operations. Profitability ratios focus on a company's return on
investment in inventory and other assets. These ratios basically show how well companies can
achieve profits from their operations (Myaccountingcourse 2015)
Profitability ratios Equation Common
wealth
GP Ratio GP/Net Sales 58%
NP Ratio NP/Net sales 71%

As per the above analysis, it can be argued that the entire bank performed well compared to last
year, compared to last year (2014) Commonwealth bank showed a growth of 10%.

Stability Ratios

Stability is the long-term counterpart of liquidity. Stability analysis investigates how much debt
can be supported by the company and whether debt and equity are balanced. The most common
stability ratios are the Debt-to-Equity ratio and gearing (also called leverage).

debt-to-equity ratio = (Net debt) / (Shareholders equity), gearing = (Net debt) / (Net debt +
Shareholders equity), Net debt = Interest-bearing debt Excess cash.

Net debt is defined as interest-bearing long-term and short-term debt less excess cash in the
business. Note that only interest-bearing net debt is included here, and other current liabilities are
excluded as they are short-term and can impact on liquidity, but not stability. Excess cash is the
cash held on the balance sheet that is not needed and exceeds the normal cash level required for
business operations (Businessplanning 2015) link - http://www.business-planning-for-
managers.com/main-courses/finance/ratios/stability-ratios/.

Stability Ratio Equation Common

wealth
Debt to Equity Ratio Total Debt/Shareholder 1.81 Times
equity
Interest Cover Ratio Operating Profit/Interest Expenses * 100 2.71 Times
Liquidity Ratio

In accounting, the term liquidity is defined as the ability of a company to meet its financial
obligations as they come due. The liquidity ratio, then, is a computation that is used to measure a
company's ability to pay its short-term debts. There are three common calculations that fall under
the category of liquidity ratios. The current ratio is the most liberal of the three. It is followed by
the acid ratio, and the cash ratio. These three ratios are often grouped together by financial
analysts when attempting to accurately measure the liquidity of a company (www.study.com)

Stability Equation Common

Ratio wealth
Current Current Assets/Current 1.19
Ratio Liabilities

Commonwealth bank current assets ratio is healthy and acceptable level, compared to last year
(2014) all the banks showed a healthy growth.

Conclusion

This report talking about leading Australian bank call commonwealth bank and their financial
performances, when it comes to profit analysis, commonwealth bank played a major role to the
Australian economy and many of the projects were mostly successful in year 2015. For an
example almost all the bank performed well in housing loan segment, and majority of the banks
performed well in credit card segment. This is a healthy sign for a bank and on the other hand
there is a drop in share prices of many banks, some banks shows a drastic drop and drastic
fluctuation in the share prices performance, that is not a good sign to a bank, except
commonwealth bank, all the banks shows a decline in the share price, therefore banks should
develop strategies to overcome this situation at earliest.

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