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STRATEGIC CHANGES AND FIRM PERFORMANCE - Accounting Assignment Help

Analyse the behaviour of any three significant items in the income statement for the period of six years. Discuss whether your organization’s performance relating to these items appears to be improving, deteriorating, or remaining stable over this period. Explain why you selected those items and what you recognize as the most relevant strategic reasons for the trend/s that you have recognized. Justify your answer.
Analyse the behaviour of any three significant items in the balance sheet for the period of six years. Discuss whether your organization’s performance relating to these items appears to be improving, deteriorating, or remaining stable over this period. Explain why you selected those items and what you recognize as the most relevant strategic reasons for the trend/s that you have recognized. Justify your answer.
Analyse cash flow statements of the last six years and explain any three major changes which have occurred in relation to investing, financing and/or operating activities of the business. Justify your answer.
Calculate two relevant ratios under the four chosen ratio categories (profitability, leverage, solvency, operational efficiency or market ratios) for the period of six years. Give conclusions for your ratio analyses based on the figures you have derived.
Identify any two items not included in (or derived from) the financial statements that you think would be important to someone considering whether the organization is performing well. Discuss your reasons for believing that these two items about the company would be important in making an investment decision. (HINT: you might want to consider items discussed in other sections in this unit)

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Solution: Fundamentals of Value Creation in Business

Executive Summary

This report performs the financial trend analysis and the ratio analysis of the Australia and New Zealand Banking Group Limited (ANZ). Initial part presents the background details of the company which is followed by the trend analysis of the various components of the financial statements. This is followed by the ratio analysis of for the past six years and at last conclusion is provided (Andrew, 2009).

1. Introduction

Australia and New Zealand Banking Group Limited (ANZ), is a banking company operating mainly in Australia and New Zealand. It was established in the year 1951 (ANZ, 2016). ANZ is the fourth largest bank of Australia in terms of market capitalization. Besides operating in Australia and New Zealand, it operates in thirteen other countries. ANZ is also known for its sustainability efforts and was awarded most sustainable bank in year 2007 and 2008. ANZ deals in both retail as well as corporate banking channels. Bank is using latest technologies and has also gone for the offshoring of jobs. ANZ bank has more than 4000 employee in offshore office at India. However the ANZ bank has been in controversies in recent months for manipulation of benchmark lending rates (ANZ, 2016).

2. Analysis of Income Statement

2.1 Provision for doubtful debts

The provision for doubtful debts, has shown a declining trend, which is good for the ANZ bank. The provision was $ 1787 in the year 2010 which declined to $ 1179 in the year 2015.

2.2 Total operating income

The operating income has shown in increasing trend for the past six years. It showed a highest increase of 10.49% for the year 2014-15.

2.3 Pretax Profit

It is really good to see that the profit of ANZ bank has shown a remarkable growth. It was $ 6,991 in the year 2010 which increased to $ 11,160 in the year 2015.

3. Analysis of the Balance Sheet

3.1 Total earning assets

The concept of total earning assets is very important for a bank. These are the assets which helps the banking company to earn money (Arnold, 2013). There has been a remarkable increase in the total earning assets and these has almost been doubled in the past six years. Increase in the pretax profit can be correlated with increase in the total earning assets.

3.2 Share Capital

There has been a constant increase in the share capital each year. However year 2015 showed maximum increase in the share capital, which is around 18.04%.

3.3 Deposits

Deposits is the amount banking company accepts from the customers (Brigham & Ehhardt, 2014). A rise in the deposits is a good signal for the company. The deposits of ANZ bank has shown a tremendous growth in the past few years.

4. Analysis of the Cash Flow Statement

4.1 Interest received

Interest received is the major earning source of a banking company such as ANZ bank. The interest income has been fluctuating in the past five years (P, 2012). Year 2011 and 2012 showed an increasing trend, but it was a declining trend in the year 2013. However the interest received again showed an increasing trend in the year 2014 and 2015.

4.2 Investments purchased

Investment purchased showed a mixed trend (Petty, et al., 2013). There was an increasing trend in the year 2011 and 2015, but a declining trend in all other years. Year 2013 showed the highest decline of 46.39%.

4.3 Proceeds from borrowings

Banks take loan from RBA and other banking companies. ANZ repaid part of its borrowing in the year 2011 and again took some loan in the year 2012. There after the borrowings are on the almost same level.

5. Ratio Analysis

5.1 Profitability Ratios

Operating profit margin has shown a slight improvement in the past six years. It was 54.12% in the year 2010, which increased to 65.16% in the year 2015.

ANZ has provided a ROA of 0.94% in the year 2010. The ROA has remained almost constant though it showed a decline in the year 2013 and year 2015.

5.2 Liquidity Ratios

The loan deposit ratio indicates the loans advanced by the ANZ Company per dollar of deposits received. The loan to deposit ratio was 1.12 in the year 2010, which showed a decline in the year 2015. The loan to deposit ratio was 1.06 in the year 2015.

The loan to total assets ratio, has shown a mixed trend. This ratio was 0.66 in the year 2010, and showed slight improvement till the year 2014, however this ratio slightly dropped in year 2015.

5.3 Efficiency Ratios

It is necessary for ANZ to keep its non-performing assets on the lower side and ANZ has been successful in doing this. There is a constant decline in the non-performing assets ratio, in the past few years.

Assets turnover ratio indicates the ability of the company utilize the money invested in its assets in an efficient way. There is increase in the both sales figure and the value of total assets, however the net effect is a slight decline in the assets turnover ratio

5.4 Leverage Ratios

The debt to equity ratio indicates the ratio of debt and equity in the funding of company. The debt to equity ratio is almost constant at 0.94 in the past six years.

The times interest earned ratio indicates the ability of the company to pay interest out of its operating profits. A higher ratio is good and for ANZ this ratio has shown an increasing trend.

6. External Factors Not Included in the Financial Statements

During the past few months ANZ bank is facing allegations for the manipulations of the benchmark interest rates. ANZ management has denied the claims and the case is pending the court (ANZ, 2016). ANZ is also facing allegations for a scandal in Malaysia.

7. Conclusion

The financial position of the ANZ bank indicates a good performance and a good track record. Based on the financial performance it is recommended to make investment in the ANZ bank.

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FBL5030 Fundamentals of Value Creation in Business: ANZ - Accounting Assessment Answers