Environmental Issues In Business Transactions: Overview And Analysis

Discuss About The Environmental Issues Business Transactions.

This assignment consists of ratio analysis of Australian and New Zealand banking group of the past two years. It will help us to evaluate and analyse the financial position and performance of the company for that two years.

The purpose of this assignment is to know about the company and its financial condition. Ratio analysis helps to compare the financial performance and position of the company which helps the investors to know the growth prospects and take investment decisions accordingly.

In this assignment, five ratios are calculated for the year 2016 and 2017. The ratios calculated include profitability ratio, liquidity ratio and efficiency ratio. Gross profit ratio is calculated as a profitability ratio; Current asset ratio and quick ratio under liquidity ratio and efficiency ratio include return on assets and return on equity. A brief description along with the analysis of these ratios is mentioned in this project.

Ratio analysis is subjective in nature and therefore, the judgements of people may vary from each other. These are performed on the basis of the financial statements which we know are window dressed. There are various accounting policies and procedures followed by different companies therefore; it is difficult to do compare the results of the ratios.

Australian and New Zealand banking group (ANZ) was formed in the year 1835 in Sydney. The headquarters of ANZ was established in 1838 at Melbourne. It is a public traded company that was incorporated in 1977 on 14^th July in Australia. It is considered to be one of the most popular and best banks in New Zealand. It is also counted as one of the largest listed companies in Australia. It holds total asset of AU$914.9 billion as on 30^th September 2016. It has a wide market which includes 34 markets across various different countries such as Australia, Asia, New Zealand, , Europe, America and many other countries. The securities of ANZ are listed on Australian and New Zealand stock exchanges and it has around 5,45,000 shareholders.

ANZ has around 10 million customers all over the world and it aims to fulfil the requirements of the customers and provide them with the best services possible. Along with the strong customer base ANZ also has a large number of employees which total to 50,000 approximately.

The banking group also pays attention to corporate sustainability i.e. they believe in delivering and satisfying needs of the customers, shareholders, employees and other stakeholders apart from earning profits. The three priority areas that are covered by them are

Scope

Sustainable development which means that the company takes into account the environmental and other social factors that would help to serve the customers in the long run.

Diversity and Inclusion i.e. Building a larger and efficient workforce that would helps in carrying out the operation more efficiently and smoothly.

Financial inclusion and capability- It aims at encouraging the financial inclusion and progression of individuals and committees.

Current ratio reflects the liquidity position of the company. This ratio shows the ability of the company to pay off its short term obligations. Current ratio is calculated by dividing current assets by current liabilities. From the above calculation, it is evident that the company is having a low liquidity position. However, the liquidity position has fallen from the year 2016 to 2017 which shows that the bank may undergo problems in meeting its short term liabilities.

Quick ratio is a more stringent measure of liquidity as it usually excludes inventories and prepaid expenses. Since, ANZ is not a manufacturing company it does not have any inventories. However, there were no prepaid expenses in the balance sheet and so the quick ratio and current ratio is same for ANZ. We can conclude that ANZ banking group has a poor liquidity position.

Gross profit margin shows the financial performance of the company. It helps to know the company’s profitability over the years. There is no specific benchmark for the profitability ratio- it is higher the better. Since, it is a banking company there is no cost of goods sold and therefore we have calculated net profit ratio. In the above table, we can see that the ratio has increased from 19.09 % to 22.05% which shows that there is an improvement in the financial performance of the company.

Return on equity is calculated by dividing total profit by the total shareholders fund. This ratio is considered to be the part of efficiency ratio. This ratio shows whether a company is able to generate higher profits with the given capital. A higher ratio shows a better efficiency of the company. From the above table it is clear that the efficiency of the company has increased from 2016 to 2017. In 2016 the return on equity was 9.87% whereas it improved to 10.87% in the year 2017.

Return on asset is also a part of efficiency ratio. This ratio helps to know whether the company is able to use its resources in the best possible manner in order to generate higher returns. If the company is able to use its resources properly then it will result to a better and higher return on asset ratio. As we can see in the above table that there has been an increase in the return on asset ratio, we can say that the company is making a better utilisation of its asset compared to the previous year.

Limitations

Analysis and Conclusion

Ratio analysis is a tool used by the investors in order to take correct and meaningful decisions. It helps them to compare the financial performance, position and stability of the company in order to know about its future growth prospects. On examining the ratios for the past two years it has been found out that the liquidity position of the company is weak as the current ratio and quick ratio has fallen. However, there has been an improvement in the profitability and efficiency ratios which reflects the efficient working of the management. It is the primary objective of every company to earn higher profits as it would result into shareholders wealth maximisation. Also, it is important to use the resources available in the best possible manner in order to satisfy the expectations of the shareholders.

However, only these ratios are not sufficient for the matter of decision making, it is important for the company to look upon solvency position of the company as well. There are various other non quantitative factors that the investor must look upon before making a final conclusion. There may be certain qualitative factors that may have an influence on the decision made by an investor such as the company’s corporate social responsibility and corporate governance.

Let us now compare ANZ banking group with two other companies of the same industry. The two companies that have been selected for comparison are Bank of Queensland and AMP ltd.  In order to compare these two companies with ANZ banking group let us acknowledge the current year’s status of all the three companies. The profitability of ANZ banking group in the year 2017 22% whereas the profitability ratio of Bank of Queensland and AMP ltd is 15.49% and 5.10% approximately which shows that ANZ has a better financial performance. Now let us compare the efficiency ratios- Return on equity ratio of ANZ banking group for the current year is calculated as 10.87% whereas for Bank of Queensland it is 9.57% and for AMP ltd it is 11.57%. Also, when we look upon the return on asset ratio we can see that in the current year ANZ has attained a ratio of 0.72 whereas both Queensland and AMP has their ratio less than this which is 0.69 and 0.59 respectively. This shows that ANZ banking group manages its resources better than the other two companies in the same industry.

Therefore, on comparison we can conclude that the financial ratios are favourable of ANZ banking group and it can be recommended to the investors. Investors wish for wealth maximisation which is possible only when the company shows an upward trend in the profitability. Also the management of the company is efficient which is depicted in the growing trend of the efficiency ratio.

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