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This report has clear understanding upon the banking and financial industry and depicts how most rated companies consider various internal and external factors to make a good strategic plans. In this report we would be seeing a clear image of Banking and financial sector with the aid of Top down analysis and bottom down analysis. They both are the part of fundamental analysis which is used to understand the market behaviour and economy changes in the given time manner. This report shows how Australia economy and changes made in movement policies and plan have resulted into various opportunities and threats for the companies. Furthermore Countries growth rate GDP, income and expenditure plan and other factors have been identified from various sources. This report is consist of various parts starting from introduction of clear image of both companies its background afterward top down analysis is made then bottom up analysis that showcase how internal factors is using to develop a good amount of strength and weakness of both companies.
The economy of the Australia is one of the most mixed and unstable economy in context with the GDP in the world $1.62 trillion as of 2015 in order to depict the actual market behaviour of industries in context with the variable factors of Australia’s economy we have to take example of two Companies working in the same group mapping named Commonwealth Bank of Australian and Australia and New Zealand Banking Group. Australian economy is dominated by service sector comprising 68 % of GDP therefore these two companies has been elected in this project report. Commonwealth Bank is an Australian multinational bank with business across all over the world, founded in 1911 founded by Andrew fisher labour government and mainly providing banking and financing services. Whereas Australian and New Zealand bank is the fourth largest economy bank that has been founded in 1835 under the Royal charter after which several amalgamation and mergers has provided a new existence to this company. These companies have been finding several ways to manage their business in efficient manners to earn more profit. There are various economical and internal factors that should be kept in mind by the financial and strategic planner to come up with effective policies and framework ("Commonwealth Bank of Australia", 2013).
Australian and New Zealand Bank
1911 by Andrew Fisher
1835 under the Royal charter
To achieve at least 50 % market share of Australian economy
To achieve 40 % market share and develop a good effective business plan for client’s satisfaction.
Goal and objective
Earn profit and provide standard of services to clients
Making profit simultaneously satisfying clients
Top down analysis
This is understood that in order to pursue a good business in defined economy one need to understand all the positive and negative factors of the economy. Firstly we need to understand the real meaning of top down analysis. It is the complete analysis which is calculated by determining all the factors of the total market and end up with forecasting companies market share acquired in the given industry. This approach could be describe with the simple example that if I have market of 300000 people then I would like to grab market share of 10 % at least in order to enhance my business e.g. 30000 (Lee, et. Al., 2016).
Common wealth bank in Australia has been running its integrated finical services since very long time it is found that Australia is a vibrant economy has showcase impressive economy growth. GDP growth rate has been note down 2.5% annual change. Furthermore gross domestic product is also very effective as compare to other countries numbered 1.56 trillion USD. In order to make a complete report on top down analysis of economic factors I have to develop my understanding upon micro and macro environmental factors of the economy and of two industries named above (Hupe, et. Al., 2014).
Economy condition of Australia and factors associated with it
Australian economy is vibrant and developing economy. Commonwealth bank is one of the largest big 4 bank. Banking industry in context with the present economy growth has shown a great level of changes. Common wealth banking corporation has also seen changes in revenue as grown by 43% in last 10 years from 17.2 to billion to Audi 26.5 billion in 2015. In the recent changes made in the Australian economy policies that all the banks could accept the investment form the outside world Common wealth bank and Austrian and Newlands bank has seen the increment in shareholders list and upcoming investment amount has also proved to be much of help for both organization and new projects has been accepted and Australian people are offered low interest loan with the less amount of collateral securities. Deregulation of financial sectors in Australia has provided companies to open up its business services technologies uses and setting up new collaboration with other business entities either in the countries or the world outside of this economy. Fiscal policy has been found to be very stable since the very long time that has also poses a very good indication to both companies as fixed level of tax rate levied at the rate of 30% to individual and 40% to corporate. Australia has some of the most open trade and investment policies that have provided common wealth and Australia and New Zealand bank to make good strategic policies to attract wide range of market share. There is fact that 23.14 million population of market share is available to both the companies and Common wealth has grabbed only 30 % of market share various Australian and New eland in spite of its attractive offers and lucrative services has grasp only 25 % market share in the financial business sectors. GDP per capital of the country is also has drastically increased 67,458.36 USD that also depicts that financial market in the countries has emerged into vibrant developing market. There is also given that finance and banking sector plays a very vital role as 68% part of GDP of Australia is generated with the help of its contribution in the economy (Vyatkina, et., Al., 2016). Common wealth corporation and American and New Zealand banking group both are making their consistent efforts by coming up with attractive polices and strategies so that Australian people could be awaked to invest their money in various factors. With the changes in the economy there is also note down that Australia is going through soft credit growth that has resulted into high income growth for both the companies Bottom up analysis- this is the analysis of companies overall condition in the market. In this report I have undertaken two big companies in the financial sectors who have shown wide range of growth and brought changes in the economy throughout the time. The recent change in the economic condition of the Australia due to the Brexit case has resulted into the countless financial strategies in both of the companies. This top down analysis could also be used to consider external factors of the companies such as purchasing power of the clients in Australia and how it impacts on the financial position of the company or sustainability in the long run. Technological changes in the banking and financial sectors have also posed various threats to common wealth and Australian and New Zealand bank of group (Akashi, et. Al., 2010).
Interest rate of the Reserve bank of Australia- It is the central authority of Austria which regulates all the banks in Australian economy. There is find a fact that reserve bank of Australia in order to promote banks and other financial institute has lower down the rate of reserve hold by the banks in the liquid positions. Commonwealth and Australia and New Zealand bank both provides services of accepting deposits and making payment on behalf of their clients and lightness of Reserve rate has also provided much of help to these bank in context with its interest rate offering by these banks. There are various rules and regulation issued by the reserve bank of Australia that needs to be complied by all the banks (Guerrero, et. Al., 2015).
Bottom up analysis
This is the analysis that is used to understand the companies’ actual position in context with the rivals working in the given industries. There are several Micro economical l factors are considered and colonies working status and its growth order to generate the data in relevant manner I have to first consider various micro economic factors that will include companies overall market aspects and factors influencing its position in the market.
Commonwealth and Australia and New Zealand banking group- Both colonies are the best companies listed on ASX and engaged in providing banking and financial services, wealth management and insurance services.
There are given valuation of both companies in context with the Australian economy.
Commonwealth bank of group
Australian and New Zeeland Bank
Current market cap
AUD 149.9 Billion
AUD 129.9 Billion
AUD 4 Billion
AUD 3.5 Billion
GDP per capital
67,458.36 USD (2013) World Bank
GDP growth rate
2.5% annual change (2013) World Bank
Current market cap of commonwealth bank of group is AUD 149.9 Billion that is more than Australian New Zealand banking group. Furthermore Australia economy is coupled with various rules and regulation and has been keeping overall current market cap to the extent of 105 trillion. Australia economy has been very lucrative for all the investors whether for the local people or people from the outside of the countries. The revised policies and government plans in FDI and ODI have resulted into increment of GDP growth rate of the Australia economy.
Profitability of commonwealth Bank and Australia and New Zealand bank
This ratio is used to develop an understanding upon how both companies are converting its process channels into profitable environment by. It is the measured that profit in the key pivotal point in changing direction of the stock price, earning per share to the stakeholders.
Return on Assets = Net Income after tax/ Total assets
Return on Assets for Commonwealth Bank - 4150000/ 281584 = .14
Return on Assets for Australia and New Zealand = (233712000)/ 259,036= (.90)
Net Profit Margin = Net profit/ Total Sales
Net Profit Margin for Commonwealth Bank = 2552 000 / 1,056,130 000 =
It is the ability of the company to earn profit or revenue in the relevant year. The profitability ration gives stakeholders with the complete understanding of the company’s ability to measure profit in the financial year. In Commonwealth Bank we are seeing that companies has been earning a very good amount of profit with the help of its offering in the Banking and financial market industry.
Units in M $ ( Commonwealth Bank)
Units in M $ ( Australia and New Zealand bank)
Average Total equity
Return on equity
Change in the net income
Commonwealth and Australian New Zealand banking group are the biggest rivals to each other’s in the banking and financial sectors. These both banks cover more than 50 % market share in the banking and financial sectors. New investment technology adopted by the Commonwealth bank in the financial market has provided a very much help for developing core advantage in the market. Australian market is very less restricted area to open a new business. Furthermore it is found that Banking and financial sectors has portray a very good amount of growth and brand image to business man. These are the benefits that are lucrative to new entrants to make investment in this industry. The completions and increasing rivals in banking and financial sectors could be depicted with the help of this graph given as below
It is the income earned by both companies in the Australian economy. Commonwealth bank has earned 17.9 Billion AUD$ in the year 2105 that is more than twice from the income earned by the company in the last decade. However there has been seen that in the last year revenue of the company feel by 10 % although revenue earned by per share holders in the market is fell by only 5 % Further more Austria and New Zealand group of bank has also grasp a wide level of changes in their income graph the whole study could be demonstrated with the help of the graph shown as below.
This graph has shown estimated life cycle of both companies such as introduction stage, growth stage, stable stage and then if required changes is not made then company go in decline stage.
Common wealth and Australian and New Zealand bank are making changes in their strategic plans and policies with the available effects of the economic factors and companies capabilities of growing in the market. It is finding that in the upcoming year both companies has found with the help of their analysis that in the year of 2020 market share of both companies will go down as new entrants are readily grabbing Australian and New Zealand market. Banking and financial sectors have found to be attracting new corporation and economical changes and changes in economic policies and allowed other international player to enter into market with fewer formalities. These economic factors could be such as purchasing power of the customers, their habit to make investment, government budget to make expenditure, inflation rate of economy, rate of employment and education structure.
Credit loss provisions
Global financial crises in Australia economy has showed the changes in the data since then counting on the last decade that the credit loss provision increase nearly three tier from the AUD 930 million to AUD 3 billion in 2015. The most important factor to note down in this study is that it provides the positive development of the economy. Clients in both banking sectors has resulted into less bed debts as their position in the market has got strengthen throughout the time.
Profit to equity share holder from both companies
There is fact generated with the data collected through the various sources that as per the working of both companies and economic factors. There is increment of profit earned by the companies in the banking and financial sectors. Banking and financial industry has got developed due to changes made by government in its FDI ODI policies. This sector has spread its services not only the country but also in other counties as well (Shen & Lin, 2010).
Company’s market share
It is the actual position of the companies in the market and showcases how much customers area companies has covered with the help of their quality of offering in the market.
Commonwealth Bank has been providing its services since the very long time and as of today in Australia bank has acquired 40 % market share and providing various services such as banking, financial services, and securitization services and further more. Whereas Australia and New Zealand bank has been engaged in providing the same services and has captured (Fraser, et. Al., 2010).
It is the sum of money shareholders ready to pay for the earning they get from the each rupee invested in the companies. This ratio is helpful for the shareholders to determine what they are getting actually from their investment amount in the company.
Since both companies have emerged into highly influential companies in the Australian market and earning has also moved on in the last two decades from 10 to high of 14.3 in commonwealth bank and in case of Australia and New Zealand bank PE ratio 9 to high of 12("Commonwealth Bank of Australia", 2014).
It is the amount of profit distributed by the companies to its shareholders
Both companies have seen the significant changes throughout the time in the Australia economy. In the last 10 years dividend distribution amount have increased at a superb rate of 9.16%. Common wealth bank has returned AUD 33 Billion to its shareholders through distribution of dividend. On the other hand Australia and New Zeeland bank has also provided 22 Billion AUD amount to its shareholders through distribution of dividend in the market (Bryan, 2010).
Dividend per share = Dividend paid to the shareholders / Number of equity shares
It is the ratio that depicts the actual relation of the debts and equity issued by the companies through tout time. Gearing ratio helps company to measure its sustainability risk and its ability to pay off debts in timely manner. With the wide study of Australian market it could be predicted that companies should bring down their gearing ratio to around 50 %.
Gearing (Leverage) - Long term liabilities/ capital employed *100
Gearing (Leverage of Commonwealth Bank) 283351000*100/281584000= 100.62%
Gearing (Leverage of Common wealth Bank) 267159 000*100/ 259036 000=103.13%
Several economist and strategies planner have come up with the idea that Australian market have seen massive changes and rigidness in policies and framework since the time when BREXIT procedure was taken into consideration on international level there are various changes made that is given as below (Funded status of plans up in October, 2010).
1. Tightness in underwriting standard
2. High proportion of variables home loan
3. Increment in the central authority reserve rate
In this report I have used various analysis and complete study of two companies named commonwealth Bank and Australia and New Zealand bank group. The industry on which this all study has been prepared is banking and financial services. Australian economy is also widely analysed for my study purpose and it is being found that stable economy and slight positive changes made my government has provided ample amount of opportunities in banking and financial sectors.
This report has provided me all the key information of both banks and how they are operating their business in financial market. There are various factors that influence the marketing conditions and the way of working of both banks in the current scenario. Commonwealth bank has been running its activities since the very long time and in order to make it business better it should lower down its interest loan rate as per the current context Australian people are more found of making investment in owning their homes. Australia and New Zealand bank group is more engaged in factoring business and in order to enhance its business it should focus on securitization business as well. Further changes that could be made in these companies are such as companies could shuffle their investment plans in upgrading technologies for the betterment of customers’ interest in the banking and financial services. Both companies are listed on Australia stock exchange trading terminal but in order to enhance its brand both companies should get their share listed on other trading terminals. Commonwealth bank and Australia and New Zealand bank group have been running a very good amount of profit since the long time but have been declaring very low amount of dividend to their shareholders. It is required that companies should make changes in their dividend distribution policies. The gearing ratio of both companies is also very high that should also be lower and kept around 50 % (Gigli, et. Al., 2012).
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