Financial institutions are establishments that conduct financial transactions such as investments, loans and
deposits. There are various methods and measurements which can be utilised in determining the institutions
financial performance and current financial standing. In this report ANZ and Westpac, two of the four main
commercial banks of Australia will be studied and their financial performances will be discussed, therefore
assisting in evaluation and decision making in regards to the banks financial and business operations.
Through the financial ratio analysis process various categories of the institution are examined in order to
help stakeholders gain an overview of the financial institutions profitability, liquidity, assets management and
solvency. The ratios discussed in this report have been extracted through both of the banks financial
statements in order to give us the results of the 2014 fiscal period.
Return On Equity
According to Van Horne (Fundamentals of Financial Management, 2005) return on equity indicates the
profitability to shareholders of the Bank, meaning the amount of net income returned as a percentage of the
shareholders equity. Based on the ratio calculations Westpac bank has a higher return on equity at 15.6%
compared to ANZ with 15.35%. This calculation was made by dividing shareholders equity by net income.
The results indicate that for every shareholder equity capital dollar invested Westpac returned a 15.6% profit
and ANZ with 15.35% for the 2014 fiscal year. However a higher return on equity may be due to debt or
higher return on assets.
Return On Assets
Net profit/total assets gives an idea of how efficiently the banks assets are being used to generate income.
Based on the calculations made Westpac retains a slightly higher rate of 1.03% compared to ANZ's 0.99%,
indicating that Westpac is using their debt and equity more efficiently to generate income (net earnings...