Nab Vs Anz Ratio Analysis
Essay Preview: Nab Vs Anz Ratio Analysis
Report this essay
Executive Summary
The aim of this report is to analyse the National Australia Bank (NAB) and Australia and New Zealand Banking Group Limited (ANZ) to determine which bank performed better in the period from 2009-2011, for the perspective of a long term, risk adverse investor.
NAB and ANZ are two of Australias Big Four banks, both listed on the Australian Securities Exchange and stalwarts of the ASX200 index. This report is indented for a risk adverse, long term investor with an interest in attaining shares in either of the banking groups. In order to make an informed decision, ratio analysis is used to determine which bank has performed better in recent history. The annual reports of 2009, 2010 and 2011 will be used to calculate, Return on Equity (ROE), Earnings Per Share (EPS), Dividend Yield, Dividend Payout and Price Earnings (P/E) ratios. These ratios are compared to indicate the most suitable investment choice for a long term risk adverse investor.
Based on the ratio analysis performed, the report concluded that:
Both banks have suffered since the highs of 2009. This may be due to a combination of factors, including the Global Financial Crisis and the increased regulation and risk aversion that followed it;
NAB had more encouraging trends in ROE, EPS and Dividend Yield. NABs ROE has been declining at a slower rate than ANZs, its EPS have been marginally higher than those for ANZ and its Dividend Yield ratio indicates a firm focus on future operations with heavy reinvestment of profits into the bank;
ANZ has a higher Dividend Payout ratio than NAB. This highlights consistency from year to year and suggests to the long term investor that ANZ is likely to continue to deliver similar payouts;
Both Banks experienced a downward trend in Price Earnings; and
For a long term, risk adverse investor, the overall performance of the ratios analysed, indicate NAB performed better for the period.
Based on the ratio and trend analysis conducted through the report, it is recommended that:
An investment is made in NAB due to the favourable trends exhibited in the annual reports in 2009, 2010 and 2011. This is due to the more encouraging ROE and EPS trends, a higher Dividend Yield than ANZ; and
A long term risk adverse investor, use this reports to make an informed decision about future investment opportunities.
Contents
Executive Summary
Introduction
Part A: Ratios
3.1 Return on Equity (RoE)
3.2 Earnings Per Share (EPS)
3.3 Price-Earnings Ratio (P/E)
3.4 Dividend Yield
3.5 Dividend Payout
Part B: Analysis
Conclusion
Recommendations
References
Appendix
Tables – Yearly Analysis:
Figures – Graph Analysis:
Equations
The aim of this report is to analyse the National Australia Bank (NAB) and Australia and New Zealand Banking Group Limited (ANZ) to determine which bank performed better in the period from 2009-2011, for the perspective of a long term, risk adverse investor.
Introduction
NAB and ANZ are two of Australias Big Four banks, both listed on the Australian Securities Exchange and stalwarts of the ASX200 index. This report is indented for a risk adverse, long term investor with an interest in attaining shares in either of the banking groups. In order to make an informed decision, ratio analysis will be used to determine which bank has performed better in recent history. The annual reports of 2009, 2010 and 2011 will be used to calculate, Return on Equity (ROE), Earnings Per Share (EPS), Dividend Yield, Dividend Payout and Price Earnings (P/E) ratios. These ratios will be compared to indicate the most suitable investment choice for a long term risk adverse investor.
Our recommendation will be issued according to the requirements of a long-term investor, who is typically less concerned with immediate payoffs (i.e. dividends) and much more interested in value investing over a period of greater than one or two years while maintaining a lower risk profile. It should be noted however, that there are certain limitations on simply using ratio analysis in predicting future stock behaviour. By only using ratios, the more subjective and qualitative elements of a successful company, such as strategy and executive changes, are not factored in. However, with only raw data available, ratio analysis, when performed correctly, can be used to identify strengths, weaknesses and trends, which can then be used to forecast future performance.
Part A: Ratios
3.1 Return on Equity (RoE)
Return on Equity is the amount of return that owners receive from the profits of the firm. It represents how efficient a company is at generating profit with the amount shareholders have contributed to the business, thus the higher the percentage of ROE, the more profitable for the investor. The following results for ROE were obtained by NAB and ANZ for the following three financial periods:
The results indicate that:
Both NAB and ANZ have positive growth with increasing ROE for the years examined;
NABs ROE increased by a total of 5.53% while ANZs ROE increase by a total of 5.02%;
ANZ has a slightly higher ROE by .10% compared to NAB at September 30 2011 by .10%;
The growth rate trend from 2009-2011 declined for both ANZ and NAB. While both companies increase ROE each year, the amount it increased by decreased each year; and
While both companies growth rate is declining, NABs decline is not as great. NABs ROE increased 4.01% from 2009-2010, down to a 1.52% growth from 2010-2011, while ANZs increased