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Business Finance


1.0 Introduction

The challenge of achieving the business in Queensland and Adelaide by the Bank of Queensland and the Bank of Adelaide totally depends on their financial structures. With the growing needs for the progress and improvement in the banking sectors, various investors are trying to improve the economic condition of these banks by investing in these areas. This report will highlight the strengths like Financial Leverage Ratios, Liquidity ratios, Profitability Ratios, Efficiency or Turnover Ratios, and even Market Value Ratios of the above-mentioned banks. A detailed discussion will be conducted based on the financial reports of the last year of these two banks, thereby giving a clear view of their growth and the strength areas of these banks. Later, a brief comparison is to be carried out that can further help in providing mandatory steps required for improving their long-term, efficiency of the company in long run.

2.0 Findings and Analysis

2.1 Short-Term Solvency (Liquidity Ratios) - Financial Analysis

According to (Chiaramonte and Casu, 2017, p.143), liquidity Ratios or Short-term Solvency is the measure of the capability of the banks to convert or transform its assets into any other assets in a very quick immediate action in order to return their short-term obligations within the due date. It is a very important measure or the steps taken by the bank, which involves proper controlling and planning of the current assets and current liabilities (Mun, 2015, p.23). As a result, it helps to evaluate the performance of the company as well as helps to access the assets and value of the company. In order to gauge the financial position of the company, it is of utmost importance to analyse the Liquidity ratio of the company or in other words a Short-term Solvency of the company.

From the above table, both the Current ratio as well as the Quick ratio of Bank of Queensland was found to be much greater in both the years (2017 and 2016) as compared to Bank of Adelaide. This result depicts the strength of current assets and liabilities, as well as the inventories, are much higher for Bank of Queensland for the above-mentioned years. Besides the advantages and benefits in finding the Liquidity ratios, a major drawback in that both quick and current ratios furnish a static analysis report, which is static in nature due to its usage of it in past years of performance (Meena and Dhar, 2016, p.343). These two also lacks the information of the future liquidity and flows of cash.

Moreover, it is of that much importance to calculate and find out the liquidity ratios of both the banks on a priority basis in order to avoid serious problems, which may arise due to mismanagement or potential insolvency by the manager of the company (Casas et al. 2018, p.30). However, the most important liquidity ratios of the company are current ratios and quick ratios, which are used to check the liquidity quickly as seen in the tables above. However, there are other components too in order to have a better understanding of the bank's capacity to make payments, which includes current liabilities, accounts receivable, inventories, working capital and cash cycle. This Liquidity Ratio also helps in determining the ability of a firm to pay or contribute to the short-term debts.

2.2 Long-Term Solvency (Financial Average Ratios) - Financial Analysis

Financial Average Ratios or Long Term Solvency are the tools which help in assessing the potential, relative strength and power of the companies by finding and calculating using simple methods based on balance sheets, income statements, and statements of cash flows (Ferrer et al. 2015, p.255). This ratio of financial average helps in measuring the operational efficiency, stability, liquidity and profitability of the company. As a result, the investors and the analysts get a major advantage in earning profits by using these popular techniques of analysing ratios or finding Long-Term Solvency (Lakshmi et al. 2016, p.45).

In finding the financial average ratios or long-term solvencies, they can easily judge the performance of these banks (Banks of Queensland and Banks of Adelaide) irrespective of their market share, size and sales volume. However, these ratios can also go beyond the numbers in order to reveal the professionalism and growth of the company (Shao et al. 2017, p.200). The company's growth may include business funding, growing in terms of sales instead of debt and includes a vast range other nonfinancial factors.

The debt to equity ratio of the Bank of Queensland was much higher for both the years (2017 and 2016) as compared to Bank of Adelaide. Though both the banks carry almost same figures, still Bank of Queensland holds the majority. In the year 2016, Bank of Queensland had a remarkable figure, which went ahead of Bank of Adelaide enormously. Though Total Liabilities of Bank of Queensland was lower as compared to Bank of Adelaide, the former had a very low equity, which helped them to lead in both the years.

The valuation of the stocks further gives us the knowledge and understandings of the ratios, which helps in assisting the analysts to communicate and to evaluate the weaknesses and strengths of the individual banks (Véron and Wolff, 2016, p.145). In other words, debt to equity ratio is the term, which resembles the relative strength of these banks for investing in small or large-scale businesses. These ratios serve a purpose of a strategic change in the internal planning of these banks. As opined by Planchet and Tomas (2016, p.13), these ratios also help in keeping the managers of the company to stand on their toes by disclosing the opportunities and financial weaknesses.

2.3 Asset Utilisation (Efficiency or Turnover Ratios) - Financial Analysis

Efficiency or turnover Ratios or Asset Utilisation helps in determining the ability of a company to manage and control its assets and liabilities in an efficient way (Ayadi et al. 2015, p.231). Some efficiency ratios include ratios on asset turnover, ratios on inventory turnover and ratios on receivables turnover (Campbell et al. 2014, p.271). These are the ratios of these banks, which help in determining the efficiency of the proper utilisation of its assets in generating the revenues and profits for the banks.

a)      Ratios on Asset Turnover

It measures the ability of these banks in generating the revenues from its assets in an efficient and effective way (Cao et al. 2014, p.14). This ratio is calculated by dividing the total revenues of the banks by the total assets.

b)     Ratios on Inventory Turnover

It measures the ability of these banks to manage and control its inventory in an effective and efficient way. This ratio is calculated by dividing the total costs obtained by selling goods by the average inventory.

c)      Ratios on Receivables Turnover

It measures the ability of these banks to collect and gather all its debts and then to extend the accumulated credits (Agha, 2014, p.19). This ratio is calculated by dividing the net credit sales of the bank by the average receivable accounts.

Assets Consideration

Unlike turnovers on total assets, turnovers on a fixed asset, turnovers on receivable or inventory assets a bank always calculate their effectiveness in operationality and in revenue generation (Gattorna, 2015, p.17). For this, the banks need to consider its assets and then need to calculate its growth to make a higher profit in the near future. Hence, it is much advantageous and profits making for generating the revenues from its assets.

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