Accounting & Financial Management for Analysis- myassignmenthelp

Question: Discuss about theAccounting Financial Management for Vertical Analysis. Answer: Recommendation From the above analysis of the financial statements through the horizontal and vertical analysis and the ratio analysis, various inferences can be drawn and following are the recommendations for both the companies in this regard: The revenue base for both the banks ANZ and the commonwealth bank has fairly remained constant for all the 3 years however, the gross profit percentage has increased for both, commonwealth bank being on the slightly higher side. In order the bank targets to improve the gross margin, it needs to increase its top line(Goldmann, 2016). The return of equity has dropped substantially for ANZ whereas for commonwealth bank, it has remained fairly constant. This is mainly because in ANZ bank, the net profit attributable to the shareholders has declined by huge margin. For this, the company needs to increase its topline and decrease the indirect and the direct expenses(Gerlach, Mora, Uysal, 2018). Debt being on higher side in commonwealth bank, the gearing ratio is way too high as compared to the ANZ bank. This is risky from the shareholders perspective and the company should thus try to reduce the proportion of debt in the capital structure. ANZ is just above the industry ratio and thus, it should also try to lower it down. In terms of horizontal analysis, it can be seen that the profit of commonwealth bank has decerased mainly on account of decrease in revenue and increase in operating expenses therefore the same should be controlled and within the budget to make the industry margin. In terms of cash flow statement, there is a lot of variation in the cash flow from operating activities in commonwealth bank and it has decreased by 270% in 2016 and 78% in 2017, which is an indicator that the company is facing cash flow issues. In sharp contract, the cash flow from operating activities in ANZ banks is fairly stable which shows the continuous flow of cash in the company and hence CWB has to drive its cash flow in a much more planned way going forward. Furthermore, the commonwealth bank has been issuing debt or loan capital on a continuous basis throughout the 3 years due to which the debt equity ratio ha increased beyond the industry average. The ANZ bank has been stable in this regard and had issued equity shares only in 2015. Therefore CWB bank needs to repay the loan capital soon(Alexander, 2016). From the vertical analsysis, it can be seen that for ANZ bank, the proportion of expenses as a % of revenue has not varied much in the last 3 years whereas for CWB bank, the interest expenses have declined considerably from 60% to 56% to 53%, other parameters remaining almost constant. Therefore, ANZ bank needs to decrease its interest expenses in order to remain competitive in the industry. In ANZ banks balance sheet analysis, it can be seen that the current tax assets and the deferred tax assets has undergone major changes in the last 3 years, other components being almost constant whereas in CWB bank, the proportion of loan capital has increased year on year and hence ANZ and CWB bank needs to stabilise its tax and debt respectively to give more security to the shareholders(Heminway, 2017). Conclusion From the above in depth analysis and the recommmendations on the financial statements, it can be concluded that the though commonwealth banks income and profit has increased over the past 3 years but the status of the balnce sheet reflects that there is a lot of risk in terms of the cash flow and reh increase in the debt capital year on year. On the other hand, ANZ has been fairly stable in all the respects, be it revenue or the profit or the balance sheet status. It can therefore, be said that the company has not been growing in the last 3 year and it needs to take strong steps in order to increase revenue and profitability. References Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431. Gerlach, J., Mora, N., Uysal, P. (2018). Bank funding costs in a rising interest rate environment. Journal of Banking and Finance, 87, 164-186. Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, 4, 103-112. Retrieved from https://doi.org/10.1007/978-3-319-39919-5_9 Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, 1-35.