Nab's Financial Position And Business Risks

2983 words - 12 pages

Part 1:(a) Analysis of NAB’s Financial Position and Business RisksSimple ComparisonsAt a first glance, NAB’s financial reports have shown a sound performance during the year 2007 with a “steady and sustainable” improvement. The figures show NAB’s cash earning increased by 17.7% at $4,386 mil compared to that in 2006 of $3,728 mil; net interest income increased by 11.3% due to the strong growth in lending and customer deposits, while other operation income has decreased 1.0% because, as NAB’s report argued, higher card revenue as well as increases from lending and account fees driven by volume growth across all regions have been offset by a shift to lower fee products and the impact of ...view middle of the document...

The decrease of the ratio contributes to a higher share of stable financing in NAB, indicating the improvement of NAB’s asset portfolio risk. It is also an indication of the group’s liquidity. As loans are shown as banks’ assets while deposits are liabilities, the decline of the ratio also indicates the higher risk of liquidation. (A similar indicator of asset/debt ratio.)2.Earning Performance(a) Return on total assets (ROA). Return on total assets ratio is calculated by dividing net profit by total assets. According to the data showed on NAB’s financial report, its return on total assets ratio in 2007 should be 5,572/564,634=0.9868%. There is a slight decrease compared to 2006, which was 1.060%. This ratio indicates the degree of employment of the available assets, which in our case, showing a decline.
(b) Return on shareholders’ equity (ROE). The return on shareholders’ equity ratio is calculated by dividing net profit by total equity. NAB’s ROE is 5,572/29,885=18.64% in 2007,while in 2006 was 18.38%, where a slight increase illustrates the better employment on the resources contribute by the shareholders.
As there was an increase in ROE while a decrease in ROA, we can conclude NAB group had a worse performance in the employment of the other source of group assets, which were its liabilities. That may due to its poorer use of the fund where there was an expanding capacity of absorbing deposits.
The following two ratios will provide a greater insight to the strength and weaknesses of the bank’s earnings performance.
(c) Net interest profit/total revenuesThe ratio of interest income minus interest expense to total revenues will assist the analyst to discern the interest margin that a bank is obtaining in its lending and investing activities. We can get the figure in 2007 for 21.93% while in 2006 for 22.72%. As the total revenue has increased from $38,253 mil in 2006 to $44,448 mil in 2007, the figure shows us the sign of the decline of profitability in the bank’s main profit-making area—interest earning, at the mean while, the sign of its diversification of profit-making methods.
(d) Non-interest expense to total revenues ratio. The ratio provides an indication of the bank’s ability to control the expenses of its operations. This figure in 2007 is shown as 36.67% while was 36.84% in 2006. This slightly decrease indicates a sustainable or even improved ability of NAB in controlling the operation expenses.
3.Solvency RatioDebt-to-Equity. The debt to equity ratio is calculated by dividing the sum of short-term and long-term debt by shareholders’ equity. NAB’s debt to equity ratio in 2007 equals to 534,749/29,885=17.89. The figure in 2006 was 16.33. It shows that NAB’s had a higher gearing level at the mean time, higher risk in 2007. Considering the greatest part of debt within a bank is deposit it absorbs, it also indicates the increase of deposit it received.
(b) Supporting EvidencesStandard & Poor’s Rating Services decided to raise its long-term...

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