Financial Analysis of Anz and Nab
|[Financial Analysis of ANZ and NAB |
| Group Assignment |
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A company with higher ROE, when compared to its industry, is expected to bring better returns to shareholders (Pysh, 2012). However, Warren Buffett indicated that investors should select businesses with least 14% return on equity (Pysh 2012).
Both ANZ and NAB show similar patterns of fluctuation. Before 2008, the ROE for both banks remained higher than 14%, implying that the ratios were healthy and attractive. Over the 5 year, the ROE of ANZ is higher than that of NAB except in 2008, with the highest in 2007 where it peaked at 20.16%. However, after 2009, the ROE of both banks experienced an upward trend and approached the benchmark of 14%, getting close to safety.
In 2011, ANZ’s ROE managed to exceed 14% and reached 14.93%, which lifts it into the safe zone. Yet, NAB’s ROE remains under 14%, making it less attractive to investors. In general, ANZ consistently generated a higher ROE than NAB with an average ROE of 14.57% as compared NAB’s 12.82%.
3) Capital Adequacy Ratio (CAR)
Australian banks are required to maintain a minimum ratio of total eligible capital to total risk-weighted assets of 8.0%, of which a minimum of 4.0% must be held in Tier 1(find definition in Appendix) capital in Basel I (APRA, 1999) and 7% must be held in Basel II(Davis, 2010). Both banks had more than the minimum 4% and were consistently over 6% for the past 5 years. As Basel II (find definition in Appendix) was only implemented in 2008, both banks had more than