Financial analysis business report

Business one of the most vital components, is the ability of an organization to make money. This means that they must be able to effectively manage their outstanding debt obligations, while ensuring that the corporation is adequately capitalized to maintain continuous operations in the future. In the case of Westpac and National Australia Bank (NAB), they have been facing a number of challenges over the last several years. As both companies have been forced to deal with; the lingering effects of the global economic recession. This would cause the two organizations to adjust their strategies, to adapt to the various changes that are taking place. As a result, their overall levels of profitability have changed. To help determine the underlying strength of various companies, investors will often utilize different tools, to effectively evaluate the balance sheet. Where, a number of devices will be used to achieve this objective including: the profit margin ratio, net profit ratio and the debt to equity / debt to total assets. Then, we will look at the information presented in the statement of cash flow to determine: the significant changes between 2008 / 2009, the underlying amounts of debt and if the company has contracted or expanded over the last three years. Together, these different elements will provide the greatest insights, as to the underlying financial strength of both companies.

The Gross Profit Margin Ratio for 2008 and 2009

The gross net profit margin ratio is used to determine the efficiency of an organization, during the manufacturing and distribution process. In the case of Westpac the gross profit margin ratio is: .37 for 2009 and. 35 for 2008. This was calculated by taking: $5.46 billion / $14.4 billion = .37 and $5.92 / $16.8 billion = .35. While NAB, would have a gross profit margin ratio of .63 for 2009 and for 2008 of .60. This was calculated by taking $3.81 billion / $5.96 billion = .63 and $4.73 billion / $7.81 billion = .60. The level of profitability at Westpac is acceptable, as this number is indicating consistency in production and delivery of different services. This is important, because those organizations that can be able to maintain consistent stability in these numbers will have steady earnings. (Westpac Group 2009 Annual Report 2010, pp. 69 -- 114) (2009 Full Year Results, pp. 3 -- 34)

Net Profit Margin Ratio

The net profit margin ratio for Westpac is: .34 (for 2009) and .33 (for 2008). This number was calculated by ($3.46 billion / $10.01 billion = .34) and ($3.85 billion / $11.5 billion = .33) In the case of NAB the net profit margin ratio would be: .26 (for 2009) and .23 (for 2008). This number was calculated by taking $2.74 billion / $10.15 billion = .26 and $2.92 billion / $12.23 billion = .23. The figure for Westpac is acceptable, because it is higher than their major competitor, indicating financial strength. At the same time, the fact that the number increased between 2008 and 2009, highlights how the company is continuing to deliver positive earnings growth (despite a recession in the world economy). (Westpac Group 2009 Annual Report 2010, pp. 69 -- 114) (2009 Full Year Results, pp. 3 -- 34)

Debt to Equity and Debt to Total Assets

The debt to equity ratio for Westpac would be: 15.36 (for 2009) and 21.64 (for 2008). This was calculated by taking ($553 billion / $36.5 billion = 15.36) and ($420 billion / $19.4 billion = 21.64). NAB would have a debt to equity ratio of: 16.92 (for 2009) and 17.55 (for 2008). This number was calculated by taking ($616 billion / $37.8 billion = 16.92) and $639 billion / $36.4 billion = 17.55). The debt to total assets for Westpac would be: .37 (for 2009) and .42 (for 2008). This was calculated by taking ($133 billion + $90.4 billion / $589 billion = .37) and ($100 billion + $86 billion / $439 billion = .42) NAB has a debt to total assets ratio of: .97 (for 2009) and .97 (for 2008). This number was calculated by taking: $57.3 billion + $579.8 billion / $654 billion = .94) and ($68.6 billion + $593.4 / $676 billion = .97). The low reading from the debt to equity and debt to total assets ratio, is an indication that Westpac has more than enough assets to cover their short- and long-term obligations. Evidence of this can be seen with the debt levels remaining close to each other, despite a recession occurring during this time. (Westpac Group 2009 Annual Report 2010, pp. 69 -- 114) (2009 Full Year Results, pp. 3 -- 34)

What, in your opinion, are the significant changes between the two-year (2008 and 2009) and have these changes had a positive or negative impact on the operating activities for the company?

The significant changes are that Westpac has been: increasing their debt and maintaining their profit margins. This has had a positive impact on the company, by improving their overall bottom line numbers, allowing them to take advantage of various opportunities.

How much debt has the company retired, how much additional borrowing has the company undertaken in 2009? Identify which financing activity had the greatest impact in the financing activities resulting for the company and why?

Westpac did not retire any debt during 2009. Instead they increased borrowing by $133 billion. The financing activity that would have greatest impact on the company's balance sheet is: the increases in deposits from $233 billion (in 2008) to $329 billion (in 2009). This would have the greatest impact on the company, by increasing their overall levels of debt. (Westpac Group 2009 Annual Report 2010, pp. 69 -- 114)

Has the company been expanding or contracting in the past 2-year? If so, what has been the emphasis or contraction strategy for this year and has that changed compared to the previous year? How and why has this emphasis impacted the company's investing activities?