The aim of this report is to analyse the National Australia Bank (NAB) and Australia and New Zealand Banking Group Limited (ANZ) to determine which bank performed better in the period from 2009-2011, for the perspective of a long term, risk adverse investor.
NAB and ANZ are two of Australia's Big Four banks, both listed on the Australian Securities Exchange and stalwarts of the ASX200 index. This report is indented for a risk adverse, long term investor with an interest in attaining shares in either of the banking groups. In order to make an informed decision, ratio analysis is used to determine which bank has performed better in recent history. The annual reports of 2009, 2010 and 2011 will be used to calculate, Return on Equity (ROE), Earnings Per Share (EPS), Dividend Yield, Dividend Payout and Price Earnings (P/E) ratios. These ratios are compared to indicate the most suitable investment choice for a long term risk adverse investor.
Based on the ratio analysis performed, the report concluded that:
* Both banks have suffered since the highs of 2009. This may be due to a combination of factors, including the Global Financial Crisis and the increased regulation and risk aversion that followed it;
* NAB had more encouraging trends in ROE, EPS and Dividend Yield. NAB's ROE has been declining at a slower rate than ANZ's, it's EPS have been marginally higher than those for ANZ and its Dividend Yield ratio indicates a firm focus on future operations with heavy reinvestment of profits into the bank;
* ANZ has a higher Dividend Payout ratio than NAB. This highlights consistency from year to year and suggests to the long term investor that ANZ is likely to continue to deliver similar payouts;
* Both Banks experienced a downward trend in Price Earnings; and
* For a long term, risk adverse investor, the overall performance of the ratios analysed, indicate NAB performed better for the period.
Based on the ratio and trend analysis conducted through the report, it is recommended that:
* An investment is made in NAB due to the favourable trends exhibited in the annual reports in 2009, 2010 and 2011. This is due to the more encouraging ROE and EPS trends, a higher Dividend Yield than ANZ; and
* A long term risk adverse investor, use this reports to make an informed decision about future investment opportunities.
Executive Summary 1
1. Aim 2
2. Introduction 2
3. Part A: Ratios 2
3.1 Return on Equity (RoE) 2
3.2 Earnings Per Share (EPS) 3
3.3 Price-Earnings Ratio (P/E) 3
3.4 Dividend Yield 4
3.5 Dividend Payout 4
4. Part B: Analysis 4
5. Conclusion 6
6. Recommendations 6