CBA Analysis Essay

CAB has seen a steady rise in profitability over the past 5 years, with the exception of a significant decrease In net profits for the 2009 financial year as calculated In Table 4 (excel spread sheet). This negative growth can be attributed to increased charges for bad and doubtful debts, an after effect of the global recession in which credit risk became Increasingly Important and evident. As economic conditions Improved through 2009 and 2010, CAB were then able to lower the doubtful debts charge and hence achieve a substantially higher profit for the 2010 financial year and onwards.

Since 2009, the financial institution has been able to steadily increase the value of its assets, which were largely unaffected by the financial crisis. Significant percentage increases in the value of Scab’s assets (seen in Table excel spread sheet) between 2008 and 2009 have allowed them to maintain a steady asset base in the subsequent years and continue to build a strong base for the financial Institution up until the current period up token 2013.

Similarly, the percentage change in value of total liabilities (Table 6 of excel) largely mirrors that of total assets over the past 5 years, fleeting the asset transformation function that a financial Institution such as CAB provides. The similar changes In values demonstrate how CAB collects deposits In order to use the funds to purchase their assets (such as loans). As can be seen from Table 1 and 2 in the excel spreadsheet, Scab’s book value of capital differs to that of the market value of capital.

The book value is based on the total shareholders’ equity as per the financial statements and this value has increased steadily over the past 5 years. This shows that CAB has issued new shares n a consistent basis in an effort to gain funding and continue to grow the company. It also highlights the importance CAB (and PARA) place on capital funding for financial Institutions, as It Is a necessary source of funds to have as ‘Insurance’ against major financial setbacks and risks.

The number of shares on issue has grown over the past 5 years, as well as the market value of Coca’s capital (market capitalization), which can be contributed to solid and constant growth In value of Scab’s share price. As seen in table 2 and the graph below. Their a 3 main driving actors lead to this constant growth of Scab’s increase in share price; (1 A constant steady rise in profitability over the past 5 years; (2) A constant and steady growth in Earnings Per Share over the past 5 years; and (3) a constant and steady growth in Dividends Per Share over the past 5 years as seen in the diagrams below.

This large increase is even more impressive when the amount of Tier 1 Equity CAB holds is compared with its international counterparts, which due to their geographical locations would certainly be exposed to more risks than CAB. Table 7 (in excel) shows that Coca’s off balance sheet amounts have maintained relatively steady growth over the past 5 years, highlighting their fiduciary duty awards their customers through such activities as brokerage and lines of credit.

Since 2010 there has been a solid steady increase in Coca’s commitment to provide credit as seen in table 7. A credit commitment is a promise by a bank to lend to the commitment holder. The typical contract specifies a loan limit and allows the commitment holder to borrow according to need up to the limit, it can be concluded to main reason CAB has drastically increased this off balance sheet activity is because the fees CAB receives by providing this facility is another useful source of income for the bank.