CBA Analysis

Topics: Balance sheet, Capital requirement, Asset Pages: 3 (786 words) Published: March 11, 2014
CBA 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, CBA 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 CBA’s assets (seen in Table 5excel 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 to June 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, reflecting the asset transformation function that a financial institution such as CBA provides. The similar changes in values demonstrate how CBA 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, CBA’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 CBA has issued new shares on a consistent basis in an effort to gain funding and continue to grow the company. It also highlights the importance CBA (and APRA) place on capital funding for financial institutions, as it is a necessary source of funds to have as...
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