FINANCIAL ANALYSIS

Financial Analysis

[Name of the Institute]Abstract

The following paper will be discussing about four firms or four different banks listen in FTSE 100 of London Stock Exchange. This paper will also highlights the profitability analysis of these banks, along with estimating the business risk and analysis of the capital structure of the firm. On the basis of its profitability and gearing ratios the capital structure of these four firms are evaluated.

Financial Analysis

Introduction

The following paper has four main parts. This paper focuses on four firms (banks) from banking sector listen in FTSE 100 of London Stock Exchange. The first part of the paper will focus on the profitability and the performance of these four banks i.e. Standard Chartered plc, Royal Bank plc, Lloyds plc, and HSBC plc using the profitability ratios. The second part of the paper will be analyzing the capital structure of these banks using gearing ratios such as debt to equity ratios and other ratios for evaluation of the capital structure of the firms. The third part will be discussing about the beta, a systematic risk of the business that will derive a relationship between the firms (banks) and the market using the return rate, of banks and market (average return of banking industry) on an yearly basis. The last part is conclusion which summarizes all the main ideas discussed in the paper along with recommendations.

Discussion

Aims and Objectives

The aims and the objectives of the paper are to develop skills for the different variables of financial analysis using different software's. Along with this the following paper will help in understanding the practical implications of the capital structure theory and also understanding the diversifiable risk using beta estimation based on the stock data. The following paper will also enhance the concepts of risks, the value of the share holders along with the firm's profitability with respect to the banking sector.

HSBC PLC Profitability and Capital Structure Analysis

Profitability Ratios

2012

2011

2010

2009

2008

Tax Rate %

25.74

21.11

29.33

5.44

30.18

Net Margin %

NetProfit/Revenue

16.26

20.13

16.45

7.08

6.16

Asset Turnover (Average)

Revenues/Total Assets

0.03

0.03

0.03

0.03

0.04

Return on Assets %

NetIncome/Total Assets

0.53

0.67

0.55

0.24

0.23

Return on Equity %

NetIncome-Dividends/Total stock holders Equity

8.4

10.96

9.54

5.26

5.17

Return on Invested Capital %

NetIncome-Dividends/Total Capital

-0.04

-0.24

-0.05

-3.98

-7.74

Debt to Assets Ratios

Total Debt/Total Assets

0.9349

0.9379

0.939

0.94

0.963

Debt to Equity Ratios

Total Debt/Total Equity

8.03

10.23

12.3

20.1

22.3

The above chart shows that the profitability of the bank from year 2008 to the year 2011 is increasing consistently while the previous year 2008 there is slight decrease in the profitability of the bank. The asset turnover has been approximately consistent all over which is 0.03 and it indicates that the bank utilized its assets 30% effectively and efficiently. There is consistent increase in the return on assets but also there is slight decrease in the return on assets of the bank. The financial leverage of the firm is decreasing which shows that the firms is paying off its debt and also improving the performance of the firm by retaining less and payoff its debt more. As the financial leverage decreases there is also decrease in the debt to equity ratios of the bank because there debt is decreasing as the bank is paying off its ...