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Part 2 Ratio Analysis of Westpac Group and National Australia Bank

Bank performance Ratio

The return on equity (ROE) is the main ratio focused by the investors. ROE is divided into two extra ratios which are return on assets (ROA) and equity multiplier (EM). ROA is a mixture of expense ratio and revenue ratio which is also recognized as asset utilization. The total expense ratio contains of total non-interest expense, total interest expense ratio to total assets ratio, income tax to total asset ratio and provision for loan losses to assets ratio. The asset utilization contains of total non-interest revenue to total assets ratio and total interest revenue to total assets ratio.

ROE measures the total of profit that an organization generates
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The lower the ratio indicates that the company can turn the sources into revenue quickly (Mafraq 2013). According to appendix , the ratio of Westpac had increase 0.6% and NAB had increase 1.5% compare to last financial year. Westpac owes a better ratio because Westpac had 24% compare to NAB had 45% ratio which show that it cost Westpac $0.24 to generate $1 of revenue. However, any percentage below 50% is acceptable but NAB should pay more attention in case the ratio went over the acceptable range because NAB ratio was near to the border of acceptable range. The more the bank generates in fees, the more it may concentrate the activities may carry high fixed costs thus it creates worse efficiency ratio. NAB should take note of this matter and decrease this type if expenses as much as
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Entrepreneurial Resource Centre n.d., Assets Utilization Ratio, University of Entrepreneurship, viewed 20 September 2016, (-- removed HTML --) .

Fathi, S, Zarei, F & Esfahani, SS 2012, ‘Studying the Role of Financial Risk Management on Return on Equity’, International Journal of Business and Management, vol. 7, no. 9, pp. 215- 221.

Jamison, J 2014, ‘What Drives Your Return on Equity?’, Professional Services Management Journal, vol. 41, no.1, p. 8.

Mafraq, J 2013, ‘The Role of Financial Analysis Ratio in Evaluating Performance’, Interdciplinary Journal of Contemporary Research in Business, vol. 5, no. 2, pp. 13-28.

McClure, B 2016, Use ROA to Gauge A Company’s Profit, Investopedia, viewed 20 September 2016, (-- removed HTML --) .equity multiplier

Mubin, M, Iqbal, A & Hussain, A 2014, ‘Determinant of Return on Assets and Return on Equity and Its Industry Wise Effects’, Research Journal of Finance and Accounting, vol. 5, no. 15, pp. 148-

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