Comparison Of Financial Analysis Of Barclays And HSBC
The present discussion in the study would evolve through comparison of financial analysis considering Barclays Plc and HSBC Holdings Plc. Originally, being founded in 1690 Barclays was established as goldsmith banking services. However, currently, Barclays Plc is a British multinational financial service and universal banking company that has headquartered in London, England. On the other hand, HSBC Holdings Plc is also observed to be British multinational financial services and investment bank. Although, both of the banks work as multinational companies and is originally situated in England, however, the comparison of financial analysis would help in addressing which of the bank is more solvent, stable, profitable and liquid enough to warrant any sort of monetary investment.
This has been already identified that, this study would be done based on Barclays Plc and HSBC Holdings Plc. The comparison of finance services should be done for the financial year of 2019-2020 for these two organisations. However, considering this situation, it is important to properly found out their financial performance during that financial year, so one can understand how both the companies have provided financial services to their customers. Regarding HSBC Holding Plc, this can be found out that net interest income or NII for the year of 2020 was $27.6 (Billion) which depicts a decrease of $2.9 (Billion) compared to its past financial year, therefore, 2019. Thus, it can be stated that for HSBC, NII has reduced by almost 9.5%. On the other side, interest income has been also decreased by almost $12.9 (Billion) for the financial year of 2020 and their interest income was $41.8 (Billion). This means interest income has reduced by 24% and this is because of lower average interest rates. On the other side, this can be seen that from the financial instruments their net income which has been held for trading or has been managed based on a fair value has become lowered by $0.6 (Billion) and consist of certain loss of $0.3 (Billion) from the disposal of the assets. This entire situation has been occurred from their restructuring programme. In accordance to this discussion, it can be found out that for HSBC Holdings Plc net income or expenses could be measured at their fair value through their profit or loss. According toexperts this net income or expenses could be measured from the assets as well as liabilities of the insurance businesses along with relevant financial derivatives. (Barclays, 2021)
On the contrary, Barclays Plc has been performed effectively despite Covid-19 situation which has strengthen their financial situations also. As per the financial report, Barclays has remained profitable fore each and every quarter for the year of 2020 and has generated profit before tax of 3.1 (Billion) (GBP). On the other side, the total income has been increased by 1% compared to the previous year. This is also important to understand that operating expenses of Barclays Plc has been enhanced by 1% to 13.7 (Billion) (GBP) which further is consisted of structural costs. Regarding their financial performance it can be stated that they have incurred several Covid-19 related costs which is expected to elevate in 2021 also. Thus, based on the overall scenario it can be stated that in 2020 despite pandemic situations, Barclays has performed efficiently compared to HSBC Holdings Plc in this context. (hsbc.com, 2021)
Comparison Of Income Statement
Income statement is financial statement that would show income and expenditure of a company. It would also show whether the entity is making profit or loss for the given period (AREAS, 2018). Therefore, financial analysis considering the income statement would provide in-depth view context to Barclays and HSBC’s profitability analysis and measurements.
Net Interest Income
Net Interest Income is the term that is analysed for assessing financial profitability of a bank and any financial service institution. It is the difference between revenues created by bank’s interest-bearing assets as well as the cost-of-service liabilities. Therefore, in context to financial analysis of both Barclays and HSBC and comparing them, Net Interest Income would be considered as the major financial performance measure that would define profitability growth and tendency of the banks through the revenue generated from interest-bearing assets (Grennanand Michaely, 2020). To know more about net interest income students can take help fromexperts
Based on the above graphical representation, it could be found that Barclays had Net Interest Income or NII of £9407 Million in 2019, which has further decreased to £8122 Million in 2020. On the other hand, in case of HSBC Holdings Plc, it could be seen that the bank’s NII valuation was £22259.41 Million in 2019, which has decreased to £20151.99 Million in 2020. By comparing both banks’ NII, it is found that the valuation of net interest income has decreased in 2020 for both Barclays and HSBC. However, if look closely, then it could be observed that HSBC’s net interest income is higher in valuation during both consecutive years compared to Barclays (Šimonováet al. 2019). Therefore, it can be said that, HSBC’s profitability trend is efficient and well performing compared to Barclays. The higher NII valuation is indicating that HSBC has been operating profitably with having the investment efficiency compared to Barclays Plc. On the other hand, large demand of savings account compared to loans are resulting in Barclays lower NII margin as the Barclays bank is unable to generate sufficient revenue from the interest-bearing financial assets. (hsbc.com, 2021)
Net Operating Income
Net Operating Income or NOI for a bank is referred to earnings reported by the bank after deduction of operating expenses, however, taking any gains or loss from selling securities or other losses or addition to reserve accounts. Therefore, it is said that the more would be the NOI operating expenses would be lower for a bank; the better would be its profitability performance in terms of reaching operational excellence (Judgeet al. 2019).
In accordance with the identified NOI of both banks in above graphical representation, it can be seen that both Barclays and HSBC’s net operating income has deceased in 2020. However, compared to Barclays Plc, the HSBC Holdings has higher valuation of net operating income. Significantly, in this context, it is further to be seen that HSBC’s credit impairment charges has increased in 2020, whereas, Barclays also have increasing valuation for credit impairment charges however that is at lower rate compared to HSBC (Damrongsakmetheeand Neagoe, 2017). Moreover, total operating expenses of HSBC has decreased compared to Barclays’ operating expenses, which in turn has helped HSBC Holdings in earning higher operating income or profit compared to Barclays.
Profit Before Tax
Profit before tax is the profit measurement that reflects the profit by paying off or deducting any interests or depreciation charges. Therefore, in case of both Barclays and HSBC, profit before tax would be the financial profitability performance indicator that would analyse profitability of both banks after deducting the fixed interest payments.(hsbc.com, 2021)
The graphical representation in above is reflecting the profit before tax for both Barclays and HSBC. It is found that for both banks, the profit before paying tax has decreased from 2019 to 2020. However, the valuation of profit is higher in case of HSBC compared to Barclays. The major cause for decreasing profit before tax is deduction or payoff of interest payments in terms of share of profit in associates or joint ventures (Freyet al. 2018). As both of the banks have paid some of the share from the profit to other associates and joint ventures as fixed payments, therefore, it has made the profit margin before paying tax to be lower. However, in case of HSBC Holdings, it can be said that, the margin of profit before tax is higher valued than Barclays bank.
Profit After Tax (Net Profit)
Profit after tax would refer to amount that is remaining in the bank after paying off all of the operating as well as non-operating expenses alongside fixed interests and taxes. Therefore, for both Barclays and HSBC, PAT or Net Profit would be the significant profitability measurement indicator.(Barclays, 2021).
In context to the above graphical representation, it can be seen that likewise; other profitability measurements and analysis, Barclays and HSBC banks’ PAT or net profit has decreasing valuation in 2020. However, compared to Barclays, HSBC Holdings Plc’s profit for the year is having higher valuation (Schaubroecket al. 2019). It has been indicating towards overall profitable and higher or efficient financial performance for HSBC.
Comparison Of Balance Sheet
After comparative analysis of income statement this is important to analyse as well as compare the position of the balance sheet of these two companies. There could be several aspects or factors through which balance sheet position of Barclays Plc and HSBC Plc could be accomplished. However, in this context for both years, like, 2019 as well as 2020, comparison would be performed.(hsbc.com, 2021). To know more about comparison of balance sheet take assistance fromexperts online
Considering the above graph this can be stated that in the financial year of 2019 the position of cash and balances at central bank for Barclays Plc is more compared to HSBC Plc, but in next year, 2020, it can be seen that cash and balances at central banks is more for HSBC compared to Barclays Plc in this context (de Assiset al. 2017). Therefore, it can be stated that compared to previous financial year of 2019, though both companies have performed well in 2020, still in the financial year of 2020, the position of HSBC Plc is efficient. This entire situation could indicate that despite pandemic both the banks have strengthen their financial position but HSBC has performed well than Barclays. (Barclays, 2021)
Now this graph depicts the position of current tax assets for these two companies. Based on the above graph this can be easily stated that for both financial years, therefore, 2019 as well as 2020, the performance of Barclays Plc regarding current tax assets is not efficient. On the other side, compared to Barclays Plc, the position of HSBC Holdings Plc is better for the financial years of 2019 as well as 2020 (Prihartonoand Asandimitra, 2018). Thus, it was possible for HSBC to continue their performance effectively for two consecutive financial years.
Considering the above graph, it can state that regarding maintaining total assets HSBC Plc is ahead of Barclays Plc for both financial years, therefore, 2019 as well as 2020. Compared to the year of 2019, the performance of HSBC is more in this sector as they were able to maintain total assets perfectly in 2020 (El‐Hajet al. 2019). On the other side, though total asset position of Barclays Plc has enhanced in 2020 than the year of 2019, still they are behind the performance of HSBC Plc. (hsbc.com, 2021)
The above graph is clearly showing that in 2019 HSBC Plc had more current tax liabilities than Barclays Plc. This situation indicates that in relation to their current tax assets, the position of current tax liabilities for HSBC is good, but this should be noted that Barclay Plc was able to maintain the low current tax liabilities position in 2019. But in 2020, HSBC has shortened their current tax liabilities position compared to previous year, though it was hard for Barclays to maintain their current tax liabilities position properly as they have more tax liabilities in 2020 than the year of 2019 (Valaskovaet al. 2018).
Based on the above graph it can be found out that for Barclays Plc the total shareholder’s equity is much less than HSBC Plc for both financial years, therefore 2019 as well as 2020 in this context. On the other side, as the position of Barclays Plc is less than HSBC, it can clearly be stated that performance of HSBC regarding maintaining the total shareholder’s equity is very much efficient (Lewisand Young, 2019). Moreover, HSBC also was able to enhance their shareholder’s equity position in 2020 compared to 2020 despite Covid-19 which has make them industry leader.
This can be stated that the liabilities are more for HSBC Plc than Barclays Plc for both financial years, therefore, 2019 as well as 2020. As per the recent annual report of both companies, it can be expected that total liabilities would be less for Barclays Plc in both financial years, therefore, 2019 as well as 2020. On the other side, HSBC Plc has fewer total liabilities in 2019 compared to the financial year of 2020 which indicates that in current financial year HSBC Plc has more debt.
Following the above discussion as well as according to the provided graph, this can be found out that HSBC Plc maintains more equity compared to Barclays Plc for both financial years (Sierra-Garciaet al. 2018). The total equity position has been enhanced slightly for HSBC Plc in 2020 compared to 2020. On the other side, like HSBC, the total equity position has been increased for Barclays Plc also in 2020 than the financial year of 2019. But it needs to be noted that the performance of HSBC is good than Barclays Plc. (Barclays, 2021)
The above graph is depicting the total position of total liabilities and equity for both companies across the two financial years, therefore, 2019 as well as 2020 in this context. According to this graph, it can be easily stated that the performance regarding maintaining total liabilities and equity is more efficient for HSBC for both years, therefore, 2019 as well as 2020 compared to Barclays in this situation. This entire scenario therefore could define the strong financial position of HSBC than Barclays.
Therefore, considering the above scenario it can be stated that though regarding financial services providing, HSBC has performed below the marks and sometimes below Barclays Plc also, still they have carefully maintained overall financial position across both financial years, therefore 2019 and 2020 and they have performed well compared to Barclays Plc during those two financial years (Maqbooland Zameer, 2018). This entire scenario therefore has strengthened the overall operations of HSBC and they can easily perform efficiently than Barclays Plc in this context.
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Comparison Of Cash Flow Statement
Furthermore, the comparison of financial analysis of Barclays and HSBC would also focus on analysis of cash flow statement. The cash flow statement states cash inflows and outflows of cash. Therefore, the cash flow statement would help in analysing both banks’ financial activities comprising operating, investing and financing.(Barclays, 2021)
Net Cash From Operating Cash Flow
Net cash flow from operating activities would reflect the cash that is remaining in terms of cash receipts and cash payments as the result of purchasing or selling trading assets and loans that are held (Valaskovaet al. 2018).
Based on the net cash from operating activities in case of both banks Barclays and HSBC Holdings, it could be seen that Barclays had spent more money than making during 2019 as the net cash from operating activities were negative in 2019. However, in 2020, Barclays had significantly higher margin of cash receipts compared to cash payments, which has increased the net operating cash flow to be positive (Sobolevaet al. 2018). On the other hand, compared to Barclays, in case of HSBC Holdings Plc there can be seen consistency in growth of net cash from operating activities. This is simply because; for HSBC, net cash from operating activities has increased from £21734.02 Million to £133153.11 Million in 2020. Therefore, it can be said that compared to Barclays, HSBC’s net cash flow from operating activities is significantly higher indicating towards effective operating cash flow and operational efficiency in cash receipts.
Net Cash From Investing Activities
Furthermore, Net cash flow from operating activities would reflect the cash that is generated or spent in relation to investment activities of the bank. Therefore, higher or positive net investing cash flows would denote sound investment decision making credibility of bank to earn investment efficiency and more cash by making rational investment decisions (Pambudiet al. 2021).
In context to the net cash from investing activities for both of the banks, it has been observed that both Barclays and HSBC Bank has negative valuation for net cash from investing activities during 2019 and 2020 consecutive years. Therefore, this negative cash flow from investing activities are indicating towards the poor financial performance of the banks as both of the banks are unable to generate cash or income from their investing activities (Yang, 2019). This is clearly reflecting poor financial decision-making of the banks regarding investments in different sectors, which in long-run might negatively affect the operational efficiency, profitability and liquidity as well. Moreover, negative cash flow from investing activities in case of both Barclays and HSBC might emerge because of significant cash amount being invested in long-term health of the banks. (hsbc.com, 2021)
Net Cash From Financing Activities
On the other hand, net cash from financing activities under the financial analysis of cash flow statement would show net cash flow that are being used for funding the banks as financing activities would involve transactions related to equity, debt and dividends.
Based on the presented graphical representation in above, it is viewed that Barclays Plc has performed efficiently in terms of generating cash from financing activities during 2019-2020. Barclays’ net cash from investing activities has further increased in 2020 (Chizmaret al. 2020). On the other hand, it can be seen that for HSBC Holdings, the net cash from financing activities have decreased and having negative valuation indicating towards more cash payments in terms of financing activities than generating from it. Thus, in context to generating cash from financing activities, Barclays has outperformed HSBC Holdings Plc.
In correspondence with the above discussion and critical evaluation it can be said that the goal of the financial analysis has been to assess whether the banks are stable, liquid alongside solvent and profitable enough for securing monetary investment or not. Moreover, by comparing as well as assessing the financial performance of both Barclays and HSBC, it has been viewed that in all aspects of liquidity, profitability and solvency, HSBC Holdings Plc has stability than Barclays Plc. However, in terms of cash flow consistency, HSBC lags in financing activities aspects, whereas, Barclays has outperformed HSBC in that aspect. Thus, to maintain consistency and efficiency in financial performance it is necessary for the banks to increase sales alongside cash flow efficiency by selling more financial assets. To know more about net cash and financial activities take assistance from SourceEssay
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