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Introduction Australia’s banks play an important role in the economy, which provide a wide range of financial services to individuals and businesses. As the third largest contributor to the nation’s Gross Domestic Product, banks are important to the Australian economy. And banks have applied improved workplace polices as one of the major employers in Australia. There are four major banks in Australia, which are Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac Bank (WBC), and ANZ Bank. Three banks of the four would be chosen except ANZ. For each bank, every half year accounts in last 6 years would be collected and analyzed, as well as forecasting in the public domain of the bank’s earnings with the share price movements. The earnings of the CBA are affected by various factors. The following chart illustrates making ups of every half year net profit. The constraint is total income minus total expenses. For a bank, the total income could be consisted of banking income, funds income, insurance income, earning or loss of investment experience (business acquisition). The total expense could be operating expense, bad debts, impairment expense, tax expense, and shareholder investment returns. The result of all these factors could be the final earnings of the firm. The research objective could be finding out firm’s earnings influence share price movements. An appropriate multivariate technique should be chosen and applied. According to The McGraw-Hill Companies 2008, multivariate techniques consist of dependency techniques and interdependency techniques. If the variables are interrelated without designating some dependent and others independent, then there could assume interdependence of the variable. From the variables mentioned before, I access the data sets are independent. Then, under measurement scale, the data seems have equal intervals, and preliminary findings that show a linear relationship between several variables, dollars are measured on a ratio scale, which lead the data are metric. Chart 1 Note1: The assumptions of r, based on correlation analysis, r symbolized the coefficient’s estimate of linear association based on sampling data. And r could represent positive relationship 0 >r < 1 Table 1 CBA 30/06/09 31/12/08 30/06/08 31/12/07 30/06/07 31/12/06 30/06/06 31/12/05 30/06/05 31/12/04 30/06/04 31/12/03 Share price Y $39.22 $28.9 $40.17 $59.1 $54.44 $49.3 $43.29 $42.81 $37.55 $32.03 $32.58 $29.45 Number of shares (M) 1,518 1,326 1,300 1,283 1,280 1,264 Earnings per share ① $ X 1.42 1.69 1.83 1.79 1.75 1.69 1.50 1.56 1.67 1.45 1.05 0.99 Net profit after tax $ (M) 2,150 2,573 2,420 2,371 2,279 2,191 1,929 1,999 2,132 1,859 1,322 1,250 ① In order to find out correlation coefficient of firm’s earnings and share prices, the number of shares should be found out and being divided by total earnings for each year to get each share’s earning. In my opinion, this is necessary for the unit of two variables should be consistent. Earnings per share= Net profit after tax/Number of shares Table 2 Y Share Price $ X Earning/share $ XY X2 Y2 30/06/09 $39.22 1.42 55.6924 2.0164 1538.2084 31/12/08 $28.9 1.69 48.841 2.8561 835.21 30/06/08 $40.17 1.83 73.5111 3.3489 1613.6289 31/12/07 $59.1 1.79 105.789 3.2041 3492.81 30/06/07 $54.44 1.75 95.27 3.0625 2963.7136 31/12/06 $49.3 1.69 83.317 2.8561 2430.49 30/06/06 $43.29 1.50 64.935 2.25 1874.0241 31/12/05 $42.81 1.56 66.7836 2.4336 1832.6961 30/06/05 $37.55 1.67 62.7085 2.7889 1410.0025 31/12/04 $32.03 1.45 46.4435 2.1025 1025.9209 30/06/04 $32.58 1.05 34.209 1.1025 1061.4564 31/12/03 $29.45 0.99 29.1555 0.9801 867.3025 Sum up 488.84 18.39 766.8481 29.0017 20941.7109 The assumptions of r Like other parametric techniques, correlation analysis makes certain assumptions about the data. Many of these assumptions are necessary to test hypotheses about the coefficient. The formula for calculating r is: = 767/29*20941=0.98 Note2: There could be a requirement for calculating and testing r, in order to access the significance of r. From this calculation, earnings and share prices are positively related and have a very high coefficient. As earnings increase, share price increase; the opposite is also true. After confirming the positive relationship between the two variables with the correlation coefficient symbol r, I decide to choose method of least squares to model the relationship between two continuous variables, in order to forecast future movements. The prediction of Y from X must now account for the fact that the X and Y pairs do not fall neatly along a line. Actually, the relationship could be summarized by several lines. That is why I choose the model least squares. The regression might be expressed as (n=10) =(766.8481-18.39*488.84/10)/(29.0017-29.0017/10)=5.062 =37.45478 Y=37.45478+5.062X Factors affect share price The relationship between share price (X) and earnings (Y) has been described in an equation. However, share price cannot be easily calculated with merely knowing the earnings of the company. Obviously, share price of CBA is correlated to the company performance. Investors try to find the relationship between share value and financial information which provided in CBA’s annual reports. CBA’s performance, micro factor, can be a significant factor to share price movement. The corporate performance of CBA could be management, technical development, competition power in banking sector, financial situation. CBA invested in ABC Learning Centre in 2008. These might lead to a decrease of share price of CBA, because the joint venture decision making could be a significant factor of share price movement. Table 3 WBC 30/06/09 31/12/08 30/06/08 31/12/07 30/06/07 31/12/06 30/06/06 31/12/05 30/06/05 31/12/04 30/06/04 31/12/03 Share price $20.25 $16.97 $20.38 $27.92 $25.17 $24.29 $22.45 $23 $19.7 $19.37 $17.6 $15.99 Number of shares (M) 2,941 1,908 1,881 1,858 1,898 1,819 Earnings per share $ X 0.65 0.52 0.99 1.03 0.89 0.94 0.87 0.78 0.66 0.76 0.66 0.74 Net profit after tax $ M 1,905 1,541 1,897 1,962 1,676 1,775 1,619 1,452 1,256 1,442 1,198 1,341 From above calculations and assumptions about CBA, r explained the relationship between share price and earnings. I assume r of WBC is also significant, and the method of least squares model in use again. Table 4 Y Share Price $ X Earning/share $ XY X2 Y2 30/06/09 $20.25 0.65 13.1625 0.4225 410.0625 31/12/08 $16.97 0.52 8.8244 0.2704 287.9809 30/06/08 $20.38 0.99 20.1861 0.9801 415.3444 31/12/07 $27.92 1.03 28.7576 1.0609 779.5264 30/06/07 $25.17 0.89 22.4013 0.7921 633.5289 31/12/06 $24.29 0.94 22.8326 0.8836 590.0041 30/06/06 $22.45 0.87 19.5315 0.7569 504.0025 31/12/05 $23 0.78 17.94 0.6084 529 30/06/05 $19.7 0.66 13.002 0.4356 388.09 31/12/04 $19.37 0.76 14.7212 0.5776 375.1969 30/06/04 $17.6 0.66 11.616 0.4356 309.76 31/12/03 $15.99 0.74 11.8326 0.5476 255.6801 Sum up 253.09 9.49 204.8078 7.7713 5478.1767 (n=10) =(204.8078-9.49*253.09/10)/(7.7713-7.7713/10)=5.057 =20.25-5.057*0.65=16.96 Y=16.96+5.057X Factors affect share price in WBC Increase of written of bad debt shrinking value of company assets, and difficult mortgage payment. In 2008, WBC had survived in worldwide assets impairment, which made the share price stable. Table 5 NAB 30/06/09 31/12/08 30/06/08 31/12/07 30/06/07 31/12/06 30/06/06 31/12/05 30/06/05 31/12/04 30/06/04 31/12/03 Share price $22.44 $20.87 $27.03 $37.79 $40.15 $40.5 $34.39 $32.5 $30.7 $28.76 $29.84 $29.95 Number of shares (M) 2,941 1,908 1,881 1,858 1,898 1,819 Earnings per share $ X 0.42 0.46 1.1 1.27 1.54 1.43 1.33 1.44 1.24 1.26 1.00 0.95 Net profit after tax $ M 1,235 1,354 2,108 2,427 2,890 2,682 2,467 2,674 2,355 2,387 1,820 1,731 From above calculations and assumptions about CBA and WBC, r explained the relationship between share price and earnings. I assume r of NAB is also significant, and the method of least squares model in use again. Table 6 Y Share Price $ X Earning/share $ XY X2 Y2 30/06/09 $22.44 0.42 9.4248 0.1764 503.5536 31/12/08 $20.87 0.46 9.6002 0.2116 435.5569 30/06/08 $27.03 1.1 29.733 1.21 730.209 31/12/07 $37.79 1.27 47.9933 1.6129 1428.0851 30/06/07 $40.15 1.54 61.831 2.3716 1612.0225 31/12/06 $40.5 1.43 62.37 2.0449 1640.25 30/06/06 $34.39 1.33 45.7387 1.7689 1182.6721 31/12/05 $32.5 1.44 46.8 2.0736 1056.25 30/06/05 $30.7 1.24 38.068 1.5376 942.49 31/12/04 $28.76 1.26 36.2376 1.5876 827.1376 30/06/04 $29.84 1.00 29.84 1 890.4256 31/12/03 $29.95 0.95 28.4525 0.9025 897.0025 Sum up 334.42 13.44 446.1891 16.4976 12145.6549 (n=10) =(446.1891-13.44*334.42/10)/(16.4976-16.4976/10)=0.22 =22.44-0.22*0.42=22.35 Y=22.35+0.22X Factors affect NAB’ share price The investment group, Babcock & BrownBNB.AX, perform badly in recent years. And Babcock & BrownBNB.AX borrowed money from NAB, and it is not able to pay back. This could affect NAB’s performance as well as its share price movement. Conclusion The share price can be valued base on the future forecasting dividend, when investors try to find their future dividend reward. However, the future dividend revaluation is based on a strict hypothesis, which is not possible to make accurate calculations for future company profit and performance. So that the share price cannot be computed basing on future dividend forecasting. The share price actually affected by macro factors, which including macro economic changes, political factor, law changes, and culture. Reference Commonwealth Bank Limited, annual report, 2004-2009, Commonwealth Group Westpac Bank Limited, annual report, 20042009, Westpac Group National Australia Bank, annual report, 2004-2009, National Australia Bank Group Cooper, D & Schindler, P, Business Research Methods, McGraw-Hill Education (UK) Limited, 2nd European edition, Part 4, Chapter 15-19,

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