The Hong Kong and Shangai Banking Corporation is one of the very good banks in world. The Hong Kong and Shangai Banking Corporation Limited is called the world's Bank. This bank for established in the year 1865 for the purpose of financing the growing trade in China and Europe (HSBC, n.d.). In the last many years this company has opened its business in many countries all around the world which shows the quality of the company. HSBC has 8000 offices in 87 countries in Europe, Asia Pacific, America, Middle East and Africa.
Honk Kong and Shangai Banking Corporation, is listed in the stock exchanges of London, Hong Kong, New York Paris and New York. The shares of this company have been taken by various shareholders all around the world. It has 220,000 shareholders in 124 countries which speaks volumes about the goodwill of the company. The organization has lot of global and domestic partners all across the globe. These partners are in the field of Personal and Commercial Banking, global banking and marketing, asset management, Private banking and trusteeship services, securities, finance, property related services and shipping services.
The Honk Kong and Shangai Banking Corporation use very good strategy for the purpose of building up a very good image and market for itself all across the globe. It follows the strategy of intra group linkages in the organization for the purpose of building a very good image for itself. It is has very good network across the world which helps this organization to meet the requirements of its customers all over the world. This organization also uses the method of providing incentives to the employees for the purpose of improving the performance of the employees of the organization.
Employment
Hong Kong and Shangai Banking Corporation provides employment to large variety of population all across the globe. It has its operations throughout the world and in this way it employees the people throughout the globe for the purpose of carrying out its operations. It takes very good care of its employees and tries to ensure that the employees work in the best manner so that the organizational and individual goals and objectives are achieved by the organization. Hong Kong and Shangai Banking Corporation has been recognized as very good employer by various agencies. The kind of environment and the culture this organization has helps its employees to gain lot of benefits.
It follows a very strict procedure for the purpose recruitment of employees in the organization. It tries to ensure that only the best people are employed in the organization. After the employment of the people the organization helps the new recruits to have the best training and development programmes. This thing ensures that the employees perform in the best manner. The employees are given benefits for their better performances which further motivate them to work even better. In this way one can say that HSBC is a very good place for the employees to get into and work.
Marketing Mix
The Marketing Mix of HSBC is the not the same as it is for other banking companies. There are definitely some differences between Marketing Mix of HSBC than that of the other banking company (Chatton & Gill, 2000). The marketing mix include four things i.e. product, price, place and promotion. The products that HSBC provides are different from the other banking companies. It has developed various exciting products for its customers. The price that HSBC charges from its customers is relatively cheaper and matches the quality of product it provides. It has very good network around 87 countries which helps the organization to be able to provide the products to its customers. The promotion of the products of HSBC is done by television, websites, newspaper, magazines and mouth publicity.
Business Environment
The business environment in which HSBC works is mainly the same environment as of the other banks. It faces severe competition with the other organizations in the industry. With the kind of efforts HSBC puts in its operations, it has been able to ensure that it beats the competition. The fiscal and monetary policy of the government for the purpose of tackling the inflation and deflation also effect the organization because it is required to make certain changes in its interest rates. The organization builds up strategies to deal with all the factors which affect its business.
Comparison with Competitors
The major competitors of HSBC are Barclays PLC, Citigroup Inc and Royal Bank of Scotland Group PLC. The table below shows the comparison between HSBC and its competitors for the current financial year. The comparison will include the market capitalisation, Revenue, earning per share and Net Income for the current year. The table below shows that HSBC has done better than its competitors in the case below mentioned four categories.
Particulars
HSBC
Barclays
Citigroup
Royal Bank of Scotland
Market Capitalization
177.87Billion
47.40Billion
119.40Billion
74.94Billion
Revenue
46.90Billion
35.86Billion
51.54Billion
32.50Billion
Earnings Per Share
2.57
5.15
0.05
-0.44
Net Income
8.98Billion
5.18Billion
1.46Billion
-5.48Billion
Presentation of Financial Results
The presentation of the financial results of the Hong Kong and Shangai Banking Corporation is done with the help of comparison of the results of the organization for the last 5 years. It shall include profitability ratios, liquidity ratios, management efficiency ratios and investment ratios. The profitability ratios include gross profit margin, net profit margin, return on capital employed and return on investment. The liquidity of the company shall be determined by calculating the current ratio and quick ratio for the last 5 years. Efficiency of the management shall be determined by calculating the inventory days, accounts receivables days and accounts payable days. Investment analysis shall be done by calculating the long term gearing ratio, net gearing ratio and interest cover ratio.
Profitability Ratios
The profitability ratios are used for the purpose of determining the profitability of the organization. First Profitability ratio is Gross profit margin. The chart below shows the gross profit margin of Hong Kong and Shangai Banking Corporation for the last 5 years. On the basis of the table given below it can be said that the organization has not incurred any direct expenses. In this way the gross profit is equal to the revenue generated by the corporation. This is a very good sign and it means that the organization is doing very well in the industry and it is expected to perform in the same manner in the future also.
Net Profit Margin
Net Profit Margin is the relationship between net profit of the organization and the sales of the organization. In the present case the revenue shall be taken in the case of sales as it is a bank. The chart below shows the net profit of the Hong Kong and Shangai Banking Corporation for the last 5 years. The chart given below shows that in the year 2005 the net profit margin of HSBC was 25% which increased for the next two years to 31% in the year 2007 but then in the year 2008 and 2009 it fell sharply to 11% and 14% respectively. The reason for the fall in the net profit margin was the increase in the expenses related to merger and restructuring expenses and expenses related to impairment of goodwill.
Return on Capital Employed
The return on capital employed is used for the purpose of determining the return that the organization is getting from the capital employed by it. The chart below shows the return on capital employed by the organization for the last 5 years. The return on capital employed of the organization is declining since the year 2007. The reason for this is the reduction in the net profit of the organization due to the increase in the expenses of the organization. The expenses were very less in the year 2007 in comparison to the expenses in the years 2008 and 2009. In the year 2007 return on capital employed was 13.82% and in the year 2009, return on capital employed is 4.54%.
Return on Investment
Return on Investment is used for the purpose of determining the return that the organization is able to get on its investments. The chart below shows the return on investment. The Chart shows that the return on investment of the organization is declining in the last five years. The reason for the decline in the Return on investment is the reduction in the profit and the increase in the interest expenses of the organization. In the year 2007 the return on investment was the highest because of the fact that interest expenses were less than the other years.
Liquidity Analysis
The liquidity analysis is done for the purpose of determining the ability of the firm to pay off its short term debt obligations. The liquidity analysis shall include current ratio and quick ratio. Both these ratios help a lot in determining the liquidity of the organization and the relationship between the current assets and current liabilities of the organization. First ratio that shall be calculated shall be current ratio (Herfert, 2001).The chart below shows the current ratio of the organization for the last 5 years. The ideal current ratio is 2:1. If the current ratio goes beyond that then this means that the organization is performing above average, on the other hand if the current ratio is below the mark of 2:1 then this means that the organization does not have sufficient funds to pay off its current liabilities. The chart below shows that the current ratio of HSBC is not up to the mark in any of the 5 financial years. The reason behind the low current ratio is that there is an increase in the number of creditors and bills payable of the organization and the debtors have got reduced. This shows that HSBC does not have enough funds to meet its short term obligations.
Quick Ratio
Quick ratio or acid test ratio is another ratio which is used for the purpose of testing the liquidity of the organization. It is used for the purpose of determining the ability to pay the assets which are extra liquid. Because of this reason it excludes stock while calculating the quick ratio. Ideal quick ratio is 1:1. This means that the organization is required to achieve this ratio at any cost and if it does not then the position of liquidity of the organization is deemed to be below the satisfactory level. The chart below shows that Quick Ratio of the organization for the last 5 years. HSBC does not have any stock so in this way the Quick Ratio is the same as the Current Ratio. In all the five years the quick ratio of the organization is less than the ideal level of 1:1. But still the performance is not as bad as the current ratio. The increase in the amount of creditors and the reduction in the number of debtors is the main reason of low Quick Ratio is HSBC.
Management Efficiency Ratios
The management efficiency ratios are the ratios which are used for the purpose of determining the efficiency of the management of the organization. The chart showing the average collection period of the HSBC is given below. The average collection period of HSBC was the lowest in the year 2005 at around 3 days but then it increased gradually to 26 days in the year 2009. The reason behind this is the increase in the receivables of the bank. When the receivables increase then, the average collection period tend to increase because the average collection period is based on receivables of the organization. HSBC has to take steps to make the collection procedure stricter so that the average collection period could be reduced by a considerable margin.
Investment Ratios
Last of the ratios to discuss about the financial performance of the organization HSBC are the Investment Ratios. These ratios help to understand and recognize the fact that whether the organization has been able to make the investment properly or not. The investment ratios include various kinds of ratios. It includes long term gearing ratio, net gearing ratio and interest cover. The chart provided below shows the long term gearing ratio of HSBC for the last five years. The long term interest bearing ratio of HSBC has shown inconsistency in the last 5 years.
In few years it is very high in comparison to the other years. The reason for this kind of inconsistency is change in the long term debt capital and the equity capital of the organization. If the long term debt and equity capital were the same for all the 5 years then there would not have been so many fluctuations in the Long term interest gearing ratio. To avoid such fluctuations HSBC need to keep the debt and equity static. If HSBC desires to increase this ratio then it is required to increase the level of long term interest bearing debt.
Results of the Analysis
The above include various ratios for the purpose of determining the financial health of the organization HSBC. It included few of the liquidity ratios, profitability ratios, management efficiency ratios and the investment ratio. As regards to the profitability ratios it can be said that HSBC has done pretty well on account of the gross profit ratio as it has not been required to be any directed expenses. In this way the gross profit of the organization is the same as the revenue of the organization. The net profit of the organization has not increased a lot as it should have been. This is due to the fact that indirect expenses have increased and revenue of the organization has not been able to increase in the same manner as the indirect expenses. Hence, the net profit of HSBC has reduced considerable. In the first few year it showed an upward trend due to the reason the indirect expenses were less but afterwards the things changed and net profit went down.
With regard to the liquidity ratio, both the current ratio and the quick ratio of the organization are below the level of ideal ratio which is 2:1 and 1:1 respectively. The reason is that the organization has lot of current liabilities in its balance sheet and the current assets are not there to match the current liabilities of the organization. With regard to the management efficiency ratio, the average collection period of HSBC has increased over the last 5 years. The reason behind this is that there has been a steady increase in the bills receivables of the organization. The system of recovery of HSBC is also not good enough and has gone down in the last 5 years. This is also a reason of the increase in average collection period of HSBC. Though the average collection period is still under the limit and reasonable but HSBC should try to bring it back to the level it was few years ago. The investment ratio shows that HSBC has made its investments very well in the last five years. The organization has been able to get very good returns on the investments made by it and is expected to continue to perform in the same manner in the future also.
Recommendations and Conclusion
There can be various recommendations for HSBC for the purpose improving its financial performance. The bank is required to increase the level of assets so that the current ratio may improve and the organization may have sufficient amount of assets for the purpose of paying of its short term liabilities. Another thing that it is required to do is the reduction in the indirect expenses of the organization. If the indirect expenses will reduce then, the net profit of HSBC will definitely take an upward turn. HSBC is required to improve the debt collection system in the organization. This will enable it to ensure that the average collection period is reduced and it is able to get the payment of debts in time. The recommendation with regard to the investment ratios of HSBC is that the organization needs to be more alert in making the investment.
Though in the last 5 years it has been able to make very good investments and has got good returns also but still if it has continue in the same manner then it has to take care of lot of things. The organization or the financial instrument in which HSBC is investing its money should be able to provide it optimum return. It should analyse all the investment options and then decide about making an investment. If this policy will be adopted then the investments will be better for HSBC. The financial health of HSBC is satisfactory but it needs to develop new strategies and come out with new plans if it desires to improve its financial health(Bragg, 2006).The above mentioned analysis will definitely have an impact on the following year's budget. HSBC needs to take all the above mentioned recommendations under consideration before moving forward with the preparation of the budget. The investors are recommended that they should move forward to invest in this organization in spite of the competitors as it is performing better than its competitors.
Conclusion
The paper discussed about HSBC, it is one of the good Banks in the world and has its branches all across the globe. Though the organization is earning profits but there has not been any increase in the profits of the organization. When one compares its performance with its competitors then the results are positive. Internally it may be reducing but comparison with the competitors shows good signs. It has to focus on all the aspects of its financial management and try to emulate the recommendations as much as possible. To conclude it can be said HSBC is earning profits at the current time but the profits and the ratios are decreasing so some steps are required to be taken.
References
HSBC. (n.d.). Retrieved November 28, 2010 from
http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=HBC:US&dataset=balanceSheet&period=A¤cy=native
Chatton, M. & Gill, O.J. (2000).Financial Analysis: The Next Step. (2nd Ed.).Crisp Publications.
Herfert, A.E. (2001).Financial Analysis: Tools and Techniques: A Guide for Managers. McGraw-Hill Professional.
Bragg, M.S. (2006).Financial Analysis: A Controller's Guide. (2nd Ed.).John Wiley and Sons.
HSBC.(n.d.). Retrieved November 28, 2010 from http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=HBC:US&dataset=incomeStatement&period=A¤cy=native
About HSBC.(n.d.). Retrieved November 28, 2010 from http://www.hsbc.com/1/2/about
Group History.(n.d.). Retrieved November 28, 2010 from http://www.hsbc.com/1/2/about/history
