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HSBC Bank Balance Sheet Analysis

Introduction

Financial accounts have different users; each user has specific needs they require from the accounts. Financial account users can be defined into two main segments internal and external users; internal users interpolate, analyze, and make inferences from accounting information to make informed decisions. Some of the financial accounts statement that are mandatory to be made at the end of an accounting period by International Accounting Standards are consolidated balance sheet the consolidated income statement, consolidated cash flow statement and consolidated statement of changes in equity. Each of the above documents communicates some financial information about the company (Anthony, Hawkins and Merchant 23-56). This paper takes an analysis of HSBC Bank Balance sheets; it will compare the balances in different balance sheet products for the period of 2010 and 2009.

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HSBC Bank Balance sheets

HSBC Bank is among the largest banks in the United States, it offers banking and insurance brokerage services. The company has features for corporate and individual banking services, which ranges from collection of funds and offering loans. Although business was negatively affected by global financial crisis, the company continues to be profitable. The accounting period for the bank ends on 31st December of every year, accounts are made in accordance to international financial reporting standards where they are checked by qualified external auditors currently KPMG. The external auditors work independently but consult internal audit structures and policies when making their final report. As required by accounting profession, management and the company’s directors are held liable of the accounts that they are true and fair, the work of auditors is to give their opinion based on the records examined( HSBC Bank Official Website).

The balance sheet

A balance is a financial instrument that is prepared showing the assets, liabilities, owners’ equity; the statement offers an in-depth analysis of what the company owns and owes at a particular point as well as the amount that shareholders have invested in the business. the statement is called a balance sheet because the two sides of the balance sheet should be equal: the general formulae for a balance sheet are as follows:

Assets = Liabilities + Shareholders’ Equity

HSBC Bank Balance sheets Analysis

Current assets

In the accounting period ended 31st December 2010, cash and cash equivalents in the company were $669,763,000, the amount was $10, 483 lower than the amount recorded in 2009 of 69,280,000. although the cash and cash equivalents in the company reduced, the difference is minimal to cause any alarm. Both in year 2009 and 2010, the bank had no short term investments.

In the accounting period ended 31st December 2010, Net receivables were $7,168,000 which was $2,164,000 lower than the amount receivable in 2009 of $9,332,000. The difference is significant and can be an indication that the company has a robust debt collection from its customers. The difference may be explained by low business in 2010 than the rate experienced in 2009.

In both 2009 and 2010, the bank held no inventories (this can be justified by its nature of business being service industry) and neither did it have any other current assets.

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Fixed assets

In the accounting period ended 31st December 2010 long-term investments in the company rose by $71,461,000 to $2,022,128,000. In 2009 the amount was 1,950,667,000. The increase in long-term investment is an indication that the company is performing better in line of investing its funds probably with the aim of getting future returns.

In the accounting period ended 31st December 2010, the book value for properties plants and equipment were 11,521,000 which was 2,280,000 lower than the book value recorded in 2009. The recorded figure can be explained by either the effect of depreciation and amortization charge that the company has. On the other hand, it can be explained that the company disposed some of its assets and failed to buy additional properties plants and equipments.

In the accounting period ended 31st December 2010 the bank recorded an intangible assets figure of $29,922,000 which was lower than the amount recorded in 2009 of 29,994,000. The difference is minimal but it can be shedding some alarming signal to user of the account. This is because intangible assets represent things like the reputation and customer loyalty that the company can command.

In the accounting period ended 31st December 2010 the company deferred long-term asset charges and other assets amounted to $7,011,000 and 92,228,000 respectively which was lower than the amounts recorded in 2009 of $8,620,000 and 94,138,000 respectively. The differences are minimal to cause an alarm.

In the accounting period ended 31st December 2010 the company current Liabilities were divided into accounts payable and other current liabilities; the amounts were 222,373,000 and 1,338,309,000 respectively. The amounts recorded in 2010 were higher than those in 2009 which were $21,064.000 and 1,283,906,000. The increase in current liabilities in the company at a time when the current assets figure are reducing is an indication that the company is not operating an effective working capital management structure.

Long term debts in the company for 2009 were 515,776,000, the figure increased in 2010 to $559,368,000 the increase is an indication that the company has borrowed further in 2010. The reason for borrowing can vary from the fact that the company was investing further; the same can be supported by increase in long-term investments.

Other liabilities in 2010 reduced to 199,843,000 from 228,834,000, the reduction in the amount is an indication that the company is working towards clearing its debts with; this can be taken as a strategic move by the management to create room for more funding which follows investments.

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Minority interest in 2010 has $7,248,000 while in 2009, the amount was 7,362,000; the difference is not significant thus can cause no alarm.

Common stock and Capital surplus for 2010 changed marginally from amounts of 8,705,000 and 8,413,000 recorded in 2009 to 8,843,000 and 8,454,000; the above is an indication that the bank retained the same policy of Common stock and Capital surplus. Retained earnings and Other Stockholders equity increased in 2010 to 97,350,000 and 33,030,000 respectively from the amounts recorded in 2009 of 86,812,000 and 24,369,000 respectively. The sharp difference in the amounts is an indication that the company is concerned with the future as it has some earnings for future expansions (HSBC Bank Official Website).

Evaluate the balance sheets and overall performance of the organization

From the analysis of the balance sheet, it has been found that there are no major changes in the bank; the bank seems to have concentrated on maintaining the same level of business other than in areas like long-term investments. The increase in long-term invests is an indication that the bank operates its business as a going on concern. If one was to invest in the bank, it would be advisable to hold shares as the future is likely to offer high returns; the company’s shares cannot be good for speculative purposes (Carter 67). With the same futuristic mind, the management has had increased retained earnings. In most incidences retained earnings are used to make future investments or to make an organization has the funds to take opportunities when they arise. The reason again is an indication that the management are focusing on the future to make the company more profitable as changes in the banking sector take effect. One area that seems not to be operated effectively is how the company manages its working capital, it has been noted that in 2009, current liabilities were higher than those recorded in 2009 despite the fact that in 2010 current assets in the company reduced. With the trend, it means that the current ration, quick ratio, and gearing ratio for the company increased. There might have the like hood that the company will not be able to comfortably fulfill its financial obligations when they fall due. If the likelihood occurs, the bank will suffer operating issue/difficulties.

Finally, give your opinion about the performance of the company and give some recommendations how to improve the performance of the company.

The future for the company seems promising; the management is keen on how the future will be and looks into the areas that the company gains from banking and other investments operations. The bank seems to be taking things slowly and the rate at which its risking in different places is cautiously. The reason behind the operation might be to look into how the world is fairing from the recession of global financial crisis of 2008 (Weygand, Kimmel and Kieso 89).

Credit sales/purchases are almost inevitable at HSBC Bank; the management must monitor and ensure effective operation of debtors and creditors. In case of creditors, the company management accountant has the mandate of ensuring that creditors are paid according to the credit agreement; payments should be made at the right time as the agreement with creditors. With good relations, the company supply chain management is facilitated in the case of debtors, the duration that they should keep the companies money should be stipulated by management accountants. Debtors are current assets which the business need to manage; well managed debtor management system assists a company gets funds it requires for short term obligations (Barry and Jermakowicz ,2010).

Recommendations to the bank that can assist in managing working capital

HSBC Bank should take advantage of available different sources of capital; sources of capital can generally divide into borrowed capital and owner’s capital. HSBC Bank financial management should ensure that they use the best choice of the financing method; at HSBC Bank the choice should ensure effectiveness is maintained. Management accountants should be given the mandate of analyzing the available options of financing which include issuance of more share capital, taking a bank loan or selling some of its properties (Langfield-Smith and Hilton 56-90). Other than maintaining a robust management accounting system, HSBC Bank should not ignore the need for knowledge management and business information tools as an addition of existing management accounting tools. When this information is made available in the company, it will assist in making better and timely decisions. The quality and timeliness of a decision determines the competitive of a company. For instance with training and consultancy business, the company may extend to other areas like human resources recruiting and outsourcing. When the company maintains a pool of information on the market trends, it will be able to make decisions that are timely regarding the packages that it will attain. When a company maintains a rich knowledge and nurtures its intellectual assets, it gets a chance to orient and train new staffs more effectively (Anthony, Hawkins and Merchant, 1999).

To improve operations in the company, HSBC Bank management should adopt effective internal control policies. Although HSBC Bank’s has an automated internal control system, the management can enhance the operation of its internal control system further; internal controls are check and balances in an organization aimed at maintaining integrity in the company’s process. Internal control system ensures that funds are put in the most optimal manner that there will be no excess or deficit; cash flows are managed for the good of the organization and there is better fund management. HSBC Bank’s budgetary committee or accountants are responsible of maintaining good working internal control; it is from the operation of internal control that external auditor in compiling their report.

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When enacting an effective internal control operation, the company should start by understanding the current operation level and aim at improving the processes further. The organization’s external environment should be taken into account as it has an impact on whether the company’s policies will be effective or not (Horngren 90).

Works Cited

Anthony, Robert., Hawkins David and Merchant Kenneth. Accounting: text and cases. Boston: McGraw Hill. 1999. Print.

Barry, Jay. and Jermakowicz Eva. Wiley IFRS 2010: Interpretation and Application of International Financial Reporting Standards. New York: John Wiley and Sons, 2010. Print.

Carter, Ken. Cost Accounting. New Jersey: Cengage Learning, 2005. Print.

Horngren, Charles. Accounting Edition 7e. New Jersey Prentice Hall, 2007. Print.

HSBC Bank Official Website. HSBC Bank investors, 2011. Web.

Langfield-Smith, Thorne, and Hilton Robert. Management accounting: information for creating and managing value. Sydney: McGraw Hill, 2009.

Weygand, Jerry, Kimmel Paul. and Kieso Donald. Financial Accounting: IFRS, 1st edition. Illinois: Northern Illinois University, 2010. Print.

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