Annual Report

Chapter 1: Introduction

For our first year of Bachelor in Accounting we were assigned to make a report for the course Project 3. This report was assigned by Mr. Ganpat. This report is based on the reader "Annual Report" by Hock and Baldwin.

The company we chose is Banco Santander, due to the fact it is a big international bank, with offices in South America, North America and Europe. Banco Santander is known for the use of a vibrant red colorin their logo's annual reports etc.

During the lessons of Accounting we, students of the study Accountancy, have been learning how to prepare balance sheets, income statements, statement of cash flows and statement of changes in owner's equity. And at this point in time we will also have to be able to analyze this information for different companies.

So in the course Project 3, we will have to show that we are able to analyze this information, by making the assignments that are given and by processing the information in a report.

At the end of this project we should be at a certain level that we can understand the financial statement, know how to read them and be able to apply the stuff we learned to the course Accounting.

Goal

The goal of our project is to apply everything that we have learned during the lessons of accounting and project 3, to analyze the financial information of one business that we had to choose. In this case, we chose Banco Santander, a Spanish bank, to analyze his information. Analyzing his information, we will deduct if this bank belongs to a small company or a large company. We will also learn how to analyze the financial statements

Methodology

When doing a research you need some methodology to do the research. We started reading the assignments and then we divided the work together, to see who is starting with which assignment. After dividing the work, we used the internet to see where we will find the needed information. We have found a lot of sites with a lot of information, but we used the most confidential sites to analyze the information that we need. We used the annual reports of 2006, 2007 and 2008 to make our report of.

After making all the assignments we started we the final report, by processing the information that we found.

Chapter 2: Non-financial and financial information

Analyzing a business position in the financial world, the financial information is important but also the non-financial information. It's important to know who is responsible for the company and what their background is. That's why we had to find out who belongs to the board of director.

Non-financial information

The name of our company is Banco Santander. It's a Spanish bank, with different locations on the world and its industry is the financial industry. The financial industry, such as other industries, also knows competition in his sector. The banks, that we consider competitors for Banco Santander are BBV (Banco Bilbao Vizcaya Argentaria, S.A.), Citygroup, Inc.

Reasons for choosing this company

We had different reasons to choose this company. When we have been thinking about which company to choose, we decided to choose a different company from those our co-students have chosen. So before we chose this Spanish bank, we thought about a lot of other companies, but none of them appeared on the stock market. Then we thought to choose a bank, because no one in the class had chosen a bank, but still we didn't know which bank to choose. And while we have been searching, we discovered that Banco Santander is one of the largest banks on the stock market and with a lot of information on the internet. And the greatest reasons why we decided to choose this bank, is because we found out that it have not been affected that much by the economic world crisis. Even, in different articles, authors titled their reports by saying: "A Spanish bank emerged as a winner in the global crisis."

So we thought, it would be a good idea to make our report of the Banco Santander.

Company's facts

The complete name of the firm is Banco Santander and its stock ticker symbol is SANT. The place where the stock exchanges where traded is Euronext, NYSE.

Primary and secondary SIC is 6141 (Personal Credit Institutions).

The state of incorporation of Banco Santander is Santander, Spain and the year of incorporation is 1857. The independent auditor of the firm is Deloitte and Touche LLP. The company's fiscal year-end is December, 31. And all this information is available on the web site www.santander.com .

Logically every firm has its products and their customer for each of their products. And so does Banco Santander. Some of the products they offer with their respectively customer are, mortgage, insurance and loans for individual costumer, asset management and treasury management for corporations companies.

When talking about companies on the stock market it's always good to know if the company belongs to a small company or a large company. So we looked for some important information of our firm to determine if it belongs to a small or large company. Using the annual report of 2008, we obtained the following information:

Based on the numbers listed above, the company would be classified as a large company, because as stated the by the NAICS (North American Industry Classification System) a commercial bank is classified as small when it has 175 million or less in assets, Banco Santander has a bigger amount in assets then the standard for small business. Looking at the other data we may also conclude that Banco Santander is large company due to the fact they have a large number of employees, they have a large number of shares outstanding and a fairly big net income.

Like each company, Banco Santander has also its Board of Director. We searched for the general information of this board of director and we found the following information. The total number of individuals serving on the Board of Directors is 19, consisting by 17 males and 2 females. The composition of the Board of Directors by ethnic group is that 17 members of the Board of Director are Hispanic, 1 is French and 1 is from the UK.

All the 19 members of the board of director have different relationship with company. In the Board of Director of Banco Santander, 9 of the members are independent in the company and the other 10 members are insiders.

Describing the average age of the Board of Director, we can say that it is relatively old, namely 66. At the average age of the Board of Director, we can see that the members are experienced people and we concluded that to be a member of a Board of Director, you should have some experiences.

Analyzing, the general information of the Board of Director, we concluded that the Board of Director is not diversified. Firstly, based on the gender of the members, around 90% of the Board of Director consists of males, so there is no diversity in their gender. Secondly, 90% of the Board of Director consists of Hispanics, and only 1 member is French and 1 is from the UK. So, also in the ethnicity of the members, there is no diversity. But there is diversity in the position of each member within the company. Because, almost 50% are insiders are the rest 50% independent. But, the most information of the Board of Director is not diversified, that is why we concluded that the Board of Director is not diversified.

The name of the Chairman is Mr. Emilio Botn-Sanz de Sautuola y Garca de los Ros and the Chief Executive Officier is Mr. Alfredo Senz Abad. One interesting fact is that the CEO is the Second Vice-Chairman.

Searching for information of Banco Santander, we found a few aspects of the firm that captured our attention. Firstly, Banco Santander is one of the companies that less have been affected by the economic crisis. And when average bank stock prices decreased in 2008 with 38%, Banco Santander's stock prices decreased with only 29%, thus less than average.

The Audit Committee

Banco Santander has an Audit Committee; the Audit Committee is the one responsible for the preparation and content of the financial statements.

Other responsibilities of the Audit Committee are reviewing the systems for the internal monitoring and management of risks, safeguarding the independence and efficacy of the internal audit function, establishing a mechanism where the staff can report if necessary, anonymously, any irregularities, submitting the board proposals of the external auditor, receiving regular information from the external auditor, ensure the independence of the external auditor,

The financial statements that are covered by the audit report are for example the Balance Sheet, Income Statement and Cash Flow Statements.

The ones responsible for assessing that the financial statements are fairly presented, are the external auditors. The external auditor for Banco Santander is Deloitte, S.L., the report is addressed to the Board of Directors of Banco Santander, S.A. Banco Santander received an unqualified opinion from the external auditor.

General Shareholders' Meeting

The Ordinary General Shareholders' Meeting was scheduled to take place at 10:00 a.m. on 18 June 2009, on first call, or at the same time on 19 June, on second call (it is usual for the Meeting to be held on second call). The Meeting will be held at the Palacio de Exposiciones y Congresos, Avenida Del Racing, city of Santander (Spain).

Pursuant to the provisions of the Bylaws, shareholders who hold any number of shares registered in their name in the corresponding book-entry registry five days prior to the day on which the General Meeting is to be held are entitled to attend.

During the meeting 4 members of the board of directors are to be re-elected. The following directors will stand for re-election: Mr. Matas Rodrgues Inciarte (executive director), Mr. Manuel Soto Serrano (independent non-executive Director), Mr. Guillermo de la Dehesa Romero (independent non-executive Director) and Mr. Abel Matutes Juan (independent non-executive Director).

Proposals advanced for action

The total number of proposals that are advanced by management for action are 11. We briefly describe two of them as stated on the company's website:

  1. To approve the annual accounts (balance sheet, profit and loss statement, statements of changes in net assets and cash flows, and notes) and of the corporate management of Banco Santander, S.A. and its consolidated Group, all with respect to the Fiscal Year ended December 31, 2008.
  2. To re-appoint the firm Deloitte, S.L. as Auditor of Accounts for verification of the annual accounts and management report of the Bank and of the consolidated Group for Fiscal Year 2009.

Auditing fees

The amounts invoiced to the Group by the Deloitte global organisation in 2008 covered the following items as stated in the annual report:

  • Audit of annual financial statements, considering the same Group composition (15.9 million euro's in 2008);
  • Audits of the companies that became part of the Group in 2008 (2.3 million euro's),
  • Audit of internal control pursuant to the requirements of the Sarbanes-Oxley Act and of the calculation of regulatory capital (5.9 million euro's in 2008)
  • Other reports required by legal and tax regulations issuing from the national supervisory bodies of the countries where the Group does business, among which especially noteworthy are the semi-annual audits and the reports prepared in compliance with the requirements of the U.S. securities market (4.5 million euro's in 2008).
  • In addition, the amounts invoiced for audits on purchases and other corporate transactions in 2008 totalled 3.8 million euro's.
  • Amounts invoiced for services other than audit which, during the past fiscal year were principally those relating to securitisation processes, tax advice and preparation of financial studies, totalled 5.3 million euros in 2008.

Executive compensation

In the table below we compare our highest paid executive total compensation in thousands of dollars to those of 5 other firms: The Coca-Cola company, Goodyear, Boeing Company, Guess? Inc and Hewlett-Packard Company.

When comparing the compensations of the Highest Paid Executives of the other firms to those of Santander we can conclude that Santanders compensation is lower than 4 of the other firms we are comparing to. The only firm having a lower compensation to their Highest Paid Executive compared to Santander is Guess? Inc, with exception of the year 2007. We can also conclude that in the majority of the firms there was e decrease of the total compensation in 2008.

Financial information

When analyzing an annual report of a firm, beside the non-financial information, you also need the financial information, which is the most important when you are analyzing a firm's financial position. So, we searched the balance sheet, the income statement and the statement of cash flows of Banco Santander of the last 3 years, namely 2008, 2007 and 2006.

Because our firm is a Spanish firm, the financial information that we found was given in euros, so we converted the received data to dollars at a rate of 1euro= $1.4895

Chapter 3: Financial analysis

Statements Highlights

Income statement

Banco Santander used the single-step format to prepare their income statement because on the annual report the gross margin/gross profit doesn't appear.

To find out what the sales revenue is, we had to look at the 'interest income' and the 'commercial revenue'. This is because a bank doesn't sell product, but it gives a service such as, loans, insurance and mortgage. The interest on these services that the customer has to pay is actually their 'revenue'. When you add the commercial revenue with the interest income you get the total revenue, the gross operating income. As stated earlier a bank gives services, so the total revenue is equal to the revenue sales.

Based on the above common size analysis we can see that for both years (2008 and 2007) the operating expenses has the highest percentage relative to the gross operating income. This means a change in the operating expenses will possible have a direct affect on the net income. Net income for 2008 was higher than in 2007, but had a relative lower percentage of gross operating income.

An increase of the net income has to do with the higher operating income and provision for tax. Because even though the operating expenses were higher in 2008 it did not result in a lower net income. This is because the gross operating income increase was relatively higher than the operating expenses increase.

The following 'special items' appeared on the income statement of Banco Santander of 2008:

  • Discontinued operations: the earnings from discontinued operations were 13 million dollar negative. This was because of discontinued customer business. Compared to 2007 this negative earning is a great contrast. In 2007 the earnings from discontinued operations were 167 million dollar positive because of the sale of the pension fund management institutions in Latin America.
  • Cumulative effect of a change in accounting principle: this had a negative effect on the net income. The new accounting principle resulted in a new 'net interest income' margin. Expenses that previously did not were included in the interest expense now are included. Also did there were new items introduces on the balance sheet and others were excluded or are now recognized under another item.

The major items of revenue and expense that are reported and the income statement of Banco Santander are:

  • Net interest (revenue)
  • Operating expenses (expenses)
  • General Administrative expenses (expense)

Balance sheet

Banco Santander uses a comparative balance sheet. Comparative financial statements are required because with this method a person can analyze the activity of Banco Santander, and most important: compare. Numbers on themselves don't say much, but when you can compare them with ones of previous years you can determine if there was an increase or a decrease, with what percentage the amounts change etc.

Investors are most of the time not interested in numbers but in ratios, such as the current ratio and the working capital. A ratio simply shows the relationship between two numbers. These ratios describe how the firm finances their assets. The best way to compare a firm's activity is to translate the numbers in ratios and compare the ratios with each other. To analyze a firm's liquidity investors or creditors of a firms preferable want to know what the current ratio and the working capital is.

Although that Banco Santander used a comparative balance sheet we did manage to calculate the working capital and current ratio. We sum up all the items on the balance sheet that are current assets and that are current liabilities. With help of these amounts we were able to calculate the current ratio and working capital.

After comparing Banco Santanders' ratio's with other companies we can conclude that Banco Santander has a relative average current ratio. But a current ratio of more than 100% doesn't mean that a firm has sufficient liquidity.

We have to take in consideration the general rule that when a firms' current ratio is 200% or higher it has a adequate liquidity. So from the data of Banco Santander it can be concluded that it has a low degree of liquidity, which means that it can have trouble meeting its current obligations as they become due.

On the other hand a current ratio between 1.0-1.5 is not bad. Current assets tend to be least productive. So it could be possible that Banco Santander intentionally made efforts to streamline operations by reducing their current ratios, for a productive composition of their assets.

The most important aspect of a firm is its 'financial health'. We can analyze this trough ratio. These data can be compared with industry norms and company over time. The three most used ratios are:

  • Profit margin
  • Return on assets
  • Return on equity

Profit margin

To calculate the profit margin you have to divide the net income by the sales. Profit margin for 2008 is 30,1% and for 2007 it was 31,4%. The margin emphasizes that from every dollar of sales revenue 30,1% in 2008 and 31,4% in 2007 work its way to the net income

This ratio indicates how efficient a firms is to generate income from the shareholders' equity. So every dollar the shareholders' equity will find its way in the net income. ROE is very important for current stockholders of Banco Santander en for future investors because this ratio is a relation between the stockholders' investment and the earnings.

The statement of stockholders equity

Banco Santander includes a statement of shareholders' equity with the rest of its financial statements. After carefully reviewing the most recent data on the shareholders' equity there were any significant changes between the beginning of the year and the beginning of 2008. One of them is the item 'additional pain in surplus'.

For every activity there are different transactions that resulted in cash inflow or outflow.

The two largest transactions for cash inflow from financing activities are payments of Acquisition of own equity instruments. The largest collection is disposal of Acquisition of own equity instruments.

For cash inflow from investing activities the two largest transactions were payments of tangible assets ($ 4 077 929 million) and collection of non-current assets held for sale ($ 4 184 867 million).

As reported above in the table net increase in cash for the year 2008 is $ 21 923 310 million.

In case of financial statement articulation numbers that are reported on one financial statement are related to numbers in other statements. This is the case with the net increase in cash. The net increase is the same amount of the change in cash during 2008 if you look at the balance sheet.

The largest cause for the difference appears to be the 'adjustments to 'Net Income'. Because a bank doesn't sell products there are no cash sales.

There is a very important aspect of the relationship between cash flow from operations and acquisition of operating assets because the cash flow is the main source to finance your investments. So when the cash flow from operations is lower than the acquisition of operating assets there is a problem. But this isn't the case at Banco Santander. They managed to finance their investments with their cash flow from operations.The cash flow from operations ($ 23 575 million) is sufficient to cover its acquisitions of operating assets ($ 11 682 million).

A new financial accounting standard affected the financial statements during the current year in the following way; there were changes on the public and confidential financial reporting rules and formats. The amendment with the greatest potential effect on the companies' financial statements relates to the format of the presentation of the statements. For example they affect the consolidated balance sheet, consolidated income statement and statement of changes in equity.

Discount rate pensions

The assumed discount rate that Banco Santander used in 2008 and 2007 were for both years 4%. An increase in the discount rate has a negative effect on the pension expenses, so it decreases. Why? This is because an increase in the discount means that Banco Santander has to put less money aside for future pension payments. Which means that the present value of the pension payment will decrease, as result of the increase in the discount rate.

Financing activities

Current liabilities

There are different accounts on the current liability section of a company's comparative balance sheet. Over the year almost all of these accounts change, witch leads to either a positive change or a negative change. After analyzing the current liabilities section of Banco Santander the Customer Deposits and the Marketable debt Securities were the two accounts that had the greatest changes since the previous year.

Current Liability changes

As we can see, the Customers Deposits decreased with 82,5 percent during 2008. Also Marketable debt security showed a great change. This account decreased with 79,1 percent since the previous year. How could this be?

During the financial crisis people showed less and less confidence in the economy, there was doubt if their money was still safe at the bank. Some thought that their money was safer if it wasn't on any bank account, thinking that any moment the bank could go bankrupt with the risk that they lose the money they deposited.

The financial crisis also did affect the Marketable debt securities. In a period of financial crisis companies among each other have less trust that they will receive the money they invested in another company. Since the economic growth is decreasing the assurance that a certain corporation will survive is also decreasing.

A decrease of these two accounts (customer deposit, marketable debt securities) doesn't mean automatically that the total liabilities also will show a decrease as we can see in the balance sheet on the liabilities section.

Percentage of assets financed with current liabilities

We can see that the long-term debt decreased with 17% since 2007. When a part of a long term debt is paid back in the course of one year that amount will be reclassified in the short-term debt account, because it's now a debt that will be paid within one year. This means that the short-term debt will increase. Data from the balance sheet account 'short-term debt' that this is the case: in 2008 the short-term debts were higher than in 2007.

Liabilities

Banco Santander as other financial institutions uses their liabilities to finance their assets, the growth of the corporation etc. We call this financial leverage. The leverage can be measured with the debt/equity ratio. Banco Santander's debt/equity ratio for 2007 was 15.7 and the one for 2008 was 16.7. A greater debt/equity means that a greater amount of the assets has been financed with debts. A greater financial leverage also means a greater risk.

The varying sizes of the companies and the large amount of cash that flows in companies makes the ratio analyses the only method of evaluating various financial aspects of a company (Accounting, what the number means). This is why the ratio analyses are a common form of measurement in the financial world. A ratio is simply the relationship between two numbers. Next follows an explanation about the used ratios and what these ratios means with regard to Banco Santander :

  • Return on equity: The amount of net incomereturnedas a percentageof shareholders equity.Return on equitymeasures a corporation's profitabilityby revealing how muchprofit a company generateswith the money shareholders have invested (Investopedia 2009).The companies financial information on the calculated ratios is that an 17.1 % of Banco Santander's net income is returns as earnings for the investors.
  • Debt to equity: A measure of a company's financial leverage calculated by dividingits total liabilitiesbystockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets (Investopedia 2009). As u can see the Debt/Equity ratio is higher than the average ratio of the other companies. So you can conclude that the company has been aggressive in financing its growth with debt.
  • Debt to assets: The debt/asset ratio shows the proportion of a company's assets which are financed through debt. The ratio of Banco Santander is under 1 so it means that a majority of assets are finances trough equity.
  • Dividens payout ratio: In the comparison we can see that
  • Current ratio: It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities.

With the information provided by the calculated ratios you can say that firm's liabilities are being optimally used to finance the assets. So you can say that Banco Santander is highly leveraged. It is notable that the debt to equity of the bank is higher than the other companies. This is because financial institutive uses their liabilities to provide their assets and make their margin.

Stock performance

The primary stock exchange where Banco Santander's common stock is traded is the London stock exchange. We analyzed the stock performing information for the Santander share on November the 10th.

Revenue recognition method

As an institution that provides services instead of goods there are no sales where revenue is generated, instead the revenue is formed from interest that is earned on loans and from insurance activities for example.

Non-performing loans

Banco Santander as a financial institution has a totally different structure than other companies instead of bad debts we have the post "Non-performing loans".

In the following table we show that the group's non-performing and doubtful loans in 2008 were notably higher than in 2007, mainly because the macroeconomic environment deteriorated much faster than expected. Other factors were the increased volume of lending in recent years, the change in Latin America toward more profitable products, but with a higher risk premium, and the consolidation in the fourth quarter of Banco Real and Alliance & Leicester.

Inventories

As a financial institution Banco Santander has no inventories neither has the need to apply inventory evaluation methods such as Weighted-Average, FIFO, LIFO, etc.

Comparing efficiency and effectiveness

When comparing your company measures to those of other firms you will have a better view if your company is strong or weak in relation to the other firms.

As a financial institution many of the ratios may not be applied; for example the "Inventory Turnover", "Accounts Receivable Turnover" and the "Gross Profit Margin".

Assuming that the ratio values are representative we can conclude that Banco Santander is neither strong nor weak in comparison to the other firms. The Santander ratios are between the weakest and strongest ratios from every segment. In the Return on Equity segment Banco Santander is one of the strongest. In the Operating cash flow to total assets segment Banco Santander is one if the weakest.

Comparing the data in the table above we can conclude that Banco Santander has a very high Profit Margin but on the other hand it has an extremely small Asset Turnover.

Product differentiation means that you offer a product or service with a higher value; this approach will thus raise costs. High profit margins are not related to low cost thus having a higher profit margin does not mean your firm is applying the cost leadership strategy, high profit margin depend on your pricing strategy. On the other hand low costs indicate that a company is applying a cost leadership strategy, for low cost it means that you need a high asset turnover.

Thus we may conclude that these firms are not applying the cost leadership strategy due to the fact they have a very low asset turnover. But it is very possible that these firms are applying the product differentiation strategy based on the products/services they offer.

Investing activities

Property, Plant and Equipment As reported on the most recent financial statement the cost of property, plant and equipment represent a sum of $14,755 million. The depreciation expense for the year 2008 is $1,890 million, which is 12.8% of the cost of property, plant and equipment.

The accumulated depreciation for the year 2008 is $6,299 million which represent 42.7% of the cost of property, plant and equipment. We may conclude that on average the cost of property, plant and equipment are in their mid-life, based on the fact that the accumulated depreciation is around 50% of the cost of property, plant and equipment.

The relationship between the cost of property, plant and equipment purchased during the year and the cost of property, plant and equipment charged to depreciation expenses is positive due to the fact that the total cost of property, plant and equipment increased between 2007 ($11,664 million) and 2008 ($14,755 million). We may conclude that the depreciation expenses were less than the equipment purchased.

From the table above we can conclude that the segment "Asset Management and Insurance" has a higher return on identifiable assets than the other segments, but this segment corresponds only to a small percentage of the total operating income.

During the years assets were expanded in all of the segments, with as result a higher operating income in all of the segments except for the segment "Asset Management and Insurance" where there is a decrease in the operating income.

The return on identifiable assets grew in all of the segments except for the segment "Asset Management and Insurance", a reallocation of the assets in this segment to others segment should be the best choice due to the fact that the increase in assets in this segment over the years did not increase the operating income, but decreased it.

One very important question that should be asked to the management is why there is a decrease in the operating income in the segment "Asset Management and Insurance" while assets have been increased during the years.

The cash acquired to spent long term assets is $(31,494,071) in 2008 and $1,415,063 in 2007 , the cash received from sale of long-term assets in 2008 is $733,422 and in 2007 was it $7,733,220.

Policies related to long term debt

Depreciation is calculated using the straight-line method. The method assumes that the regarding asset will lose the same amount of value each year.

Santander owns the security called held-to-maturity security. This is a debt security whereby the firm has the ability and the intension to hold until maturity, final payment day. These are reported at amortized cost, they are not affected by the changes made on financial markets.

M&A

Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

Banco Santander uses this aspect in 2008. In merger and acquisitions, Santander increased its market share in Spain. The financial time and mergers market awarded Santander its prizes for financial advisor of the year. The bank also consolidated their position in Latin America on the score of assets and capital structuring. They also were active in financing clean energy projects.

Goodwill

Banco Santander does report goodwill on their balance sheet. It is deemed impaired. At least once per year (or whenever there is any indication of impairment), the Group reviews goodwill for impairment (i.e. a potential reduction in its recoverable value to below its carrying amount).

Chapter 4: Conclusion & Discussion

Conclusion

Comparing the relation between cash flow operations and acquisition of operating assets

There is a very important aspect of the relationship between cash flow from operations and acquisition of operating assets because the cash flow is the main source to finance your investments. So when the cash flow from operations is lower than the acquisition of operating assets there is a problem. But this isn't the case at Banco Santander. They managed to finance their investments with their cash flow from operations.The cash flow from operations ($ 23 575 million) is sufficient to cover its acquisitions of operating assets ($ 11 682 million).

Current liabilities changes

As we can see, the Customers Deposits decreased with 82.5 percent during 2008. Also Marketable debt security showed a great change. This account decreased with 79.1 percent since the previous year. What was the reason for this decrease?

During the financial crisis people showed less and less confidence in the economy, there was doubt if their money was still safe at the bank. It was logical that some could thought that their money was safer if it wasn't on any bank account, thinking that any moment the bank could go bankrupt with the risk that they lose the money they deposited too.

The financial crisis also did affect the Marketable debt securities. In a period of financial crisis companies among each other have less trust that they will receive the money they invested in another company. Since the economic growth is decreasing the assurance that a certain corporation will survive is also decreasing.

A decrease of these two accounts (customer deposit, marketable debt securities) doesn't mean automatically that the total liabilities also will show a decrease as we can see in the balance sheet on the liabilities section.

Margin & turnover comparison

We may conclude that we cannot compare some firms with firms of a different sector, because they have different amounts, for example in comparing margin & turnover of Banco Santander with Coca-Cola and the other firms that we used to make a comparison of. What we want to say, is that the mean point of a firm is to increase their sales, increase their net income and also increase their profits. So, all want the same, but their products and their way to market there is different. A bank is something very different from a tire brand. And in our report we also concluded that, that is why the margin & turnover from our bank differs a lot from Coca-Cola, Goodyear, Guess, HP and Boeing.

But if we still insist to compare these data with each other, we can conclude that Banco Santander has a very high Profit Margin but on the other hand it has an extremely small Asset Turnover.

Thus we may conclude that these firms are not applying the cost leadership strategy due to the fact they have a very low asset turnover. But it is very possible that these firms are applying the product differentiation strategy based on the products/services they offer.

Banco Santander compared with other companies

Assuming that the ratio values are representative we can conclude that Banco Santander is neither strong nor weak in comparison to the other firms. The Santander ratios are between the weakest and strongest ratios from every segment. In the Return on Equity segment Banco Santander is one of the strongest. In the Operating cash flow to total assets segment Banco Santander is one if the weakest. So, we cannot specify if is really weak or strong, compared to other firms. Although in the financing industry, it is a strong firm.

Ratios

Banco Santander is highly leveraged, because from the calculated ratios, we can conclude that that firm's liabilities are being optimally used to finance the assets. It is very notable that the debt to equity of the bank is higher than the other companies. This is because financial institutive uses their liabilities to provide their assets and make their margin.

Discussion

To create our discussion about Banco Santander we've been thinking about his strengths and weaknesses. One of its strengths that captured our attention is the fact that Banco Santander has not been strongly affected by the financial crisis during 2008. That's why we asked ourselves: what could be the reason why they were able to remain strong during the financial crisis. While we have been searching information of Banco Santander we found out that the reason was because the Spanish government had a strict policy regarding to the financial institutions. That's why Banco Santander could survive during the financial crisis without many problems.

Besides that, the competency of the business team of Banco Santander als was a help to remain strong during the financial crisis.

After analyzing and comparing ratios of Banco Santander with other firms we are sure that the bank will keep the same policy so that they can be prepared in case another future financial crisis will occur.

  1. We also used the internet to search for classified balance sheet of Banco Santander to make the work of calculating current assets etc easier.
  2. Accounting what the numbers mean, page 79
  3. In this case for sale we used the gross operating income, this is because a firms doesn't sells products but gives services. The revenu
  4. Using the Cash Flow Statement and Income Statement of Banco Santander on Yahoo Finance (internet)
  5. Using data from the Cash Flow Statement of the annual report of 2008.
  6. Using data from Income Statement of Yahoo Finance (internet)
  7. Using data from Income Statement of Yahoo Finance (internet)
  8. Using data from the Cash Flow Statement of the annual report of 2008.

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