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Question:
Discuss about the Organizing Product Innovation in Financial Services.
 
 
Answer:
Introduction

This literature review has discussed and analyzed different topics that help to identify the answers of the research questions. Each topic of the literature review has formed the hypotheses by considering the main question. Mainly four topics have been formed. The first topic has discussed on the financial performance of AMP Limited based on the financial statements in different years. The second topic in the literature review has discussed on the types of services of the company. The third topic in the literature review has tried to identify whether the use of ratios is helpful while taking the decision of purchase of share and assets of a company. The last topic of the literature review focuses on identifying the contribution of AMP Limited in the overall economy of Australia.

Topic 1: Comparison of financial statements of AMP Limited to understand the financial performance of the company.

Key word: Financial statements

H1: The financial statements of the company are disclosing the positive performance trend

Strength of the topic: The financial performance trend of AMP Limited can be understood.

Weakness of the topic: This topic does not provide any clue regarding the accounting procedure of the company.

AMP Limited is a financial services providing company, which is operating its business in the market of Australia and New Zealand since 1849 (Amp.com.au 2016). If the financial statements of the company are analyzed and compared for the last five years, then it can be identified that the performance of the company was bit fluctuating in the last five years. The main components of the consolidated income statements of the company for last five years can be seen in the below table:

Components

2011 (In million $)

2012 (In million $)

2013 (In million $)

2014 (In million $)

2015 (In million $)

Revenue

5785.954

17513.508

17846.265

14354.56

10238.911

Net income

699.971

730.118

596.266

720.99

708.394

Diluted EPS

0.27

0.26

0.20

0.24

0.24

(Source: Amp.com.au 2016)

The above table is clearly disclosing the fact that in the year 2011, the revenue of the company was $5785.954 million, which has increased in 2012 to $17513.508 million (Amp.com.au 2016). This indicates that in 2012, the financial performance of the company in context to revenue has increased more than $10000 million (Amp.com.au 2016). The increased trend has been maintained by the company in the year 2013, but in 2014, the revenue of the company decreased to $14354.56 million and again in 2015, the revenue of the company decreased to $10238.911 million (Amp.com.au 2016). These amounts of the revenue of the company are disclosing that the financial performance of the company was fluctuating in last five years. The same thing has happened in case of the net income of the company (Robinson et al. 2015). The net income of AMP Limited was high in the year 2012 and again in 2014. In the others three years it was low. From 2011 to 2012, the net income increased; in 2013 the income decreased, again in 2014 it increased and again in 2015 it has decreased (Amp.com.au 2016). On the other side, the diluted EPS of the company has decreased from 2011 to 2015. Therefore, in the comparison of the consolidated income statement of AMP Limited, it can be easily said that the performance of the company was not in increasing trend, rather it was fluctuating (Amp.com.au 2016).

 

In order to understand the financial performance of the company, it is also important to analyze and compare the statements of consolidated financial position of the company. The following table is useful in that case:

Components

2011 (In million $)

2012 (In million $)

2013 (In million $)

2014 (In million $)

2015 (In million $)

Total Assets

110,290

118,751

118,209

109,987

101,819

Total Liabilities

103,393

111,220

111,031

103,311

95,610

Total Equity

6,829

7,434

7,178

6,676

6,208

(Source: Amp.com.au 2016)

In the above table, it can be identified that the total assets of the company has decreased in the year 2015. Moreover, the amount of total assets of the company was lowest in the year 2015 and highest in the year 2012 (Amp.com.au 2016). It can be said that the amount of assets of the company was also fluctuating and in 2012, the performance of the company was better than the other years. However, at the same time, it is also true that in the year 2012, the total liabilities of the company was also high than the other years (Amp.com.au 2016). The amount of liabilities of the company was lowest in 2015. On the other side, the total equity of the company was again in fluctuating trend in last five financial years. In 2011, the total equity of the company was $6829 million, which increased to $7434 million in 2012 (Amp.com.au 2016). Again in 2013, the total equity of the company decreased to $7178 million and after that the amount of equity continuously decreased in last two years (Amp.com.au 2016).

The cash flow statement is another important financial statement that must be compared while analyzing the financial performance trend of the company in different years. The cash flow statements of the company disclose the below amounts in last five years:

Components

2011 (In million $)

2012 (In million $)

2013 (In million $)

2014 (In million $)

2015 (In million $)

Net operating cash

811

933

761

885

978

Net investing cash

(238)

(1,254)

(4,699)

2,086

(4,476)

Net financing cash

689

40

1,949

343

121

Cash at the end of the year

9,436

9,171

2,606

2,920

2,882

(Source: Amp.com.au 2016)

The above table is disclosing the fact that in case of the operating cash flow, the performance of AMP Limited was better in the year 2015. However, in case of the investing cash flow, the performance was better in 2011 and in case of financing cash flow, the performance of the company was better in the year 2013 than that of the years (Amp.com.au 2016). If the net cash at the end of the year is considered for comparison, then it can be said that the performance of the company was better in 2011 and lowest in 2013 (Amp.com.au 2016). The net cash inflow of the company has started to decrease since 2013, though in 2014, the net cash inflow increased bit but in 2015, it again decreased (Amp.com.au 2016).

Topic 2: Which types of services the concerned company provides to their customers?

Key word: Financial services

H1: The financial services that the organization is providing to their customer is beneficial for their betterment

Strength of the topic: The different types of service the company provide can be evaluated

Weakness of the topic: The detailed information like terms and condition of these services cannot be evaluated.

 


The AMP Financial company provides personal banking, home loans, super-&-insurance and retirement advice to their organization. The keyword here is the financial services that the concerned organization is providing to their customers. Nejad and Estelami (2012) define the financial service as the approach for management of money and they play a crucial role in the development of the organization’s economy and nation’s financial growth. It also signifies the utilization of the client’s money in an efficient manner so that they get the best benefit from it in their future. Vermeulen (2013) stated that personal banking is nothing but a provision of a wealth of services from the financial institution to the individuals. Personal Banking comprises of services like savings and checking accounts, credit card services and a variety of lending options like mortgages, personal loans and lines of credit. Sinkula and Lawtor (2015) moreover depicts that in recent times, the financial institution also a=utilizes the internet technology for better functionalities of the baking procedures. It allows every individual to view and interact with accounts online, access automated teller machines (ATM) around the world and make transactions and deposit through net banking via their smart devices. In the context of the home loans, it is the monetary support that an individual borrow from a financial institution in order to purchase a house. Ennew et al. (2014) furthermore quantified that that money that the financial institutions lend to them is issued against the property/security and the institutions possess a conditional ownership over the property. Vu et al. (2015) explain that there are several types of home loans like home purchase loans, home improvement loans, home extension loans, bridge loans, home conversion loans, land purchase loans and home construction loan. An individual takes Home purchase loans for purchasing a new home; while the improvements loans are taken with the intention of renovation or repair of the home with the help of home contractors (Liu and Roca 2015). Engel (2016) besides added that home extension loans signify the financial help taken by an individual for the expansion of an existing home like constructing an additional room or floor on the terrace. Bridge loan is a short term loan that is taken when a borrower intends to sell their old homes and looking for a new one.

Koku and Jagpal (2015) depicted that bridge loans help the borrower during the interim period and the limitation of the loan ends when the individual found enough monetary by selling the previous resident. The financial institution also provides home conversion loan that is to lend money to move to another home while they have taken a loan to finance his current home. This type of loans allows the borrower to transfer the existing loan to the new home. Culp (2013) explains the procedure in these types of loans and that is the new loan allows the user to pay the previous loan and the then again applying for the new one for their new homes or resident. Furthermore, the land purchase loan and the home construction loan highlight the type of loan taken to purchase a land for construction-&-investment purposes and to construct a new home respectively. Helman et al. (2014) highlight the importance of another beneficial service that is offering retirement plans and investments. However, the retirement plan varies according to the economy of the nation and thus retirement plan for financial institutions varies. Bodie et al. (2014) moreover portray that some financial institutions often have penalties on the drawing of money from such account. The prime reason behind that is these institutes ensures that the funds remain in the market longer and can service benefit to both the individual and the financial company. The company has the benefit to contribute to the nation's economy while the investor maintenance themselves with effective monetary support after retirement with less reliance on government programs (Brown et al. 2015). In addition to that, it provides tax advantages for retirement savings and the financial companies pay the money to the investor on a periodic basis similar to employment pay cycles upon reaching retirement age.

Lastly, Sakalova and Krcova (2016) states that financial company often provide a guarantee of compensation for specified loss, death in return for payment or for damage of a specified premium and this process this referred as taking insurance for the longevity of that asset. Moreover if an employer is making any super contributions through their default super fund it is likely that they will get the benefit to negotiate some monetary cover for the financial banks. These super services comprise of services like life insurance, income protection and total and permanent disablement (TPD). Purves (2015) depicts that the life insurance allows a sum of money in case the investor die or become terminally ill. The income protection signifies the approach, where the financial company pays a certain portion of the money like 75% of the present income of the person during the time the person is not able to do work and earn their living. It contains some condition like this income protection scheme provides cover for different periods that varies on the ability of the person. Purves (2015) also explains the concept of total and permanent disablement (TPD) and stated that in case a person is suffering from a disability that prevented them to ever working again, financial institution help them financially.

Thus, it can be said that the concerned organization helps the people effectively with their services and ensure heir future with effective money planning.

Topic 3: Identifying whether it is better for AMP Limited to purchase the shares and assets of the other company and ratio use in accounting

Key words: purchase of shares and assets, use of ratio

H1: Purchase of shares and assets of the other company is better when the financial performance of the other company is analyzed through ratio.

Strength of the topic: The use of ratio analysis in taking financial decision can be understood

Weakness of the topic: This topic does not provide any information about the financial performance of AMP Limited.

 


Swain and Dutta (2015) stated that while taking any kind of financial decision like, purchase of shares and assets of any company, it is important to analyze the financial performance of that company with the with the help of ratio analysis. On the contrary, Ball, Li and Shivakumar (2015) stated that ratio analysis is a measurement method, which is based on historical data; hence it is not useful taking the future decision on the basis of the past data. However, ratio analysis is the easiest and time saving way of analyzing the financial performance of a company (Dung 2016).

In order to take the decision regarding investment, it is important to identify the performance and values of the shares and assets of the other company in the current market. If the values of shares and assets of the company are higher than the values of the shares and assets of itself, then it is profitable for the company to invest in the shares of the other company (Weygandt, Kimmel and Kieso 2015). For example, the current value per share of AMP Limited is AUD 4.85 and the value per share of Australian and New Zealand Banking Group is AUD 29.78. These share values are indicating that the value of one share of Australian and New Zealand Banking Group is much higher than that of AMP Limited (Amiram, Bozanic and Rouen 2015). This means, the company can invest in the shares of Australian and New Zealand banking Group.

On the other side, the values of the assets can be understood by checking the financial statements of the company. At the same time, while taking the decision regarding the purchase of assets, it is important for AMP Limited understanding the performance of the assets of the other company. This can be done through ratio analysis. Therefore, it can be said that AMP Limited can invest or purchase the shares and assets of the other companies if the values are higher than that of AMP Limited and for that ratio analysis is useful.

 
Identifying the financial contribution of AMP Limited in Australia

Key words: Financial contribution

H1: AMP Limited has positive contribution in the Australian economy.

Strength of the topic: This topic will help understanding the importance of AMP Limited in current economy in Australia.

Weakness of the topic: This topic does not provide any information about the accounting technique of the company.

As per the current data related to the economic growth of Australia, it can be stated that the economic growth rate of the country has declined (Industry.gov.au 2016). The contribution of the banking or financial industry in the economic growth of Australia is much lower than that of mining industry (Moher et al. 2015). However, each year, the banking sector of the country contributed 40% of the total contribution of the service industry. The AMP Limited also works under the banking industry in the country. However, the financial performance of the company has declined in the recent years. Moreover, the company has failed to maintain steadiness in its financial performance (Harper 2016). This information is indicating that the company cannot contribute much to the GDP or economic growth of the country.

However, in case of employment, the company has provided many opportunities to the people in the country. The company has provided employment opportunity to the 5400 people in the country (Amp.com.au 2016). This indicates that the company has contributed much to the employment growth of the country and in this point of view, the contribution of the company is much high (Chen et al. 2015). Therefore, it can be said that the company must emphasize on its financial performance so that it can contribute more to the growth of the country.

Conclusion

In this literature review, it has been identified that the financial performance of AMP Limited was fluctuating in the last five years. The company failed to improve its performance in the last few years. The financial statements of the company in last five years have clearly mentioned that the performance of the company was better in the year 2012 and the company performed at lowest level in 2015. At the same time, the literature review of the study has also identified that in order to purchase the shares and assets of any other company; the management of AMP Limited requires analyzing the values of the shares and assets of the other company. In order to identify the values and the performance of shares and assets of the company, the management of AMP Limited can utilize the ratio analysis technique. The study has also identified that the company has contributed much towards the employment in Australia, but the company has not contributed much in the GDP growth of the country.

 
Reference list:

Amiram, D., Bozanic, Z. and Rouen, E., 2015. Financial statement errors: evidence from the distributional properties of financial statement numbers. Review of Accounting Studies, 20(4), pp.1540-1593.

Amp.com.au. 2016. Personal Banking, Home Loans, Super & Insurance - AMP. [online] Available at: https://www.amp.com.au [Accessed 7 Dec. 2016].

Ball, R., Li, X. and Shivakumar, L., 2015. Contractibility and transparency of financial statement information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal of Accounting Research, 53(5), pp.915-963.

Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.

Brown, J.R., Pollet, J.M. and Weisbenner, S.J., 2015. The In-State Equity Bias of State Pension Plans (No. w21020). National Bureau of Economic Research.

Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R., 2015. Financial statement comparability and the efficiency of acquisition decisions. Available at SSRN 2169082.

Culp, C.L., 2013. Syndicated leveraged loans during and after the crisis and the role of the shadow banking system. Journal of Applied Corporate Finance, 25(2), pp.63-85.

Dung, N.V., 2016. Value-relevance of financial statement information: A flexible application of modern theories to the Vietnamese stock market.

Engel, K.C., 2016. Local Governments and Risky Home Loans.

Ennew, C., Watkins, T. and Wright, M. eds., 2014. Cases in marketing financial services. Butterworth-Heinemann.

Harper, D., 2016. Accounting Financial Statements Analysis.

Helman, R., Adams, N.E., Copeland, C. and VanDerhei, J., 2014. The 2014 Retirement Confidence Survey: Confidence rebounds—for those with retirement plans. EBRI Issue Brief, (397).

Industry.gov.au. 2016. [online] Available at: https://industry.gov.au [Accessed 7 Dec. 2016].

Koku, P.S. and Jagpal, S., 2015. Do payday loans help the working poor?. International Journal of Bank Marketing, 33(5), pp.592-604.

Liu, B. and Roca, E., 2015. What drives mortgage fees in Australia?. Accounting & Finance, 55(3), pp.861-880.

Moher, D., Shamseer, L., Clarke, M., Ghersi, D., Liberati, A., Petticrew, M., Shekelle, P. and Stewart, L.A., 2015. Preferred reporting items for systematic review and meta-analysis protocols (PRISMA-P) 2015 statement. Systematic reviews, 4(1), p.1.

Nejad, M.G. and Estelami, H., 2012. Pricing financial services innovations. Journal of Financial Services Marketing, 17(2), pp.120-134.

Purves, D., 2015. Two ways TPD cover is evolving. Investment Magazine, (121), p.6.

Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial statement analysis. John Wiley & Sons.

Sakalova, K. and Krcova, I.O., 2016. Measures of Profitability in Life Insurance Product Management. Thematic Fields, p.8.

Sinkula, J.M. and Lawtor, L., 2015. Positioning in the Financial Services Industry: A Look at the Decomposition of Image. In Proceedings of the 1987 Academy of Marketing Science (AMS) Annual Conference (pp. 439-442). Springer International Publishing.

Swain, R.K. and Dutta, A., 2015. Strategic Financial Management: Strategic Financial Management, Financial Engineering, Financial Statement Analysis, Merger & Acquisition. Lap Lambert.

Vermeulen, P.A.M., 2013. Organizing product innovation in financial services.

Vu, T., Do, V. and Skully, M., 2015. Local versus foreign banks: A home market advantage in loan syndications. International Review of Financial Analysis, 37, pp.29-39.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley & Sons.

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