It's been a busy year for ASX 200 banking shares this year. The beginning of 2022 saw the banking sector take refuge at the top of the leaderboard with investors betting on higher interest rates and a rotation out of tech.
This was short-lived however with the market turning sour on ASX banks in favour of energy and mining stocks that have benefitted from the energy crunch in Europe.
There's been somewhat of a return to glory for the banking basket in the second half of 2022 following the release of FY22 results and annual reports.
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How does ANZ stack up against the other banks?
Measures of profit are crucial in the examination of businesses. Net income or profit is tied to cash flow, revenue and the balance sheet, so it's an important number.
However, profitability is also measured in a couple of other ways. This is important to make an apples-to-apples comparison between companies and to check against self-averages.
First, the amount of earnings per share (EPS) generated for the period, which measures the profit shareholders would receive for each unit of stock owned.
This is often combined with the price-to-earnings (P/E) ratio to determine valuation.
Free cash flow is also essential, as it measures the available level of cash that's left over after obligations have been paid.
Meanwhile, a company's return on assets (ROA) and return on equity (ROE) are also important to know.
ROA records how much income a company generates from the investments it makes into various assets, such as machinery, or software. The higher the better.
The ROE meantime tells us the return each bank generated for its equity holders. Again, the higher the better, as it tells us a high amount of profit was generated for the owners of the company – an ideal situation.
As seen in the table below, if we benchmark the group by its median results, Australia and New Zealand Banking Group Ltd (ASX: ANZ) looks to be mostly in line with peers on the measures of profitability described above.
Net profit margin of 31.6% and ROA are in-line with the median of the big four, whereas it produced a higher amount of free cash flow than all competitors listed.
| Name | Revenue | Net income | Net margin | EPS | Free cash flow | ROA | ROE |
| Australia and New Zealand Banking Group | $ 19,529.00 | $ 6,162.00 | 31.6% | $ 2.03 | $ 4,433.00 | 0.6% | 9.9% |
| Sector median | $ 20,156.00 | $ 5,458.00 | 29.3% | $ 1.85 | $ 3,321.00 | 0.7% | 9.1% |
| Commonwealth Bank of Australia | $ 24,293.00 | $ 10,771.00 | 44.3% | $ 6.01 | $ 3,351.00 | 0.8% | 12.8% |
| National Australia Bank Ltd | $ 18,034.00 | $ 6,364.00 | 35.3% | $ 1.85 | $ 3,976.00 | 0.7% | 10.4% |
| Westpac Banking Corp | $ 22,278.00 | $ 5,458.00 | 24.5% | $ 1.38 | $ 3,321.00 | 0.6% | 7.8% |
| Bank of Queensland Ltd | $ 1,688.00 | $ 369.00 | 21.9% | $ 0.62 | $ 185.00 | 0.5% | 7.1% |
ANZ also came in with an above-peer ROE of 9.9% and shareholders enjoyed $2.03 in earnings per share for the 12 months to June 2022.
In terms of being the most profitable, however, that doesn't seem to be the case here.
Commonwealth Bank of Australia (ASX: CBA)'s net margin was 44.3% for the period, and it generated $6.01 in EPS as well.
This was carried through to the highest ROA and ROE amongst all peers including ANZ. Similarly, National Australia Bank Ltd (ASX: NAB) outperformed as well.
Therefore based on this rudimentary analysis we could say that ANZ has above-sector profitability, but we can't necessarily say it has the best profit margins out of the big four ASX banks.
