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Accounting and Finance Assignment Sample

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Introduction : Accounting and Finance

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I am thankful to my tutor, friends and relatives who gave me guidance and support in such project. In completing my dissertation on accounting and finance field they always encouraged for completing the same prominently. In addition to this, I also appreciate my mentor for giving me guidance in preparing dissertation. From his support and experience I was in the position to complete dissertation in a right manner. Finally, I want to extend my sincere thanks to everyone who have directly or indirectly supported me in completion of my dissertation.


The aim behind carry out such dissertation is to investigate factors that have an impact on the profitability of European banks. In this, for addressing research questions secondary data sources have been used by the researcher. On the basis of such aspect, by evaluating books, journals and scholarly articles regarding the factors that impact bank’s profitability secondary data has been gathered. In addition to this, annual reports of 12 European banks have also been evaluated to gather data and attain research objectives. Further, statistical tools and techniques such as descriptive evaluation, correlation and regression have been performed by the researcher to derive suitable solution. From overall assessment or evaluation, it can be mentioned that loan ratio is the main elements that contribute in profit margin but to the lower extent. Moreover, quality of the credit portfolio also has an impact on the profitability of financial institutions.

Background of the study

In the context of sustainable economic development, role and functions performed by banking sector is highly significant. From assessment, it has been identified that banks play a vital role in the economic aspects and their stability is also highly required for ensuring effective financial system. Now, each and every sector including banking is filled up with the high level of competition. In this regard, for the attainment of high margin banking units need to lay emphasis on developing sound strategic framework by considering both financial and non-financial aspects. Further, during the period of global crisis such as 2007-08, position of banking units become worst. During and after the period of crisis, several banking units faced difficulty in managing their operations. The present dissertation is based on 12 European banks. In this, study will shed light on the factors that influenced profitability of such selected banking institutions within the period of 15 years (from 2000 to 2015). Hence, this study will also present strategies that can be undertaken by banking units for the maximisation of profit and growth. Research aim and objectives

Aim: The aim of this dissertation is to determine profitability of European banks over the period of 2000-2015.

Objectives: Considering above aim, following objectives have been drafted such as:

  • To investigate the factors that has an influence on the profitability of banking firms.
  • To evaluate profitability of European banks over the period of 2000-2015.
  • To recommend the ways that assists banking units in dealing with both micro and macro factors which influence profitability.

Rationale of the study

The main reason behind conducting present investigation is to ascertain the factors that have an impact on banking unit’s profitability. This is considered as main issue because after the period of financial or global crisis, several efforts were made by banking units for making improvement in monetary aspects. Hence, through the means of quantitative investigation, such study presents micro / macro and internal as well as external factors that impact profitability aspect of European banking institutions.

Significance of the study

The present study and its outcome are significant for European banking units which in turn provides deeper insight to them about the factors that have an impact on profit margin. Hence, by understanding and evaluating such factors, banking firms would become able to develop appropriate strategies and policies for the near future. In addition to this, concerned study and its findings will also assist other scholars who want to conduct study on such topic.

 Dissertation structure

Specifically, five chapters have been included by the researcher in dissertation for analysing and evaluating research issue in a structured way. In the introductory section, background, aim and objectives have been included by the scholar. Under second chapter, brief thesis has been prepared the scholar through making assessment of books, journals and scholarly articles. In the third, chapter researcher identifies and mentions research strategies that are appropriate for the concerned issue being investigated. Chapter 4 of dissertation presents findings and supports the same with secondary data set. In chapter 5, researcher concludes findings and gives suggestions for further improvements.

Literature review implies for the evaluation of books, journals and scholarly articles which in turn provides assistance in developing brief thesis. Hence, literature review may be served as an attempt to meet research objectives via secondary sources. This chapter of dissertation is highly effectual which in turn provides assistance in developing brief thesis and doing analysis of gathered data set.

Theme: Factors that impact profitability of banking units

According to the views of Borio Gambacorta and Hofmann, (2017), profitability aspect of banking units is highly influenced from both internal and external factors. In this regard, internal factors consist for management policies, objectives, decisions and actions. Hence, when business or banking unit fails to make effective and strategic plan then it may be result into lower profit margin. On the other side, Maudos, (2017) presented in their study that expense is one of the main factors that impact profitability aspect. Hence, if business or banking unit fails to exert effectual control on both direct and indirect expenses then it may result into lower margin. Further, Ozkan Cakan and Kayacan, (2017) assessed in their study that interest rates also have significant impact on profit margin. Moreover, interest charged by banking institution on loan considered as income. On the basis of such aspect, when lower interest rate exists then it closely influences the margin of banking unit.

Sigmund Gunter and Krenn, (2017) claimed that structure which is followed by banking unit has high level of influence on its profitability. Along with this, findings of such study presents that profitability aspect is negatively influenced by both credit risk and liquidity. Moreover, in the case of high liquidity, company is not in position to invest money in other productive activities. Thus, high liquidity is considered as one of the main cause that impacts firm’s profitability. Further, such study presents that non­-performing loans and amount of credit also have greater impact on the profitability of banking units. Rowley Shipilov and Greve, (2017) identified in their study that ROA and ROE are the most effectual measures that helps in making assessment of profitability aspects. Moreover, ROA presents the return which is generated by the firm through using assets. Further, ROE presents the extent to which, firm has made effectual use of shareholders fund during specific accounting period. Hence, through evaluating the outcome of such financial tool banking units can assess whether they need to make modifications in the existing strategic framework or not.

Anginer Cerutti and Pería, (2017) investigated that size is another main factors that impact profitability of banking units. Such study entails that profitability persists to a balanced size. When size of banking units are large then it gets high economies of scale. For instance: Increasing or high size allows banking units to spread their fixed cost over a greater assets base. This in turn may result into reduction in average costs. In addition to this, when scale of operation enhances then banking unit would become able to use specialized inputs more effectually. In other words, it can be depicted that in the case of large size, banking can enhance efficiency by undertaking input provided by loan officers. However, on the critical note, Saif-Alyousfi Saha and Md-Rus, (2017) stated that size is not only the factor that have an impact on long term profitability of banking units. In accordance with such evaluation, profitability of banking sector impacts from both characteristics of bank and market in which it is operating. Hence, bank specific factors and characteristics include both business strategies as well as organizational structure. On the other side, market specific factors include both market competition and local economic conditions (Islam and, 2017). Thus, considering such aspects, it can be depicted that both bank and market specific factors has greater impact on firm’s profitability. Further, Isik Kosaroglu and Demirci, (2018) argued that solvency position and profitability of European banks. Moreover, high debt position imposes fixed monetary burden in front of firm regarding interest payment. Thus, by taking into account such aspect, it can be mentioned that financial structure and level of debt as well as equity has impact greater impact on organization’s profitability.

Further, Demirgüç-Kunt and Singer, (2017) found in their study that deposit ratio helps is one of the most effectual factors that can be undertaken to examine and evaluate profitability aspects. Moreover, when banking units collect or get more deposit then they become able to offer more loan opportunities to the customers and thereby attain higher margin. In other words, higher deposit level makes significant contribution in business development and leads profitability. Thus, considering such aspects, it can be said that higher deposit ratio proves to be more advantageous for banking unit over the lower one. In the study, Borio Gambacorta and Hofmann, (2017) mentioned that GDP and inflation rate is another main external factor that affects organisational profitability. Findings of such study presents that positive relationship takes place between GDP and profit margin. The rationale behind this, poor economic condition places negative impact on the quality of loan portfolio. Moreover, such kind of situation may cause of credit loss which in turn impacts bank profitability. In contrast to this, when economic condition enhances then it may result into improvement in the solvency of borrowers. Along with this, improved economic condition increases the demand for credit needed by households. Thus, all such aspects positively contribute in the profit margin of banking institutions. On the contrary to this, Maudos, (2017) presented in their research inflation also has significant impact on bank’s profitability. However, level of impact is highly influenced from the extent to which inflationary tendencies take place. This can be evaluated or measured through analysing the effect of inflation on salaries and other operating cost of banking units.

However, as per the views of Ozkan Cakan and Kayacan, (2017), one can assess the impact of inflation on bank’s profitability when it is fully anticipated. The reason behind this, when banking units have information about inflation rate then it can adjust interest rates. This in turn increases revenue significantly as compared to cost and thereby enhances overall profitability. Thus, inflation also has positive impact on the profit margin of banking units. Sigmund Gunter and Krenn, (2017) argued that inflationary environment impacts profitability of banking units when they have high capital ratio. Under such situation, cost increase faster in comparison to revenue.

In this, research tools that have been employed by the scholar for addressing questions and meeting objectives included. Hence, this chapter of dissertation presents research approach and philosophy that suits to the research issue. Further, such chapter also exhibits techniques that can be used for the purpose of data collection and analysis.

Research type

Qualitative and quantitative are the main two research types that can be undertaken by scholar. Under qualitative research, scholar lays emphasis on evaluating and assessing uncover trends in thoughts as well as opinion. On the other side, quantitative investigation focuses on the evaluation of numeric facts and figures (Friese, 2012). Hence, in this, to analyse the profitability of European banks from the period of 2000 to 2015, quantitative investigation has been selected. On the basis of such research type, by making assessment of quantitative data set regarding profitability solution has been presented by the researcher.

 Research approach and philosophy

Approaches of the research can be distinguished into two types such as inductive and deductive. Inductive approach is highly suitable for qualitative investigation that ends with the generalization of new theoretical framework. On the other side, deductive approach starts with existing theoretical framework and ends on the confirmation of hypothesis (Punch, 2009). Further, there are mainly two philosophies that researchers usually employ namely positivism and interpretivism. Hence, selection of both approaches and philosophies are highly influences from the type of investigation carried out. In this, considering quantitative research type, deductive approach and positivism philosophy has been selected by the researcher. Hence, as per positivism philosophy through analysing numeric figures suitable solution of the issue has assessed. The main reason behind considering the selection of such approach and philosophy is that it highly suitable for the quantitative research type. In addition to this, through employing deductive technique researcher has proved hypothesis framed or developed by taking into account existing theoretical framework.

Data collection

Specifically, there are mainly two sources that can be used for the purpose of data collection such as primary and secondary. Primary sources imply for the one that researcher undertakes for the collection of data set as per objectives such as survey, observation, focus group etc. On the contrary to this, secondary data sources include books, journals and scholarly articles that has already been gathered as well as published by the researcher (Mackey and Gass, 2015). In this, for addressing research questions secondary data sources have been used by the researcher. On the basis of such aspect, by evaluating books, journals and scholarly articles regarding the factors that impact bank’s profitability secondary data has been gathered. In addition to this, annual reports of 12 European banks have also been evaluated to gather data pertaining to profit margin, liquidity, solvency and efficiency. Hence, such data set and findings presented by other scholars assist in presenting the factors that affect profitability of firms operating in banking sector.


In research, due to the lack of having enough time and financial resources, it is not possible for the researcher to conduct study on whole population. Thus, there are mainly two sampling techniques such as probabilistic and non-probabilistic that can be employed for sample selection (Panneerselvam, 2014). Hence, as per quantitative research type, considering simple random sampling technique 10 European banks have been selected by the researcher. This in turn includes Barclays Plc, Standard Chartered plc, Lloyds banking group, Deutsche, Royal bank of Scotland, Commerzbank AG, Erste, UBS, HSBC and BNP Paribas. Such sampling technique is the part of probabilistic which in turn helps in assessing optimal outcome by avoiding the level of biasness.

Data analysis

It refers to the systematic process that is used to analyse and discover suitable information from data set. Tools and techniques of data analysis vary in accordance with the type of investigation selected (Gast and Ledford, 2014). Moreover, thematic perception test technique is highly suitable when qualitative investigation conducted. In contrast to this, SPSS tools offer optimal solution when outcome is based on numeric figures. In this, solution of concerned research issue or problem is based on quantitative data set. Referring such aspects, statistical tools and techniques have been undertaken by the researcher. Hence, by doing correlation analysis, scholar has presented factors that impact profit margin of banking firms.

Reliability and validity

For ensuring reliability, relevant and latest articles have been used by the researcher that published after the period of 2007. The rationale behind considering such aspect is that latest articles provide with updated and specific information regarding the concerned issue. Along with this, to enhance validity of findings, no alterations have done in the numeric facts and figures. This in turn ensures that no biasness has been considered to get the desired level of outcome or success.

Research limitations

Time and lack of availability of enough resources are considered as the main limitation of study. Hence, for managing time specific time and conducting study within the suitable Gantt chart has been prepared. This in turn gives clear indication about the time within which research activity needs to be completed. Further, there are several sites that require money for accessing the same. In this regard, by doing in-depth research or investigation data has been gathered and analysed.

Ethical issues

Ethical aspects are the one that enhance significance of the study to a great extent. On the basis of such aspect, reference list has been added by the researcher. This in turn shows that findings of other researchers have been rephrased rather than copied. Along with this, no biased judgments have been considered which in turn reflects that study and its findings are highly appropriate.

Data analysis implies for the process of inspection, cleansing, transforming and modeling data set. This chapter of dissertation is highly significant which in turn helps in discovering suitable information and thereby gives input for suggesting conclusion and recommendations. In this, statistical tools such as descriptive evaluation, regression analysis and correlation have been used by the scholar for analyzing factors that impact profitability of banking institutions. Hence, referring the investigation type namely quantitative statistical tools have been undertaken. On the basis of panel data set, all the variables are observed or assessed for each cross-section and time period. Further, for presenting the fair view of study findings have supported with the brief thesis prepared in literature review section.


Descriptive statistics



Deposit ratio


capital ratio

loan ratio







Standard Error


















Standard Deviation






Sample Variance
















































Confidence Level(95.0%)






Interpretation: Outcome of descriptive statistics presents that mean return on equity generated by 10 banking units during the period of 15 years accounted for 7% significantly. Further, standard deviation assessed from such data set implied for 1% which in turn presents that mean value will not deviate significantly. Along with this, mean and median deposit ratio of banking institutions was .66 and .46. In addition to this, by applying the tool of descriptive statistics on gathered data set it has found that mean size or total assets of concerned financial institution was 14585110. Further, median size or total assets of European banking units implied for 921289.5 significantly. From evaluation, it has identified that average capital and loan ratio was 0.091 & 0.681 during the period of 2000-2015. In the context of such two variables level of standard deviation was higher. Along with this, 50% value of data set belongs from 0.047 & 0.550 significantly. Hence, at the time of developing strategic framework European banking units should keep in mind the outcome of descriptive statistics.


The above depicted table shows that negative and lower correlation takes place between ROE and size, deposit and capital ratio. In other words, it can be mentioned that relationship takes place between such two factors is negative but at negligible level. Hence, by taking into account all such aspects it can be said that profitability of firm influences from the size or level of operations take place. Such findings can clearly be supported with the secondary data evaluation which in turn shows that when financial institution expands its operations or work at large level then it enjoys high economies of scale. In this way, business or banking units can make improvement in margin by enhancing operational size. However, data set evaluated through the means of statistical tools present that p value is less as compared to standard limit such as 0.05. By keeping such aspect in mind, it can be said that alternative hypothesis is false. Hence, no statistical and significant difference takes place in the average values of return on equity and operational size. Previous studies and their results show that firm or banking units can amplify profitability by increasing size but not always. Besides this, scholarly articles also show that banks can reduce or decline cost level by increasing size but on the other side financial institution also incurs scale of inefficiencies. Due to this, sometimes smaller banking units could be more profitable in comparison to the large one. Hence, in the case of large sized financial institution, negative relationship exists between size and profitability aspect. Moreover, sometimes, size imposes direct cost associated with management, bureaucratic process and agency aspects.

Further, correlation matrix exhibits that both deposit and capital ratio does not have significant influence on banking institutions profitability. Along with this, outcome of regression analysis shows that p>0.05 which in turn entails that null hypothesis is true and other one is rejected. As per this, no significant difference takes place in the mean values of ROE and deposit ratio. It presents that value of both dependent and independent variable is moving in the same direction. This can be linked from scholarly articles which in turn presents that sometimes high earnings reduce or decrease the level of profitability aspects. The rationale behind this, banking institutions is less profitable when demand for the loan is little. During the period of recession, individuals were not having ability to take loan for meeting their requirements. Hence, when incapacity of bank exists pertaining to release money through loan then it impacts profitability aspect. Moreover, in the case of deposits, banks are obliged to make interest payment to the concerned depositors.

In the context of capital ratio or equity to total assets measure, it can be depicted that both ROE and cap is negatively correlated. In addition to this, p value related to such hypothesis accounts for .292 respectively. It shows that p value determined through multi-regression analysis is lower in against to 0.05. By considering this, it can be said that null hypothesis is accepted. Such finding or outcome is not in line with the results presented by some other scholars earlier. Moreover, in the study, they demonstrated that best performing banks are the one who preserves and maintains high equity over assets. However, it has also assessed from the evaluation that direct relationship between return on equity and capital ratio is not assured. Thus, some of the studies presented that banking units with lower capital having higher profit margin as compared to the one who are well capitalized. Thus, from overall evaluation it can be mentioned that banking institutions in Europe should maintain capital ratio in line with the current situation and competitor’s trend.

 Further, results of regression analysis present that p


In this, quantitative research has been carried to assess the factors that impact profitability aspect of European banking units. By using multiple regression analysis and undertaking the sample of 10 banks which are operating in Europe evaluation has done. For addressing research objectives data from 2000-2015 have been considered which in turn helps in assessing optimal solution of the concerned issue. From assessment, it has been concluded that period of global crisis 2007-08 placed negative impact on the profitability and overall operations of banking units. During this time period, several banking units were acquired by leading units due to disability in relation to managing operations. Besides this, it can be inferred that size is one of the main factors that impacts profitability of banking firms. Moreover, companies get and enjoy high economies of scale when they perform at large or wide level. Hence, business unit can improve profit margin by increasing the level or size of operations. However, it can be summarized from the evaluation that lower level of negative correlationship takes place between profit margin and size of operations. By taking into account such aspect it can be depicted that size has positive impact on the profitability aspect or margin of European banking units.

 By summing up this report, it has been concluded that measure such as equity to total asset is one of the main determinants of profitability in the context of European banking units. On the basis of such aspect, it can be stated that well or highly capitalized banking units can enhance profitability by reducing the cost or level of external financing. It can be presented from secondary data evaluation that deposit ratio and organizational profitability is highly related with each other. In accordance with such aspect, when deposit ratio is higher then capacity of bank in relation to providing loan to the borrowers. This in turn increases customer’s profit to a great extent and thereby contributes in success. Further, it can be mentioned from the evaluation that size of bank’s credit portfolio has significant impact on its profitability aspects either in a positive or negative manner. Moreover, profitability of European banking units are highly affected from credit quality.

From assessment, it can be concluded that deposit ratio places positive impact on the return on equity of European banking units. In addition to this, it has assessed from secondary data evaluation or assessment that size, capital and loan ratio has positive influence on the profitability aspect of European banking firms. Such finding can also be supported with statistical evaluation which in turn exhibits that loan ratio has significant impact on the profitability of banking units operating in Europe. The main reason behind this, loan aspect enables banking institution to generate high margin by lending money to others. Moreover, in against to offering financial support banking institution charges high interest that considered as an income for them. Thus, it can be entailed from the evaluation that by making improvement in loan ratio banking institutions operating in Europe can improve profit margin. Thus, from overall assessment it can be presented that size, level of deposit, loan etc closely influences the level of profit margin.


  • Referring secondary assessment, it is recommended to the managers of European banking units that they need to lay emphasis on improving the size of operations. This in turn helps manager of the concerned firms in reducing the level of expenses and thereby improves profit.
  • Further, managers of European banks are suggested to make focus on the development of sound strategic and policy framework regarding loan ratio. In other words, it can be mentioned that by making improvement in the quality of loan and such ratio profit can be maximized by financial institution operating in Europe.

Books and Journals:

  • Anginer, D., Cerutti, E. and Pería, M. S. M., 2017. Foreign bank subsidiaries' default risk during the global crisis: What factors help insulate affiliates from their parents?. Journal of Financial Intermediation. 29. pp.19-31.
  • Borio, C., Gambacorta, L. and Hofmann, B., 2017. The influence of monetary policy on bank profitability. International Finance. 20(1). pp.48-63.
  • Demirgüç-Kunt, A. and Singer, D., 2017. Financial inclusion and inclusive growth: a review of recent empirical evidence.
  • Friese, S., 2012. Qualitative Data Analysis with ATLAS. SAGE
  • Gast, D.L. and Ledford, J.R., 2014. Single case research methodology: Applications in special education and behavioral sciences. Routledge.
  • Isik, O. and Tasgin, U.F., 2017. Profitability and Its Determinants in Turkish Manufacturing Industry: Evidence from a Dynamic Panel Model. International Journal of Economics and Finance. 9(8). p.66.
  • Isik, O., Kosaroglu, S. M. and Demirci, A., 2018. The Impact of Size and Growth Decisions on Turkish Banks’ Profitability.
  • Islam, M. A. and, 2017. Determinants of Profitability of Commercial Banks in Bangladesh. International Journal of Banking and Financial Law. 1(1). pp.01-011.
  • Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.
  • Maudos, J., 2017. Income structure, profitability and risk in the European banking sector: The impact of the crisis. Research in International Business and Finance. 39. pp.85-101.
  • Ozkan, N., Cakan, S. and Kayacan, M., 2017. Intellectual capital and financial performance: A study of the Turkish Banking Sector. Borsa Istanbul Review. 17(3). pp.190-198.
  • Panneerselvam, R., 2014. Research methodology. PHI Learning Pvt. Ltd..
  • Punch, F. K., 2009. Introduction to Research Methods in Education, SAGE.
  • Rowley, T. J., Shipilov, A. V. and Greve, H. R., 2017. Board reform versus profits: The impact of ratings on the adoption of governance practices. Strategic Management Journal. 38(4). pp.815-833.
  • Saif-Alyousfi, A. Y., Saha, A. and Md-Rus, R., 2017. Profitability of Saudi Commercial Banks: A Comparative Evaluation between Domestic and Foreign Banks using CAMEL Parameters. International Journal of Economics and Financial Issues. 7(2). pp.477-484.
  • Sharma, D. K. and Wadhwa, R., 2017, July. Determinants of Dividend Policy Decision: An Analysis of Banks in India. In Proceedings of International Conference on Strategies in Volatile and Uncertain Environment for Emerging Markets (pp. 617-623).
  • Sigmund, M., Gunter, U. and Krenn, G., 2017. How Do Macroeconomic and Bank‐specific Variables Influence Profitability in the Austrian Banking Sector? Evidence from a Panel Vector Autoregression Analysis. Economic Notes. 46(3). pp.555-586.
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