1.0 INTRODUCTION 1.

1 Company Profile Scotiabank is one of North America's premier financial institutions and Canada's most international bank. With approximately 70,000 employees, Scotiabank Group and its affiliates serve more than 18.6 million customers in some 50 countries around the world, offering a diverse range of products and services, including personal, commercial and corporate and investment banking. Since welcoming their first customers in 1832, Scotiabank has enjoyed continued success by building on long-established core strengths - risk management, cost control, diversification, customer satisfaction and great employees. Their goal is to be the best Canadian-based international financial services company. 1.2 Core Businesses Scotiabank focuses on creating and seizing opportunities to better serve their customers, reward their shareholders, engage their employees and help their communities to prosper. Their success is reflected in their philosophy, One Team, One Goal, and in the strength of their three major business lines: Domestic Banking, International Banking and Scotia Capital. 1.3 Core Purpose Their core purpose is to be a leading multinational financial services provider, based in Canada by being the best at helping customers become financially better off. 1.4 Corporate Priorities Their corporate prioroties are as follows:

Sustainable and profitable revenue growth Capital management Leadership Prudent risk management and appetite Efficiency and expense management

1.5 How they do things Scotiabank collaborates with other entities, taking full advantage of business opportunities, synergies, best practices and their global talent pool. 1.6 Their Values Scotiabank has five sets of values which they live by. These are as follows:
1. INTEGRITY - They interact with others ethically and honourably. 2. RESPECT - They empathize and fully consider the diverse needs of others. 3. COMMITMENT - They achieve success for their customers and their teams. 4. INSIGHT - They use a high level of knowledge to proactively respond with the

right solutions.
5. SPIRIT - They enrich their work environment with teamwork, contagious

enthusiasm and a can-do attitude. 2.0 Their Strengths After 178 years in business, common themes surface as the defining characteristics of who we they are and who they strive to be. The framework takes into account their customs and the reputation they have enjoyed since they were founded. They are defined by their culture and values that are rooted in their key strengths of diversification, execution, efficiency and expense management, and risk management. Their unity as an organization and collaborative approach One Team, One Goal is a powerful competitive advantage. Scotiabank has a multinational presence, operating in more than 50 countries worldwide. They offer a diverse range of products and services, including personal, commercial, and corporate and investment banking. Their strategy is based on diversification by businesses, geographies and risk and its success is evident in their results, particularly during this past difficult Financial Crisis. They have four business lines Canadian Banking, International Banking, Scotia Capital and their new Global Wealth Management division. They have a traditional and straightforward model based on an approximately equal split between their Canadian and international operations,
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with the largest part of their earnings coming from personal and commercial banking, including wealth management, and the balance from wholesale banking. Their success comes from the strength of their people, the careful attention they pay to their five key priorities, and their defined values and culture. They are proud to be a leader in best practices related to board governance, risk management, compensation practices, auditing and compliance. They will continue to focus on their strategy and the priorities that have contributed to their success today as a strong foundation for their overall success in the future. Scotiabanks performance in 2009 continues their long record of strength, stability and consistent earnings growth. This past year was another successful one for them, consistent with what their shareholders have come to expect, during which they turned in a record net profit. It was also a pivotal year for the future of Scotiabank, one in which they executed a significant change in their organizational structure to seize a window of opportunity for long-term growth. With many banks around the world rebuilding, and some even retrenching from global markets, in anticipation of tighter regulation and a new financial landscape, Scotiabanks strong capital position, diversified international presence, and traditional and straightforward business models present them with significant opportunities in all of their markets. In 2009, Scotiabank met or exceeded all of their key targets, and reported record net income of $3.5 billion, with each of their business lines performing well and contributing to their earnings. Their performance is the result of staying focused on their strategy of diversification by business, geography and risk, while they continue to invest in growth initiatives and in their employees. Their employees drive their success. Their tremendous team of employees collaborate in the spirit of One Team, One Goal to provide their customers with excellent advice and service. 2.1 Competitive Strength

Scotiabank stands in a position of strength. Over the past three years, when many banks in the U.S. and Europe were reporting massive losses, they added new customers, new products and services, and made strategic acquisitions, all of which led to revenue growth. Canadas relative strength during the financial crisis and global recession earned the country worldwide attention and elevated the Canadian brand on the world stage. In addition to a successful macroeconomic framework, Canada was widely recognized for its strong financial system, which is characterized by good public governance, strong fiscal, monetary and regulatory oversight; and prudent management of financial institutions. These strengths contribute to Canadas economic stability and, at the same time, present opportunities for the Bank, particularly because of their international footprint. Their focus remains on achieving growth in line with their strategy of diversification. Scotiabank has earned a strong reputation at home and abroad, and their strength continues to be recognized. Some of Scotiabanks competitors in the Banking Industry are as follows: RBC (Royal Bank of Canada) TD Bank Financial BMO Financial CIBC (Canadian Imperial Bank of Commerce) National Bank of Canada Laurentian Bank 2.2 Re-organization of their businesses Scotiabank implemented significant changes to that structure that realigned their businesses globally, build upon their strengths, and position them for growth in this unique time in the global financial sector. This realignment is the latest and certainly the most visible step in an evolution that has been underway for some time. They created a new division called Global Wealth Management, which combines wealth management and insurance in Canada and internationally, along with Global Transaction Banking. As a result, a number of appointments were made to support these changes and demonstrate Scotiabanks commitment to leadership development. For the past several
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years, they have expanded their wealth management business, organically and through acquisitions and investments, to take advantage of excellent growth potential in this segment. Amalgamating their wealth operations creates an integrated platform that allowed them to leverage their Canadian successes internationally and benefit from scale. 3.0 Financial Statement Analysis 3.1 Analysis of Financial Statements on Scotiabank Financial Report 2007-2009 Financial statement analysis is a critical process. One of the primary objectives is identification of major changes in trends, relationships and the investigation of the reasons underlying those changes. This judgment process can be improved by experience and the use of analytical tools. The most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the purpose of evaluating aspects of a company's operations and fall into the following categories:

liquidity ratios measure a firm's ability to meet its current obligations. profitability ratios measure management's ability to control expenses and to earn a return on the resources committed to the business. Financial/Leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time.

efficiency, activity or turnover ratios provide information about management's ability to control expenses and to earn a return on the resources committed to the business.

The ratios that are going to be used to analyze Scotiabank are Liquidity Ratios, Profitability Ratios and Financial Ratios. The benchmark that is going to be used is that of their main competitor, RBC (Royal Bank of Canada).

3.2 LIQUIDITY RATIOS 3.2.1 Working Capital

Financial Year 2007 2008 2009 Scotiabank Limited $125,109 $154,129 $151,421 RBC (Royal Bank of Canada) $36,652 $46,796 $71,111

The Working capital compares current assets to current liabilities, and serves as the liquid reserve available to satisfy contingencies and uncertainties. A high working capital balance is mandated if the entity is unable to borrow on short notice. The ratio indicates the short-term solvency of a business and in determining if a firm can pay its current liabilities when due. Based on the calculations above, Scotiabank had a substantial jump in their working capital from the period 2007 to 2008 and in 2009 there was a slight decline whereas their competitor RBC showed a consistency over the three year period with increases each year. From this we can see based on the trend that Scotiabank has a high liquid reserve, whereas RBC has a liquid reserve but does not match with the reserves of Scotiabank. 3.2.2 Current Ratio
Financial Year 2007 2008 2009 Scotiabank Limited 2.22 : 1 2.14 : 1 2.31 : 1 RBC (Royal Bank of Canada) 1.18 : 1 1.19 : 1 1.33 : 1

The Current ratio is a comparison of current assets to current liabilities, which is a commonly used measure of short-run solvency, i.e., the immediate ability of a firm to pay its current debts as they come due. The Current Ratio is important to a company thinking of borrowing money or getting credit from their suppliers. Potential creditors use this ratio to measure a companys liquidity or ability to pay off short-term debts. Though acceptable ratios may vary from industry to industry, a ratio below 1.00 is not atypical for high quality companies with easy access to capital markets to finance unexpected cash requirements. Smaller companies, however, should have higher current ratios to meet unexpected cash requirements. The Current Ratio for small companies is 2:1,
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indicating the need for a level of safety in the ability to cover unforeseen cash needs from current assets. Scotiabank has maintained its liquidity over the three year period indicating a constant trend with a ratio within the 2:1 bracket which confirms that they do have the ability to pay of their short term debts even in the economic crisis thats currently facing the word. RBCs liquidity ratios show that they also have the ability to pay of their short term debts by maintaining a ratio in the 1:1 bracket. 3.2.3.Liquid Ratio (Acid Test Ratio)
Financial Year 2007 2008 2009 Scotiabank Limited 2.0 : 1 2.0 : 1 2.1 : 1 RBC (Royal Bank of Canada) 1.0 : 1 1.1 : 1 1.1 : 1

The Quick Ratio (or Acid Test Ratio) is a more rigorous test than the Current Ratio of short-run solvency to determine if a company has the ability to pay its current debts as they come due. This ratio considers only cash, marketable securities (cash equivalents) and accounts receivable as they are considered to be the most liquid forms of current assets. A Quick Ratio less than 1.0 implies "dependency" on inventory and other current assets to liquidate short-term debt. Scotiabank has maintained a Ratio of 2.0 : 1 and 2.1 : 1 over the the last three years and this trend over the last three years indicates that with the economic conditions that are affecting many companies, the company is still holding strong and has the ability to pay of it current debts. In comparison with RBC, they have also have a consistent trend and maintains a ratio of 1.0 : 1 and 1.1 :1 throughout the three year period and can pay their debts, but Scotiabank has the upper hand in that they have a higher ratio than that of the competitors, which places them in a better position than RBC.

3.3 PROFITABILITY RATIOS 3.3.1 ROTA % Financial Year Scotiabank Limited RBC (Royal Bank of 7

2007 2008 2009

1.65 % 1.04 % 1.24 %

Canada) 1.68 % 1.30 % 1.18 %

The ROTA (Return on Total Assets) is a ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. The greater a company's earnings in proportion to its assets (and the greater the coefficient from this calculation), the more effectively that company is said to be using its assets. Even though in 2008 there was a major decline in Scotiabanks ROTA in 2008 from 1.65% to 1.04%, they managed to to significantly increase to 1.24% in 2009 which indicates that they are efficiently using their assets to generate earnings before paying any obligations. RBC on the other hand has been showing a downward trend from the period 2007- 2009, which indicates that there is a possibility that RBCs earnings in proportion to its assets do not match hence the decline over the last three years. Overall, it can be determined that Scotiabank doing a much better job than its competitors.

3.3.2 Profit Margin %

Financial Year 2007 2008 2009 Scotiabank Limited 24.8 % 17.7 % 25.3 % RBC (Royal Bank of Canada) 26.4 % 23.9 % 26.8 %

The Net Profit Margin (NPM Pre-Tax) incorporates all of the expenses associated with ordinary business (excluding taxes), and thus is a measure of the overall operating efficiency of the firm prior to any tax considerations which may mask performance. For a business to be viable in the long term profits must be generated; making the net profit margin ratio one of the key performance indicators for any business. It is important to
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analyse the ratio over time. Based on the calculations above, Scotiabank and RBC both saw a decline in 2008 (17.7 % and 23.9% respectively) and then a substantial increase in 2009 (25.3% and 26.8% respectively). This variation in the ratio from year-to-year may be due to abnormal/irregular conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further decline in the ratio or even losses before increased profitability is achieved. 3.3.3 ROCE %
Financial Year 2007 2008 2009 Scotiabank Limited 27.7 % 18.2 % 19.3 % RBC (Royal Bank of Canada) 27.8 % 19.5 % 14.9 %

Return on Capital Employed (ROCE) is a measuring tool that measures the efficiency and profitability of capital investments undertaken by a corporation. A firm acquires capital assets such as Land and computers to help make their business operations more efficient, cut down on costs and realize greater profits or acquire more market share. Return on Capital Employed ratio also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. It is expressed in the form of a percentage, and the higher the percentage, the better. Based on the calculations, Scotiabank showed a decline in their ROE in 2008 with a percentage of 18.2% as well as RBC with a percentage of 19.5%. Scotiabank had minor increase in 2009 whereas RBC continued to decline in 2009 with a percentage of 14.9%. This trend indicates that even in current market conditions, Scotiabank is doing much better than their competitors and earning sufficient revenues and profits and makes the best use of their assets. 3.4 FINANCIAL RATIOS 3.4.1 ROE %
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Financial Year 2007 2008 2009

Scotiabank Limited 22.0 % 16.7 % 16.7 %

RBC (Royal Bank of Canada) 24.7 % 18.1 % 11.9 %

The Return on Equity (ROE) ratio measures the overall efficiency of the firm in managing its total investments in assets and in generating a return to stockholders. It is the primary measure of how well management is running the company. ROE allows financial analysts to quickly gauge whether a company is a value creator or a cash consumer. By relating the earnings generated to the shareholders equity, one will be able to determine how much cash is created from the existing assets. Clearly, with all things being equal, the higher a companys ROE, the better the company. Based on the calculations above, Scotiabanks ROE declined in 2008 to 16.7% from the 22.0% made in 2007. In 2009 they remained constant. RBC fluctuated in 2008 with 18.1% from 24.7% in 2007 and decreased further in 2009 with a percent of 11.9%. This shows that even though RBC has been declining each year it showed that the recessionary environment and market conditions hurt their return on equity from 2008 to present. It can also be seen that Scotiabanks ROE was also negatively impacted by the current market conditions and changes to the accounting policy that they had adopted in the last year. This has proven though that they they still do have the ability to generate substantial returns while maintaining a strong capital position.

3.4.2 GEARING RATIO

BORROWING GEARING RATIO Financial Year Scotiabank Limited

RBC (Royal Bank of 10

2007 2008 2009

5.4 : 1 6.2 : 1 4.6 : 1

Canada) 8.2 : 1 7.9 : 1 5.6 : 1 RBC (Royal Bank of Canada) 67.4 % 57.8 % 34.8 %

INCOME GEARNIG RATIO Financial Year Scotiabank Limited 2007 2008 2009 55.8 % 60.9 % 40.5 %

The gearing ratio measures the percentage of capital employed that is financed by debt and long term financing. The higher the gearing, the higher the dependence on borrowing and long term financing. Whereas, the lower the gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing, the higher the level of financial risk would be due to the increased volatility of profits. Financial managers face a difficult dilemma when this happens. Most businesses require long term debt in order to finance growth, as equity financing is rarely sufficient, on the other hand, the introduction of debt and gearing increases financial risk. A high gearing ratio is positive and a large amount of debt will give higher return on capital employed but the company dependent on equity financing alone is unable to sustain growth. Gearing can be quite high for small businesses trying to become established, but in general they should not be higher than 50%. Shareholders benefit from gearing to the extent that return on the borrowed money exceeds the interest cost so that the market values of their shares rise. Banks are technically high geared because most of their money comes from depositors, hence the reason why banks dont go in to high interest rates. Scotiabank had a huge increase in 2008 with their gearing of 6.2 : 1 and 60.9% and a decrease in 2009 meaning that there is still a high portion of money being used hence making them high gearing. RBC continued to decline throughout the three year period but they are still also high gearing. This indicates that both banks are going to have a higher level of financial risk due to their increased volatility of profits made in each organisation.

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4.0 CASH FLOW STATEMENT ANALYSIS

Cash Flow 2007-2009 Operating Activities 2007 2008 2009 Financing Activities 2007 2008 2009 Investing Activities 2007 2008 2009 Cash & Cash Equivalents at end of year 2007 2008 2009 Scotiabank Limted $1,936 $20,049 ($11,047) $43,124 $31,767 $20,166 ($44,945) ($51,677) ($8,129) RBC (Royal Bank of Canada) $22,500 $11,381 $7,403 $17,374 $39,198 ($25,783) ($39,717) ($44,602) $15,918

$2,138 $2,574 $3,355

$4,226 $11,086 $8,353

The cash flow statement, along with the balance sheet and income statement are the three most common financial statements used to measure a companys performance and overall health. The same accounting data is used in preparing all three statements, but each takes a companys pulse in different areas. It discloses how a company raised money and how it spent those funds during a given period. It is also an analytical tool, measuring an enterprises ability to cover its expenses in the near term. Generally speaking, if a company is consistently bringing in more cash than it spends, that company is considered to be of good value. The cash flow statement is divided into three parts: operations, investing and financing. The following is an analysis of a realworld cash flow statement for Scotiabank and Royal Bank Of Canada. Note that all figures represent millions of dollars.

4.1 Cash from Operating Activities

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This is the key source of a company's cash generation. It is the cash that the company produces internally as opposed to funds coming from outside investing and financing activities. In this section of the cash flow statement, net income (income statement) is adjusted for non-cash charges and the increases and decreases to working capital items - operating assets and liabilities in the balance sheet's current position. Scotiabank had a major increase of cash produced internally in the year 2008 and suffered a loss in cash sales in 2009 with a negative balance of $-11,047. This was caused by the negative impacts from the market conditions and financial crisis within the economy. RBCs internal sales continued on a downward part from 2007 to 2009 indicating that they were also affected by the market conditions and financial crisis in the economy. 4.2 Cash from Investing Activities Some businesses invest outside their core operations or acquire new companies to expand their reach. This portion of the cash flow statement accounts for cash used to make new investments, as well as proceeds gained from previous investments. It is associated with purchases and sales of non-current assets, for example, building and equipment purchases or sales of investments or subsidiaries. In Scotiabanks case, from the period 2007 to 2009 it indicates that the company spent significant cash hence resulting in negative balances throughout the last three years. It also shows that Scotiabank are always investing in projects in hopes that it will lead to future growth. RBC had also invested a lot of cash in 2007 and 2008 and the positive balance seen in 2009 indicated that their investments were profitable and bringing growth into the company.

4.3 Cash from Financing Activities

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This refers to the movement of cash from financing activities. Debt and equity transactions dominate this category. Companies continuously borrow and repay debt. The issuance of stock is much less frequent. Here again, for investors, particularly income investors, the most important item is cash dividends paid. It is cash, and not profits, that are used to pay dividends to shareholders. For the period 2007-2009, Scotiabank financing activities indicate that they borrow and repay their debts hence having a positive stock performance which is the companys gain. This in turn allowed them to pay their dividends to their shareholders. RBC on the other hand were able to borrow and pay off their debts in 2007 and 2008 respectively, however in 2009 they had a negative balance of $ -25783 which could indicate that they may not have paid off their debts on time and may not have a positive stock performance to pay dividends to their shareholders. 4.4 Cash and Cash Equivalents at the end of Year Based on the data above, it can be determined that Scotiabanks cash and cash equivalent at the end of the year was $3,355. From the previous years it shows that Scotiabank made a net cash surplus for all three years. RBC had a significant cash surplus of $11,086 compared to $4,226 they had 2007. However, in 2009, they were able to make a net cash surplus of $8,353 which was a decline from 2008 cash surplus. 5.0 Limitations of Assignment using ratios Financial ratios will reflect only what is contained in the financial reports of the company. As important as that can be, it does not capture many factors which can have a significant impact on the business and yet cannot be quantified or expressed in accounting terms. Other factors not contained in the financial statements were technological developments, competitor's actions and government actions. It was also difficult in comparing ratios with that of the industry standards. Comparing the ratios with past trends and with competitors may not give a correct picture as the figures may not be easily comparable due to differences in accounting policies and accounting period. It

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gives current and past trends, but not future trends. The impact of inflation is not properly reflected, as many figures were taken as historical balances. 6.0 CONCLUSION This analysis was done to determine the impact of the performance of Scotiabank within the last three years. It can be determined that Scotiabank is indeed a very competitive company and as a banking institution they are very successful despite having to face the financial crisis that is taking place around the world today. Even though the economy is still facing a financial crisis it is expected that Scotiabank will have continued growth in the future. Comparing Scotiabank with the Royal Bank of Canada, it was determined that Scotiabank is indeed performing better than their counterparts, RBC, despite the trials they face in this turbulent financial economy. Scotiabank does indeed take their One Team, One Goal strategy very seriously in providing the best for their customers.

7.0 Appendix
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8.0 References 1. Scotiabank Annual Reports 2007 2008 2009

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9.0 Bibliography
1. Arnold, J. , et al. (1994) Financial Accounting, 2nd Edition, FT. Prentice Hall.

2. Altman, E. (1968) Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. Journal of Finance 23(4):589-609 3. Dechow, P.M. (1994) Accounting Earnings and Cash Flows as Measures of Firm Performance: The Role of Accounting Accruals, Journal of Accounting andEconomics. 18(1):3-42
4. Needles, B.E jr. and Pwoers, M (2004) Financial Accounting, 8th edition,

Houghton Mifflin
5. White, G.I, et al. (2002) The Analysis and Use of Financial Statements, 3rd

Edition, Wiley

6. Robinson, T.R. et al. (2009) International Financial Statement Analysis, John Wiley and Sons.

7. Robertson, J. and Mills, R.W. (2004) Fundamentals of Managerial Accounts and

Finance, 4th Edition, Mars Business Associates.

8. Parker, R.H.(1982) Understanding Company Financial Statements, 2nd Edition,

Harmondsworth : Penguin.

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