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Financial Performance Analysis of Lloyds Banking Group Plc and NatWest Group

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The financial Performance of an organisation can be analysed through financial reports. This report will focus on developing knowledge regarding two companies listed in FTSE 100 and their goals. Two companies that are chosen for this report are Lloyds Banking Group Plc and NatWest Group. Apart from this, the overall financial analysis of these two companies and their corporate performance will be compared based on the financial statement information and balance sheet evaluation. Important Financial ratios of chosen companies will be analysed in this report. Moreover, the cost of capital, book value and market value of some of their financial statement items will be evaluated for comparison.

Goals of Two Companies

Two companies are chosen for this report to compare them based on their financial position and corporate performance. Among these two, Lloyds Banking Group Plc is a banking institution in the UK. The company is a financial service group in the UK and they aim at helping businesses and individuals to make effective financial decisions (Lloydsbankinggroup, 2022). Moreover, another goal of this is to help overall Britain to prosper and create a more sustainable as well as inclusive future for people or any business entity. It also focuses on shaping finance as a major force for good.

NatWest Group is another Banking and insurance holding company in the UK. The goal of this particular company is to build a deeper bond with the customers and support them significantly at every key stage of their lives (Natwestgroup, 2022). The company also focuses on helping its customers to thrive. Moreover, the group aims to detect and prevent several financial crimes to protect people, families and several businesses from facing huge losses.

Evaluating Balance Sheet

According to the balance sheet of Lloyds Banking Group Plc for 2021, it can be observed that it has £76,420 million in its cash account. The amount has increased from £73,257 million in 2020 to £76,420 million in 2021 (Lloydsbankinggroup, 2021). The accounts receivables of the banking institution are mentioned as ‘Loans and advances to banks” and “Loans and advances to customers" and the total amount in these two accounts is (£7,001m+ £448,567m) = £455568 million. In the year 2020, the amount was less i'e (8060 + 440,200) = £448260 million. This means the number of loan grants is more than the repayment of the loan from customers and other banks. Investment of the bank in Joint ventures and associates has increased from 2020 to 2021. In 2020, the amount was £296 m and in 2021 it was £352 m (Lloydsbankinggroup, 2021). Customer deposits have also increased from 2020 to 2021. The deposits from customers in 2020 and 2021 were £450,651m and £476,344 m, respectively. Apart from this, the company has some extra shares in 2021, as the amount in share capital increased to 7,102 from 7,084. Moreover, retained profit of this company has also increased significantly from 4,584 to 10,241.

In terms of NatWest Group, the cash balance increased from 124,489 to 177,757, which was much higher than Lloyds' cash balance in both years. Accounts receivable same as Lloyds have increased from 2020 to 2021 (Natwestgroup, 2021). However, the margin of loan to customers for NatWest Group was much higher. No such investment has been made by a company like Lloyds Banking Group. The amount of customer deposits and bank deposits to this bank has increased from 2020 to 2021. Customer deposits in 2020 and 2021 were 431,739 and 479,810. However, the volume is larger compared to Lloyds. The company issued 35 ordinary shares in 2020 and 37 in 2021 (Natwestgroup, 2021). Even then, the number of ordinary shares has decreased from 12,129,165 to 11,467,982, due to the buyback of shares.

Measuring Corporate Performances

The corporate Performance of a company refers to both financial as well as non-financial performance. Measuring the corporate performance of a country can be done through many metrics, whether it is financial or non-financial. The non-financial measure of corporate performance is the "Balance scorecard" and financial measures of corporate performance are some of the financial key performance indicators (KPIs) such as revenue, operational cost, cash flows, return on investment and others (Ishaq Bhatti et al. 2014). In this section, financial key performance indicators are used for a better understanding of the company’s corporate performance. Historically also, financial measures are the best measure for evaluating the performance of a company.

The revenue of Lloyds Banking Group for 2021 was 37,444, which is almost 29% larger than its previous revenue in 2020. On the other hand, the Revenue of NatWest Group was much lower than Lloyds Banking Group i'e 10,512 in 2021. This is only 0.04% higher than the previous year's revenue, due to a decrease in revenue from the NatWest market, retail banking, and private banking (Lloydsbankinggroup, 2021). Operating expenses of NatWest Group in 2021 were 7,758 and for Lloyds Banking Group it was 10,800. The operating expenses of NatWest Group were huge compared to Lloyds Banking Group, in terms of their margin of total income (Natwestgroup, 2021).

Corporate Performance of Lloyds vs NatWest in 2021

Figure 1: Corporate Performance of Lloyds vs NatWest in 2021

In terms of NatWest Group, cash and cash equivalent for 2021 was 190,706 and for Lloyds Banking Group, it was 76,379. The return on tangible equity for Lloyds Banking Group was 13.8% in 2021. The return on tangible equity for NatWest Group in 2021 was 10% and almost 4% less than Lloyds (Natwestgroup, 202). As a result, it can be stated that the corporate performance of Lloyds Banking Group was better than NatWest, in terms of revenue, operating activities as well as return on equity. However, in terms of cash flow, the liquidity position of NatWest Group is much better than Lloyds Banking Group in 2021 and 2020 both.

Financial Ratio Interpretation and Analysis


Ratio Analysis


Lloyds Banking Group Plc

NatWest Group

Current Ratio

Current Asset/Current Liability



Operating Profit Ratio

Operating Profit/ Sales Revenue



Asset turnover ratio

Sales / Average Total Assets



Receivables turnover ratio

Sales/ Average Accounts receivable



Net Profit Margin

Net Profit/Sales Revenue



Table 1: Ratio Analysis

According to the above table, it can be observed that the current ratio of Lloyds Banking Group Plc is lower than NatWest Group. The Current ratio of Lloyds is 0.143 and the current ratio of NatWest is 0.417. This means the NatWest Group has a greater capacity to meet all of its current liability through current assets due to a higher inflow of cash in business than Lloyds (Sunjoko and Arilyn, 2016). This was a result of the decrease in loans to customers, decrease in assets, and increase in customers' deposits by a huge margin rather than Lloyds Banking Group. The operating profit ratio of NatWest Group seems to be greater than Lloyds Banking Group. This is because Lloyds' operating profit was much less, according to their Sales Revenue, when compared with NatWest. Though, the volume of Operating profit was greater for Lloyds. The asset turnover ratio is lower for both the banking groups. However, the position of Lloyds is better than NatWest in 2021. This means, Lloyds is more efficient in extracting revenue against low numbers of assets, in respect to NatWest (Sunjoko and Arilyn, 2016).

The receivable turnover ratio for Lloyds is also higher than NatWest, which indicates greater capacity of Lloyds to collect loan repayments from creditors than NatWest (Amanda, 2019). However, the overall margin is low for both of the banks. Net Profit Margin of NatWest is greater than Lloyds in 2021, as Lloyds could not gain profit according to their sales revenue due to higher insurance claims, tax margins and many others (Nariswari and Nugraha, 2020). As a result, it can be stated that, apart from profit margin, the financial performance of Lloyds is better than NatWest in 2021.

Interpretation of Cost of Capital by interpreting of Market Value and Book Value

Calculation of WACC of Two Banks

Risk Free Rate of UK



Risk Premium



Lloyd’s banking Group Plc

NatWest Group

Market Value of Equity



Total Capital



Cost of Equity = Rf + (Rm-Rf) x Beta






Interest Expenses



Market Value of Debt



Cost of Debt



Weightage of Equity



Weightage of debt



Tax Rate






Table 2: WACC

According to the above figure, it can be observed that the cost of capital for Lloyds and NatWest are 7% and 32%, respectively. Higher Cost of Capital of NatWest means more risk to the company’s debt and the stock is too volatile and this will lead to low investment in NatWest Group (Frank, M.Z. and Shen, 2016). The risk-free rate is 3% and risk premium is 4.84% (Worldgovernmentbonds, 2022). The Beta Value for Lloyds and NatWest are 1.18 and 1.28, respectively (Yahoo, 2022). Market value is the value of a company refers to the value of the company's outstanding share in the market. Book value means the value of share or any other assets found in the balance sheet. The Market Value of the share has been calculated by dividing outstanding share by share price. The book value of debt has been considered as the market value of the debt for companies.


It can be concluded that the financial performance of Lloyds was better than NatWest, except for liquidity and profit margin. Liquidity position of NatWest is better due to larger cash flow in the business. The share of Lloyds is less volatile than NatWest, according to the cost of capital and due to this, investors will be more interested in Lloyds’ stock. Moreover, Lloyds is more efficient than NatWest to utilize assets properly to extract revenue.


Amanda, R.I., 2019. The Impact of Cash Turnover, Receivable Turnover, Inventory Turnover, Current Ratio and Debt to Equity Ratio on Profitability.Journal of research in management,2(2).

Frank, M.Z. and Shen, T., 2016. Investment and the weighted average cost of capital.Journal of Financial Economics,119(2), pp.300-315.

Ishaq Bhatti, M., Awan, H.M. and Razaq, Z., 2014. The key performance indicators (KPIs) and their impact on overall organizational performance.Quality & Quantity,48(6), pp.3127-3143.

Lloydsbankinggroup, 2021. Annual Report 2021. Available from: https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2021/q4/2021-lbg-annual-report.pdf [Accessed on 8 December 2022]

Lloydsbankinggroup, 2022. Who We Are. Available from: https://www.lloydsbankinggroup.com/who-we-are/our-strategy.html [Accessed on 8 December 2022]

Nariswari, T.N. and Nugraha, N.M., 2020. Profit growth: impact of net profit margin, gross profit margin and total assets turnover.International Journal of Finance & Banking Studies (2147-4486),9(4), pp.87-96.

Natwestgroup, 2021. Financial Report 2021. Available from: https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/annual-reports/financial-statements-2021.pdf [Accessed on 8 December 2022]

Natwestgroup, 2021. Annual Report 2021. Available from: https://www.natwestgroup.com/[Accessed on 8 December 2022]

Sunjoko, M.I. and Arilyn, E.J., 2016. Effects of inventory turnover, total asset turnover, fixed asset turnover, current ratio and average collection period on profitability.Jurnal Bisnis dan Akuntansi,18(1), pp.79-83.

Worldgovernmentbonds, 2021. United Kingdom Government Bonds - Yields Curve. Available from: http://www.worldgovernmentbonds.com/country/united-kingdom/#:~:text=Central%20Bank%20Rate%20is%203.00,last%20modification%20in%20November%202022). [Accessed on 8 December 2022]

Yahoo, 2022. Lloyds Banking Group plc. Available from: https://finance.yahoo.com/quote/LYG/financials?p=LYG [Accessed on 8 December 2022]

Yahoo, 2022. Lloyds Banking Group plc. Available from: https://finance.yahoo.com/quote/LYG?p=LYG [Accessed on 8 December 2022]

Yahoo, 2022. NatWest Group plc (NWG). Available from: https://finance.yahoo.com/quote/NWG?p=NWG&.tsrc=fin-srch [Accessed on 8 December 2022]

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