International Financial Analysis Assessment Answer
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Key Topics
- JPMorgan Chase & Co.- International Financial Analysis
- Introduction
- Outlook of the Global economy & economy in country operates
- Financial statement analysis
- Conclusion
- References
JPMorgan Chase & Co.- International Financial Analysis
Introduction
In this present appear, we will discuss the financial analysis of JPMorgan Chase & Co. which is a multinational and largest bank in the United States. The paper also describes the financial sector outlook, outlook of global economy and economy in which the company operates, and financial statement analysis on the basis of profitability, liquidity, efficiency and investment ratio.
JPMorgan Chase & Co. is the world’s largest bank by the total assets of the company, and it is the most valuable bank in the world according to its market capitalization. The company is the sixth largest composite bank according to the Forbes magazine. The company is having second largest hedge funds in the United States. The company provides various financial services such as asset management, investment banking, treasury and security services, private banking, wealth management, and others. Headquarter of the retail and commercial bank is in Chicago, and corporate headquarter is in Midtown Manhattan, New York. It is considered as the universal bank and provides its services worldwide. The total revenue of the company in 2015 was 9.60 Billion, and total employees are 235,678 in 2015 (Home | JPMorgan Chase & Co. et al., 2016).
JPMorgan Chase & Co. is the world’s largest bank by the total assets of the company, and it is the most valuable bank in the world according to its market capitalization. The company is the sixth largest composite bank according to the Forbes magazine. The company is having second largest hedge funds in the United States. The company provides various financial services such as asset management, investment banking, treasury and security services, private banking, wealth management, and others. Headquarter of the retail and commercial bank is in Chicago, and corporate headquarter is in Midtown Manhattan, New York. It is considered as the universal bank and provides its services worldwide. The total revenue of the company in 2015 was 9.60 Billion, and total employees are 235,678 in 2015 (Home | JPMorgan Chase & Co. et al., 2016).
Outlook of the Global economy & economy in country operates
According to the Global economic prospects of June 216, the growth of the global economy is below by 0.5 percent from the forecasted percentage which is 2.4 percent. The emerging markets and developing economies are facing major challenges which comprise of weaker growth in the advanced economies, and commodity prices are low. Important divergences arise between the exporters of a commodity which are struggling to adjust to the commodity importers and depressed prices.
The present growth of the economy is 3.1 percent in 201 which is the project to grow 3.6 in 2017 (Tukker et al., 2013). The global activities pickup is more gradual according to the world economic outlook. In the advanced economies uneven and the modest recovery is expected in the future. The picture for developing economies and emerging market is diverse but still many challenges are faced by them. The growth of the economy is projected to grow despite the slow economic growth of china. The growth of developing countries and economies in accounted to seventy percent which is declined for the continuation of the modest recovery in advanced economies. The key transitions which influence the global outlook include low prices for energy and various commodities, slow growth and rebalancing of economic activity in china which is towards the consumption and away from investing activities and strictness in the monetary policies in the United States.
The present growth of the economy is 3.1 percent in 201 which is the project to grow 3.6 in 2017 (Tukker et al., 2013). The global activities pickup is more gradual according to the world economic outlook. In the advanced economies uneven and the modest recovery is expected in the future. The picture for developing economies and emerging market is diverse but still many challenges are faced by them. The growth of the economy is projected to grow despite the slow economic growth of china. The growth of developing countries and economies in accounted to seventy percent which is declined for the continuation of the modest recovery in advanced economies. The key transitions which influence the global outlook include low prices for energy and various commodities, slow growth and rebalancing of economic activity in china which is towards the consumption and away from investing activities and strictness in the monetary policies in the United States.
Sector Outlook
The economic growth of the Unites States is expected to overcome in the coming year 2017. The forecasted economic growth is 1.9 percent in 2016 and 2.1 percent in 2017. The ten years treasury bonds will rise from 1.8 percent to 2.1 percent. The global demand in the banking sector will be continued in the future, and the rate of the mortgage will increase from 3.6 Percent to 3.9 percent (Cecchetti et al., 2015). The growth of the banking sector will move in the positive direction, and the expected revenue forecast by the largest banks is 5 percent whereas the small banks are more optimistic and they are expecting 11-20 percent revenue for the particular accounting year. The specialty in banks which helps to derive the revenue includes selling of new capabilities for investment services, cross-selling services, extra charges for innovative and valuable products, unbundle services, enter into the business of prepaid cards and others. According to the survey top, six national depository institutions has scored higher than the small banks in satisfying the consumer needs and demands in which JPMorgan Chase & Co. is considered as one of the best largest banks. The trend of banking on digital brands which helps to increase the revenue of the banks through satisfying the consumer's demands. The implementation of IT usage strategy helps to boost the revenue generation of the company.
Financial statement analysis
1.Profitability ratio
It is defined as the financial ratio which is used to determine the ability of the company to generate the revenue over the particular period of time. The return on equity in the year 2014 is 9.75, and in the year 2014 are 10.34. The return on equity is increased by 6.05% in the year 2015 from the previous year 2014 (Minton et al., 2014). It shows that the financial position of the company is performing outstanding and company y is able to generate high profit margin after paying all expenses of the company within the particular period of time. It shows that the company can also diversify its business into other industries which help to double the revenue generation of the company and the shareholder's profits will be maximized that is the prime objective of the company. The return on equity is calculated by dividing the net income from shareholders equity (Nissim et al., 2001). The net income is calculated by deducting the income tax from the gross income, and average shareholders' equity is generally taken as shareholders equity which is calculated by taking the average of beginning and ending of shareholders equity within the particular period of time. The return on equity indicates the efficiency of the company in generating higher revenue through using shareholders funds. The company is having a positive trend of earnings which is shown from the high return on equity ratio. The company is growing which is shown from the increasing trend of return on equity. These profits can be realized by the company which helps to appreciate the value of the stock over the particular period of time.
2.Liquidity ratio
It is defined as the financial ratio which is used to determine the ability of the company to convert its assets into cash within the particular period of time. The debt-equity ratio is used to determine the financial leverage of the company within the particular accounting period. The debt equity ratio in the year 2014 is 1.45 and in the year 2015 is 1.40. The debt-equity ratio is decreased by 3.57% in the year 2015 from the previous year 2014. It shows that the financial position of the company is stable (Chen et al., 2014). The decrease in debt equity ratio shows that the company is reducing the use of debt financing, so the company has less risk because of the high contribution of equity in the capital formation of the company. The debt-equity ratio is calculated by dividing the debt by equity. The low debt-equity ratio is more favorable for the company because debt is the most expensive form of financing and it involves high risk which is not a good indicator of the financial stability of the company. It involves the risk of paying the debts with the regular interest payments to the creditors and investors. The low debt-equity ratio indicates that the company is capable of operating its business with their own funds over the particular period of time.
3.Efficiency ratio
It is defined as the financial ratio which is used to determine the ability to utilize the assets of the company for generating the income over the particular period of time (Brigham et al., 2013). The assets turnover ratio is defined as the ratio which is used to determine the ability of the company to generate the revenue by utilizing its assets. The assets turnover ratio of the company in 2014 is 0.04 and in 2015 is 0.03 which shows that the capability of utilizing the assets for generating the revenue is decreased by 33.3% from the previous year 2014. It shows the unfavorable condition because the efficiency of the company is reduced which can be improved by increasing the utilization of assets. It indicates the problem of managing the assets of the company over the particular period of time. It can be improved through managing the asset in a most efficient and effective manner (Minton et al., 2014). It is calculated by dividing the net sales from average total assets. The average total assets are calculated by adding the opening and closing the total assets then divide them with two. The total assets include fixed and current assets of the company. The efficiency of the company is reduced but as compare to other competitors within the financial and banking industry the company is utilizing its assets efficiently.
4.Investment ratio
It is defined as the ratio which is used to determine the value of an investment over the particular period of time. The Price earnings ratio is used to determine the value of investments. The price-earnings ratio of the company in the year 2016 is 13.5, and the industry average is 16.2 which show that the company is performing stand out among the competitors within the same industry. The price-earnings ratio is used to determine the value of the company from the market perspective. The formula for calculating price earnings ratio is market value price per share divided by earnings per share. It is mainly calculated at the end of each quarter. It indicates the expected price of the share which is based on the earnings of the company. The high price-earnings ratio indicates that the investors anticipate performance and growth of funds in the future. The price-earnings ratio is twenty percent less than the average industry ratio which shows the stability of earnings within the particular period of time.
The earnings per share in the year 2014 are 5.29, and in the year 2015 are 6.00. The earnings per share are increased by 13.42% which shows that net income earned per share of outstanding share is increased (Koch et al., 2014). The higher earnings per share are showing the high profitability of the company, and the company has more revenue to contribute towards the distribution of shareholders funds. It is calculated by dividing the net income less preference dividend divided by weighted average common share outstanding.
It is defined as the financial ratio which is used to determine the ability of the company to generate the revenue over the particular period of time. The return on equity in the year 2014 is 9.75, and in the year 2014 are 10.34. The return on equity is increased by 6.05% in the year 2015 from the previous year 2014 (Minton et al., 2014). It shows that the financial position of the company is performing outstanding and company y is able to generate high profit margin after paying all expenses of the company within the particular period of time. It shows that the company can also diversify its business into other industries which help to double the revenue generation of the company and the shareholder's profits will be maximized that is the prime objective of the company. The return on equity is calculated by dividing the net income from shareholders equity (Nissim et al., 2001). The net income is calculated by deducting the income tax from the gross income, and average shareholders' equity is generally taken as shareholders equity which is calculated by taking the average of beginning and ending of shareholders equity within the particular period of time. The return on equity indicates the efficiency of the company in generating higher revenue through using shareholders funds. The company is having a positive trend of earnings which is shown from the high return on equity ratio. The company is growing which is shown from the increasing trend of return on equity. These profits can be realized by the company which helps to appreciate the value of the stock over the particular period of time.
2.Liquidity ratio
It is defined as the financial ratio which is used to determine the ability of the company to convert its assets into cash within the particular period of time. The debt-equity ratio is used to determine the financial leverage of the company within the particular accounting period. The debt equity ratio in the year 2014 is 1.45 and in the year 2015 is 1.40. The debt-equity ratio is decreased by 3.57% in the year 2015 from the previous year 2014. It shows that the financial position of the company is stable (Chen et al., 2014). The decrease in debt equity ratio shows that the company is reducing the use of debt financing, so the company has less risk because of the high contribution of equity in the capital formation of the company. The debt-equity ratio is calculated by dividing the debt by equity. The low debt-equity ratio is more favorable for the company because debt is the most expensive form of financing and it involves high risk which is not a good indicator of the financial stability of the company. It involves the risk of paying the debts with the regular interest payments to the creditors and investors. The low debt-equity ratio indicates that the company is capable of operating its business with their own funds over the particular period of time.
3.Efficiency ratio
It is defined as the financial ratio which is used to determine the ability to utilize the assets of the company for generating the income over the particular period of time (Brigham et al., 2013). The assets turnover ratio is defined as the ratio which is used to determine the ability of the company to generate the revenue by utilizing its assets. The assets turnover ratio of the company in 2014 is 0.04 and in 2015 is 0.03 which shows that the capability of utilizing the assets for generating the revenue is decreased by 33.3% from the previous year 2014. It shows the unfavorable condition because the efficiency of the company is reduced which can be improved by increasing the utilization of assets. It indicates the problem of managing the assets of the company over the particular period of time. It can be improved through managing the asset in a most efficient and effective manner (Minton et al., 2014). It is calculated by dividing the net sales from average total assets. The average total assets are calculated by adding the opening and closing the total assets then divide them with two. The total assets include fixed and current assets of the company. The efficiency of the company is reduced but as compare to other competitors within the financial and banking industry the company is utilizing its assets efficiently.
4.Investment ratio
It is defined as the ratio which is used to determine the value of an investment over the particular period of time. The Price earnings ratio is used to determine the value of investments. The price-earnings ratio of the company in the year 2016 is 13.5, and the industry average is 16.2 which show that the company is performing stand out among the competitors within the same industry. The price-earnings ratio is used to determine the value of the company from the market perspective. The formula for calculating price earnings ratio is market value price per share divided by earnings per share. It is mainly calculated at the end of each quarter. It indicates the expected price of the share which is based on the earnings of the company. The high price-earnings ratio indicates that the investors anticipate performance and growth of funds in the future. The price-earnings ratio is twenty percent less than the average industry ratio which shows the stability of earnings within the particular period of time.
The earnings per share in the year 2014 are 5.29, and in the year 2015 are 6.00. The earnings per share are increased by 13.42% which shows that net income earned per share of outstanding share is increased (Koch et al., 2014). The higher earnings per share are showing the high profitability of the company, and the company has more revenue to contribute towards the distribution of shareholders funds. It is calculated by dividing the net income less preference dividend divided by weighted average common share outstanding.
Conclusion
From the above analysis, it can be concluded that the company is performing well among the competitors within the financial and banking industry. The company is a leading bank in the world and it serves worldwide. The profitability ratio of the company shows that the company is generating higher profits which show that the financial performance of the company is stable. The liquidity ratio of the company shows that the company is having less contribution of debt in the capital formation which reflects that the company has enough profits for operating its business activities. The efficiency ratio of the company is less than the previous year which shows that the company is not utilizing its assets in an effective manner which is due to improper assets management of the company. The company must improve the utilization of asset through managing the assets in an appropriate manner. The price-earnings ratio of the company is showing positive trends which indicate that the investors anticipate high performance in the future. The outlook for the banking sector shows high profits forecasts in the future which shows that the investors must invest in the equity of JPMorgan Chase & Co. in order to receive high returns.
References
Home | JPMorgan Chase & Co.. (2016). Jpmorganchase.com. Retrieved 23 November 2016, from https://www.jpmorganchase.com/
Tukker, A., & Dietzenbacher, E. (2013). Global multiregional input–output frameworks: an introduction and outlook. Economic Systems Research, 25(1), 1-19.
Cecchetti, S. G., & Kharroubi, E. (2015). Why does financial sector growth crowd out real economic growth?.
Nissim, D., & Penman, S. H. (2001). Ratio analysis and equity valuation: From research to practice. Review of accounting studies, 6(1), 109-154.
Minton, B. A., Taillard, J. P., & Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49(02), 351-380.
Chen, R. R., Chidambaran, N. K., Imerman, M. B., & Sopranzetti, B. J. (2014). Liquidity, leverage, and Lehman: A structural analysis of financial institutions in crisis. Journal of Banking & Finance, 45, 117-139.
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.
Minton, B. A., Taillard, J. P., & Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49(02), 351-380.
Koch, T. W., & MacDonald, S. S. (2014). Bank management. Nelson Education.
Tukker, A., & Dietzenbacher, E. (2013). Global multiregional input–output frameworks: an introduction and outlook. Economic Systems Research, 25(1), 1-19.
Cecchetti, S. G., & Kharroubi, E. (2015). Why does financial sector growth crowd out real economic growth?.
Nissim, D., & Penman, S. H. (2001). Ratio analysis and equity valuation: From research to practice. Review of accounting studies, 6(1), 109-154.
Minton, B. A., Taillard, J. P., & Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49(02), 351-380.
Chen, R. R., Chidambaran, N. K., Imerman, M. B., & Sopranzetti, B. J. (2014). Liquidity, leverage, and Lehman: A structural analysis of financial institutions in crisis. Journal of Banking & Finance, 45, 117-139.
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.
Minton, B. A., Taillard, J. P., & Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49(02), 351-380.
Koch, T. W., & MacDonald, S. S. (2014). Bank management. Nelson Education.
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