Business_Analysis_Ii

Business Analysis Part II MGT/521 September 28, 2011 Laurie Ryan Business Analysis Financial statements are made to show a company’s financial position, performance, and changes that will be made throughout the company that may deter any economic decisions. Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, equity, income and expenses are directly related to an organization's financial position (Baird, 2007). We will now evaluate the financial health of Bank of America and how it looks compared to previous years and make a prediction on coming years. This should demonstrate the financial strength and weakness of the company. We will also compare Bank of America’s financial statements to JPMorgan & Chase and Wells Fargo to see how each bank compares relatively to the other financially. After review of each of the financial statements, much of which will be gained by looking at the pros and cons of each statement, such as what strategies are used from these statements in moving forward. Not only will we establish a broader range on how these banks really look financially, we will investigate their approaches on a technological level and how they differentiate from another and how they relate. Globalization has taken over a wide range of businesses nationwide, we will take a step closer into seeing how it has affected Bank of America. Among the comparisons of Bank of America and its fellow competitors, a benchmarking analysis will be conducted in reviewing best practices, operational processes, and products and services. All financial statements contain relevant information that is displayed in structured manner. They typically include four basic financial statements, accompanied by a management discussion and analysis:1.Statement of Financial Position: also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time. 2.Statement of Comprehensive Income: also referred to as Profit and Loss statement, reports on a company's income, expenses, and profits over a given period. A Profit & Loss statement provides information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state. 3.Statement of Changes in Equity: explains the changes of the company's equity throughout the reporting period. 4.Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities (Baird, 2007). Business Analysis Looking at Bank of America’s 2010 annual report, we are able to get a closer picture to the net profits and losses from year to year. The table will help illustrate some of these changes (BOA, 2010): 2010 2009 Income statement Revenue, net of interest expense (FTE basis) (1) $ 111,390 $ 120,944 Net income (loss) (2,238) 6,276 Net income, excluding goodwill impairment charges (2) 10,162 6,276 Diluted earnings (loss) per common share (0.37) (0.29) Diluted earnings (loss) per common share, excluding goodwill impairment charges (2) 0.86 (0.29) Dividends paid per common share $ 0.04 $ 0.04 Performance ratios Return on average assets n/m 0.26% Return on average assets, excluding goodwill impairment charges (2) 0.42% 0.26 Return on average tangible shareholders’ equity (1) n/m 4.18 Return on average tangible shareholders’ equity, excluding goodwill impairment charges (1, 2) 7.11 4.18 Efficiency ratio (FTE basis) (1) 74.61 55.16 Efficiency ratio (FTE basis), excluding goodwill impairment charges (1, 2) 63.48 55.16 Asset quality Allowance for loan and lease losses at December 31 $ 41,885 $ 37,200 Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (3) 4.47% 4.16% Nonperforming loans, leases and foreclosed properties at December 31 (3) $ 32,664 $ 35,747 Net charge-offs 34,334 33,688 Net charge-offs as a percentage of average loans and leases outstanding (3, 4) 3.60% 3.58% Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (3, 5 ) 1.22 1.10 Balance sheet at year end Total loans and leases $ 940,440 $ 900,128 Total assets 2,264,909 2,230,232 Total deposits 1,010,430 991,611 Total common shareholders’ equity 211,686 194,236 Total shareholders’ equity 228,248 231,444 JP Morgan & Chase 2010 annual report (JP Morgan, 2010) 2010 2009 Assets Cash and due from banks $27,567 $26,206 Deposits with banks 21,673 63,230 Federal funds sold and securities purchased under resale agreements (included $20,299 and $20,536 at fair value) 222,554 195,404 Securities borrowed (included $13,961 and $7,032 at fair value) 123,587 119,630 Trading assets (included assets pledged of $73,056 and $38,315) 489,892 411,128 Securities (included $316,318 and $360,365 at fair value and assets pledged of $86,891 and $140,631) 316,336 360,390 Loans (included $1,976 and $1,364 at fair value) 692,927 633,458 Allowance for loan losses (32,266) (31,602 ) Loans, net of allowance for loan losses 660,661 601,856 Accrued interest and accounts receivable (included zero and $5,012 at fair value) 70,147 67,427 Premises and equipment 13,355 11,118 Goodwill 48,854 48,357 Mortgage servicing rights 13,649 15,531 Other intangible assets 4,039 4,621 Other assets (included $18,201 and $19,165 at fair value and assets pledged of $1,485 and $1,762) 105,291 107,091 Total assets(a) $ 2,117,605 $ 2,031,989 Net cash (used in)/provided by operating activities (3,752) 122,797 Net cash provided by/(used in) investing activities 54,002 29,355 Financing activities Net change in: Deposits (9,637) (107,700) Business Analysis Wells Fargo 2010 annual report (Wells Fargo, 2010). In evaluating the charts from all the banks, we notice a trend seen in all of them in their net cash values. They all show an increase from the previous year. Bank of America went through a federal bailout back in 2009. They returned relatively strong for 2010. Their net loss was down by nearly four million from 2009, and this was a major comeback for once a bank in severe debt turmoil. JP Morgan and Chase was consistent in their trend, which shows the financial health of that bank. They increased from 2009 but not by much. They also increased their revenue when they bought out Washington Mutual back in 2008. They have found ways to stay afloat through some really tough times for other bank competitors. Business Analysis Wells Fargo showed a tremendous increase as well. They have managed to stay consistent and make net gains from previous years. This definitely shows financial health in the banking industry. On the other hand, Bank of America has made a comeback, but they are still unclear as far as financial health. They just needed a government bailout that they are trying to recover from. From their financial statements, they are the least in the best financial health than its competitors. They need more time to show more progression in order to prove otherwise. Management can learn from these statements in moving forward by looking at the trends and consistencies of previous years to current. They can look at the Profits and Losses to determine what the following year will be. They can also learn of what changes need to be made so certain operations can be avoided or continued. Bank of America has made some promising technological advancements with its partner, Merrill Lynch. They have come together to take on as Bank of America Merrill Lynch's Technology, Media & Telecommunications It is a group that provides innovative and comprehensive financial solutions to their clients. They are comprised with a team of experienced industry specialists that deliver a full range of capital raising and advisory services to strategically meet their clients' unique needs from emerging growth companies to the Fortune 500 (BOA, 2011). The company’s technological advances coincide with the globalization of Bank of America. An important element in their strategy is achieving operational excellence throughout the organization. The increasingly global nature of world commerce is providing unprecedented opportunities to take advantage of international trading relationships. More United States companies are establishing international operations for sales, manufacturing, distribution and other key functions (BOA, 2010). The key to survival and success for Bank of America is by cultivating strategic partnerships that allow them to be competitive and offering diverse services to consumers. This indicates that the increased ability of banks to make small businesses loans at greater distances enables them to suffer fewer losses of scale and boost productivity. Business Analysis Technological advances differ among financial institutions, which is why they are so competitive day to day. Oppose to Bank of America, JP Morgan & Chase provides a development of an emerging Market Open Blotter is a web-based front end application that allows Emerging Market (EM) traders to trade many different EM products (JP Morgan, 2011). Open Blotter allows for one front end application to send many trade types into multiple trading systems. It also has configuration options that allow local users to customize their views of EM products. Wells Fargo has extended a $2.5 million line of credit to Blue Microphones, a leading innovator in microphone technology. Partnering with Wells Fargo has introduced Blue to several new treasury management solutions that will drive efficiencies and keep us focused on our mission: building the best audio products for professionals and consumers. These microphones can be used through desktop USB microphones, ipod USB, and Web cameras (Wells Fargo, 2010). Benchmarking compares an organization’s practices, processes, and products against the world’s best (Nickels, 2010). Everyone has to be on top and better than its competitor by any means necessary. In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compare the results and processes of those studied to one's own results and processes (Nickels, 2010). In this way, they learn how well the targets perform and more importantly, the business processes that explains what they can do the same or different to be on top. Bank of America pursues operational excellence in risk management, which is especially important. They plan on continuing to build on their work to institute new, rigorous risk management controls and procedures throughout the organization (BOA, 2010). In combination with the improving economy, this work is contributing to improving their credit quality results. The solutions include products and services for customers wherever they are in their financial situations. From customers just Business Analysis beginning a banking relationship to those with more sophisticated banking needs, they bring the full capability of Bank of America to their doorstep. Customers benefit from access to the largest ATM network in the country, including more deposit-image ATMs than any other bank, and more than 5,800 banking centers with friendly, knowledgeable employees who are active in their communities (BOA, 2010). To set them apart, Bank of America has created many of the most advanced features in banking, including the award-winning online and mobile banking capabilities, and top-ranking online security and account fraud protection guarantees (BOA, 2010). At Bank of America, the goal is to deliver the right solutions as customers need them, provide quality service at a fair price, and reward customers with increasing value as they expand their relationships. JP Morgan & Chase profited from buying Washington Mutual. It enabled them to improve branches in many ways: adding salespeople; retrofitting and upgrading each location; adding improved products, services and systems; and saving some $1 million at each branch. Ultimately, this allowed them to offer our clients better products and services. Some innovative new products, such as a suite of resources for business card holders; a broader-based rewards platform than any other card provider, and groundbreaking services that directly respond to consumer needs (JP Morgan, 2010). These products and services enable them to build strong and enduring relationships with Chase card members, who not only see daily value in their offerings but also depend on them to help them, make progress toward their goals. Customers can use more than 5,200 bank branches and 16,100 ATMs, as well as online and mobile banking around the clock. More than 28,900 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California (JP Morgan, 2010). Wells Fargo has operations that meet the value of their clients and customers. They have a commitment to outstanding sales and service for every customer, diversified business model, relationship strategy, beliefs in people as a competitive advantage, goal of consistency, and sustainable revenue growth. Wells Fargo has 6,335 retail branches, 12,000 automated teller machines, 280,000 employees Business Analysis and over 70 million customers (Wells Fargo, 2010). Wells Fargo operates stores and ATMs under the Wells Fargo and Wachovia names. Wells Fargo delineates three different business segments when reporting results: Community Banking, Wholesale Banking, and Wealth, Brokerage, and Retirement (Oman, 2005). Wells Fargo launched its personal computer banking service in 1989 and was the first bank to introduce access to banking accounts on the web in May 1995 (Oman, 2005). Wells Fargo's Business Online Banking gives small business owners all the services available to consumers, plus services designed specifically for businesses. All three banks take part in benchmarking as a tool to excel in being the best bank at what they do. They all differ to what they serve and offer in some shape or form. They strive to serve their consumers satisfied and maintaining their loyalty. Conclusively, we have gone in detail with all the financial aspects of banking. Compared and contrasted some key factors among Bank of America and its top competitors in terms of finance. We have learned that JP Morgan and Wells Fargo demonstrated strong financial health consistently, whereas Bank of America has still some ways to go. There are so many different technological advancements between all banks, but globalization all affected them mainly the same way. They are able to broaden their investment horizon globally. They can have businesses going all year long and increasing their revenue profits. A benchmarking analysis was created in viewing how some ways these banks compete with one another in being the best. They all have the same main idea, but different approaches in achieving it. They all gear in striving for excellence in being there for customers when they need it the most. References 1) Baird, James. "Presentation of Financial Statements" Standard IAS 1, International Accounting Standards Board. Accessed 24 June 2007 2) Bank of America. 2010 http://investor.bankofamerica.com/phoenix.zhtml'c=71595&p=irol-reportsannual 3) Bank of America. 2011 http://corp.bankofamerica.com/business/ci/tech-media-telecom 4) JP Morgan & Chase. 2011 http://techcareers.jpmorgan.com/ 5) Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2010). Understanding Business (9th ed.) Chapter 8 pp.218-220 New York, NY: McGraw-Hill/Irwin. 6) Oman, Mark. "UBS Global Financial Services Conference." San Francisco: Wells Fargo & Co., May 11, 2005 7) Wells Fargo. 2010 https://www.wellsfargo.com/downloads/pdf/inatl/2010_Financial_Statement_Bank_International.pdf