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Financial Analysis Report for Jp Morgan Chase and Co

Autor:   •  January 4, 2019  •  2,798 Words (12 Pages)  •  27 Views

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Balance Sheet Analysis

The time scope for the Balance Sheet analysis was year ending Dec-2014,2015 and 2016.

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I have done the vertical and horizontal analysis of the balance sheet and come up with a few observations which are highlighted below: -

- JP Morgan has a huge asset base of nearly $ 2.5 trillion at the end of 2016 making it the biggest bank of USA.

- The total assets fell by 8 % from 2014 to 2015 but again increased by 5 % from 2015 to 2016.

- The total liabilities fell by 10% from 2014 to 2015 but increased by 6% in 2016. The company should focus on controlling liability growth.

- The total equities has been at almost same levels from 2014 to 2016.

- Net loan has increased from being 21% of assets in 2015 to being 35% of assets.

- There is a huge decline(8%) in short term assets ( especially cash) from 2014 to 2015 with a corresponding decline in liabilities (10%). Company is reducing debt burden through excess cash. In spite of this, there is increase in retained earnings(12%) from 2014 to 2015. This is a good sign.

- There was good will impairment of $276 million from 2014 to 2015 (from 40% of total assets in 2014 to 2% of total assets in 2015). This goodwill impairment was due to sale of a portion of Private Equity business.

- JP Morgan's non-current assets decreased slightly from 2014 to 2015 (2%) but then increased by 5% from 2015 to 2016.There is a 19% increase in the Total liabilities from 2014 to 2015 majorly because of a 31% increase in the Long-term debt.

- There is an increase in retained earnings from 2014 to 2015 (12%) and from 2015 to 2016 (11%). The increase is consistent. This is a good sign.

- Cash is just a small fraction (less than 1 %) of total assets. JP Morgan does not have excess cash in the system.

Cash Flow Statement Analysis

The time scope for the Cash Flow Statement analysis was year ending Dec-2014,2015 and 2016.

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I have done a horizontal analysis of the Cash flow statement and come up with a few observations which are highlighted below: -

Operating activity

- The “Net income” has been on the rise and contributing to the cash outflow from operating activity. This is primarily due to income growth.

- In 2014-2015, there was a 12 % increase in net income and a 100 % increase in cash flow. This was because of decrease in trading assets mainly because of client-driven market making activities in CIB(Corporate and Institutional Banking) resulting in lower levels of debt and equity securities. Also, the lower account receivables and higher net sales from loan sales activities resulted in high cash flow from operating activities in 2015.

- In 2016, operating cash flow reduced by more than 70%. This was mainly due to increase in trading assets, increase in account receivable from merchants and higher client receivable related to client-driven activities in CIB.

Investing activity

- JP Morgan’s investment activities include originating loans for investment, depositing cash at banks and investing in securities portfolio and other shrt term interest – earning assets.

- There was a significant increase of about 165 % in the net cash flow from investing activities in the year 2015 mainly due to sale of a portion of Private Equity business.

- However, in 2016 there was a sharp dip of more than 200% in net cash flow from investment activities due to growth in deposits in excess of growth in loans, increase in securities purchased under resale agreements due to higher demand for securities to cover short positions in client-driven market making activities in CIB and deployment of excess cash by Treasury and CIO.

Financing activity

- In 2015, there was a drastic decrease of more than 250% in net cash flow from financing activity due to lower wholesale deposits partially offset by higher consumer deposits, lower levels of commercial paper due to the discontinuation of a cash management product that offered customers the option of sweeping their deposits into commercial paper, lower commercial paper issuances in the wholesale markets and a decrease in securities loaned or sold under repurchase agreements due to a decline in secured financings.

- In 2016, there was a drastic increase of more than 150% in net cash flow from financing activities due to higher consumer and wholesale deposits, and an increase in securities loaned or sold under repurchase agreements, predominantly due to higher client-driven market-making activities in CIB.

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There is an increase of 38% in net cash flow from 2014 to 2015 and an increase of 146% from 2015-2016

JP Morgan has generated $ 3383 million of operating cash flow in 2016, an increase of $242 million when compared to 2015.

Ratio Analysis

I have picked up a few key ratios for JP Morgan under the headings of Solvency, Liquidity, Efficiency , Profitability and stock market ratio. Below is the summary: -

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Liquidity analysis

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- Since the current Ratio is less than 1, JP Morgan will not be able to repay its current liabilities by liquidating current assets.

- Since the quick Ratio is less than 1, JP Morgan will not be able to repay its current liabilities by liquidating current assets.

Solvency analysis

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- JP Morgan has a Debt to equity ratio between 8.5-8.8 for both the years. This means that the company borrows 8 times as much as it owns. This is not healthy.

- Debt to Asset ratio of 0.90 means that 90% of the company’s

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