RUNNING HEAD: FINANCIAL STATEMENT ANALYSIS AND DECISION MAKING ACTIVITY Introduction Identify the two companies, one must be an international company Trend Analysis Comparing both Citigroup and JP Morgan Chase, there was a significant difference with net income. Just last year, 2016, Chase had almost $10 billion over Citigroup. Although Chase had higher net income, they did have higher liabilities and interest paid in all 5 year trend analysis. Chase and Citigroup are both successful financial institutions as they meet solvency expectations. Both banks have higher assets than liabilities proving they have the ability to pay their debt. Citigroup reflects a lower profit margin than Chase, but Chase has a lower Return on Assets (ROA) ratio. This determines that Citigroup is slightly better at generating profits than Chase. Overall, both financial institutions are competitive amongst one another as they bring similar financial statement results. Creditor and Investment Recommendation There is no single criterion for approval of a loan request, but there are several key indicators that are taken into consideration. Lenders will review its overall relationship with the company in addition to requesting the multiple financial statements for the last few years. The financial analysis can reveal the company’s strengths and weaknesses. Although the key indicators comparing Chase and Citigroup were both fairly strong, Chase is chosen as the company to lend money to. There are several factors that were considered in the decision to lend to Chase which include the following: trend of growth in net income, higher total assets providing collateral security and larger return on common stockholder equity. Although the total 2 liabilities are higher than Citigroup, the debt to asset ratios is similar. A debt to asset ratio under 1 indicates that assets are greater than liabilities and could pay off obligations by selling assets if necessary. Table 1 highlights the strong financial performance indicators for Chase from 2012 through 2016. Evaluating the strength of the company is a primary consideration for investors. Many of the same criteria described for lending decision making are similar indicators that are evaluated from an investment perspective. Based on the analysis performed, Chase would be identified as the organization to invest in. The key indicators used in the decision are: net revenue growth, positive net income, debt to asset ratio and stockholder’s equity. While past performance is not always a guarantee, Chase is experiencing strong growth over the last several years with the capability to continue this trend in the years to come. Table 1: Chase Financial Indicators Chase Year Net Sales (in billion) Net Income (in billion) Stock Holder Equity (in billion) Total Assets (in billion) EBIT (in billion) Interest Expense (in billion) Total Liabilities (in billion) Debt to Asset Ratio Time Interest Earned Profit Margin Asset Turnover/Return on Assets Return on Common Stockholder Equity 2016 $ $ $ $ $ $ $ 105.49 24.23 254.19 2,510.00 34.54 9.82 2.23 0.089% 352% 23% 4.20% 10% $ $ $ $ $ $ $ 2015 101.01 23.92 247.57 2,370.00 30.70 7.46 2.10 0.089% 412% 24% 4.26% 10% $ $ $ $ $ $ $ 2014 102.10 21.20 231.73 2,590.00 30.70 7.90 2.34 0.090% 389% 21% 3.94% 9% $ $ $ $ $ $ $ 2013 106.28 17.40 211.18 2,440.00 25.90 9.68 2.22 0.091% 268% 16% 4.36% 8% 2012 $ $ $ $ $ $ $ 108.18 20.53 204.07 2,380.00 28.92 11.15 2.17 0.091% 259% 19% 4.55% 10% Changing Environmental Factors Political, economic, social, and legal environments can and will impact any organization participating in the global market, and these factors are important to be aware of when analyzing choices made by organizations. The American political climate in the last year has created quite a stir and feeling of unease in the global economy. In response to the November election in the 3 United States, “Mexico’s central bank has hiked its policy rate twice and others may have to slow the pace of monetary easing” (Aracena, 2016, para. 2). Mexico is not the only country whose banks are feeling a hit; “the ongoing lira weakness prompted the Turkish central bank to hike its short-term interest rates in November” (Ugras, 2016, para. 1). Meanwhile, analysts agree that England’s most recent political move coined as Brexit, will help American banks improve their strength internationally over those of the European variety (Noonan, 2016). Ethical Climate and Associated Factors In 2016, Wells Fargo, a competitor to both Chase and Citi, got into trouble for the creation of 2 million fake accounts over a period of 5 years (Egan, 2016). The culture within the organization, and in several other banks, has created a high-pressured environment for employees in this industry, in order to keep up with quotas. Wells Fargo is not alone in these accusations however; both Citi and Chase have had complaints lodged against them for this same situation (Shapiro, 2016). The industry has attempted, in whole, to readdress their compliance standards, however both Chase and Citibank have kept quiet about their plans to make actual changes to internal quotas, in order to prevent this negligence from occurring again in the future. Team A believes that compliance training is only the first step to a course correction for all banks; lightening the sales quotas, and bonus structures also needs to be addressed. Incentives to the customers and excellent service will be what drive consumers to open accounts, not a high-pressured sales environment. Conclusion 4 References 1. Aracena, R. (2016, December 8). The Trump Effect: Global Implications of the Next U.S. President. Retrieved April 4, 2017, from https://www.iif.com/publication/researchnote/trump-effect-global-implications-next-us-president 2. Citi | Responsible Finance - Financial Ingenuity - Global Bank. Citi Investor Relations | Citi Annual Reports - Citi Investor Info. (n.d) Retrieved from http://www.citigroup.com/citi/investor/overview.html# 3. Egan, M. (2016, September 9). 5,300 Wells Fargo employees fired over 2 million phony accounts. Retrieved April 4, 2017, from http://money.cnn.com/2016/09/08/investing/wellsfargo-created-phony-accounts-bank-fees/ 4. MarketWatch: Stock Market News - Financial News. C Annual Balance Sheet - Citigroup Inc. Annual Financials. (n.d.) Retrieved from http://www.marketwatch.com/investing/stock/c/financials/balance-sheet 5. MarketWatch: Stock Market News - Financial News. C Annual Balance Sheet - Citigroup Inc. Annual Financials. (n.d.) Retrieved from http://www.marketwatch.com/investing/stock/jpm/financials/balance-sheet 6. Noonan, L. (2016, July 4). Financial Times. Retrieved April 4, 2017, from https://www.ft.com/content/4e3af9fa-41e0-11e6-b22f-79eb4891c97d 7. Shapiro, A. (2016, September 15). Wells Fargo Scam Puts Other U.S. Banks in the Crosshairs. Retrieved April 4, 2017, from http://www.foxbusiness.com/politics/2016/09/15/wells-fargo-scam-puts-other-u-s-banks-incrosshairs.html 5 8. Stock Market News, Financial Data Visualization - amigobulls.com. Citigroup Income Statement for 2016, 2015 - Amigobulls. (n.d.) Retrieved from http://amigobulls.com/stocks/C/income-statement/annual?=fin 9. Stock Market News, Financial Data Visualization - amigobulls.com. Citigroup Income Statement for 2016, 2015 - Amigobulls. (n.d.) Retrieved from http://amigobulls.com/stocks/jpm/income-statement/annual?=fin 10. Ulku, U. (2016, December 8). The Trump Effect: Global Implications of the Next U.S. President. Retrieved April 4, 2017, from https://www.iif.com/publication/researchnote/trump-effect-global-implications-next-us-president 11. Yahoo Finance - Business Finance, Stock Market, Quotes, News. JPM Income Statement | Balance Sheet | Cash Flow | JP Morgan Chase & Co. Common St Stock - Yahoo Finance. (n.d.) Retrieved from http://finance.yahoo.com/quote/JPM/financials?p=JPM
Purchase answer to see full attachment