Financial Analysis Project

First Course Project
J.P. Morgan Chase & Co. - A Financial Analysis
Angeris Roldan
Keller Graduate School of Management
FIN 515 - Managerial Finance
Professor Cynthia Taylor
January 21, 2015









Contents
Introduction 3
Company Business Description 3
Comparative Financial Analysis 4
Liquidity 4
Operating Efficiency 4
Financial Risk 5
Profitability 5
Valuation 6
Conclusion 6
References 7













This memo will help develop skills in ratio calculations as well as interpret the numbers in order to compare and contrast and make an analytic conclusion on the financial condition of the industry chosen. JP Morgan Chase & Co. (JPM) and Bank of America Corporation (BAC) are both companies under the financial servicing industry. Although both companies are under the same type of industry, they both have different approaches in operating their business which results to contrasting outcomes in their financial statements. This differentiation allows comparing and contrasting the ratios and making an analysis on where the company is doing well and where the company can improve.
Company Business Description
JPMorgan Chase & Co., a financial holding company, is a leading global financial services company and one of the largest banking institutions in the United States. The company has operations worldwide and is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the company serves millions of customers in the United States and many of the world's most prominent corporate, institutional and government clients. (J.P. Morgan Chase, 2015)
Bank of America Corp. is one of the world's leading financial services companies. Bank of America provides individuals, small businesses and commercial, corporate and institutional clients across the United States and around the world new and better ways to manage their financial lives. The company enables customers to do their banking and investing whenever, wherever and however they choose. (Bank of America, 2015)



Comparative Financial Analysis
LIQUIDITY
The company's ability to pay their short-term debt obligation is important especially when the creditors are seeking payments. The higher the value of the ratio, the company has a higher margin of safety to cover short-term debts. If JPM has difficulty meeting their short-term debts, they can result with ongoing concern. The 2014 current ratio for JPM is .40 or 40%. The ratio results to less than one which indicates that they may have trouble meeting their debt obligations. Many companies continue to operate with current ratio less than 1 because the company's operating cash flows must also be taken into consideration. JPM's current ratios for 2013 was 38%, in year 2012 it was 31% and in year 2011 it was 27%, showing increase year after year. Comparing JPM to its competitor BAC for 2014 current ratio of 49% makes JPM seem like they need to improve with being able to meet their short-term debts. Although after further analysis, BAC current ratios before the 2014 were significantly higher and year after year they are decreasing. For 2013 BAC's current ratio was 43%, in 2012 it was 56% and in 2011 it was 59%. We can recognize JPM efforts in managing their assets in order to cover for their debt obligations.
OPERATING EFFICEINCY
It is important to know if the business is able to support their operations. To determine this, the operating margin measures the company's pricing strategy and operating efficiency. If the margin is high, it means the company is able to pay for fixed costs such as interest and taxes and also shows that they are earning more per dollar of sales. The 2014 operating margin for JPM is 32.7% which means for every dollar of income, they have approximately 33 cents to cover non-operating expense. In 2013 JPM's operating margin was 26.8%, in 2012 was 30.8% and in 2011 it was 29.8%. Analyzing this trend shows some fluctuation in the past years but JPM has improved their percentage between 2013 and 2014. Comparing JPM to its competitor, BAC's operating margin for 2014 is 7.3%, in 2013 it was 18.2%, in 2012 it was 3.7% and in 2011 it was below with -0.2%. Although BAC's books show that they generated more revenue than JPM, they also had a higher percentage of operating expenses. Year after year BAC's operating margin shows decreasing percentages while JPM's results show some increase.
FINANCIAL RISK
Measuring the company's value of equity reveals their financial leverage. It is important to know what the company's equity is worth to determine whether it is good to invest in. The equity multiplier is an indication of company risk to creditors. JPM 2014 equity multiplier is 11.09 compared to its competitor BAC 2014 equity multiplier of 8.89, JPM needs to depend less on their debt to finance their assets. In 2013, JPM equity multiplier was 10.01, in 2012 it was 11.56 and in 2011 it was 12.34. BAC's equity multipliers were less than JPM for the same years and have shown decrease. BAC's 2013 equity multiplier was 9.03, in 2012 it was 9.33 and in 2011 it was 9.25. Since JPM results show dependency on debt financing than BAC, investors will be more cautious in investing in JPM because they will assume they cannot meet their debt obligations but this risk can attract investors because it also means a higher return.
PROFITABILITY
The operating margin ratio is a measure of profitability but another ratio to show the company's ability to sell a product or provide a service for more than the cost of producing or servicing it is gross margin ratio. For JPM or BAC to have a high gross margin ratio, they must purchase their goods for cheap or they must sell their goods at a higher price considering competitors' prices. JPM 2014 gross margin is 21.31% compared to BAC 2014 gross margin of 5.08%, means that JPM generates a higher profit than BAC. JPM's previous years gross margin percentages resulted in a drop between 2012 and 2013. In 2012, it was 19.67% and in 2013 it was 16.86%. It was still improvement compared to its competitor BAC, where in 2013 their gross margin ratio was 11.24 and in 2012 it was 4.18. JPM is generating more revenue and after taking account the expenses, they are still gaining a higher profit than BAC.
VALUATION
To determine the value of the company, the price earnings ratio can be used. It measures what the market is willing to pay for a stock based on its current earnings. Companies with higher future earnings are usually expected to issue higher dividends or have appreciating stock in the future. A company with a lower ratio, on the other hand, is usually an indication of poor current and future performance. JPM 2014 price earnings ratio is 10.57 resulting less than BAC 2013 price earnings ratio of 27.04. These numbers show there is a better investment opportunity in BAC than in JPM because of potential growth in future performance. Going back to the financial risk involved in the company, JPM showed higher financial leverage or debt dependency than BAC which must be taken in consideration in order to attract investors as well as consumers.
In conclusion, financial ratios are helpful to compare companies within the same industry and better understand the financial condition, how to improve or whether the issue is internal or external by simplifying the financial statements. Comparing J.P. Morgan Chase & Co. to its competitor in the same industry, Bank of America, they are financially great and have shown improvement comparing the previous years to date as a trend analysis. Management has shown that they are handling operations and the profit that is earned. Not to say that Bank of America is not, but comparing both financial ratios, J.P. Morgan Chase is ahead.



References
BAC Balance Sheet " Bank of America Corporation Com Stock - Yahoo! Finance. (n.d.). Retrieved January 21, 2015, from https://finance.yahoo.com/q/bs?s=BAC Balance Sheet&annual
BAC Income Statement " Bank of America Corporation Com Stock - Yahoo! Finance. (n.d.). Retrieved January 21, 2015, from https://finance.yahoo.com/q/is?s=BAC Income Statement&annual
Bank of America Corporation (BAC). (n.d.). Retrieved January 21, 2015, from http://www.nasdaq.com/symbol/bac
Bauer, C. (2013, April 15). Financial Application Memo--Financial Performance Comparison of Two Companies. Retrieved January 21, 2015, from http://academics.smcvt.edu/cbauer-ramazani/AEP/BU113/finance/fin_memo_template.htm
J P Morgan Chase & Co (JPM). (n.d.). Retrieved January 21, 2015, from http://www.nasdaq.com/symbol/jpm
JPM Balance Sheet " JP Morgan Chase & Co. Common St Stock - Yahoo! Finance. (n.d.). Retrieved January 21, 2015, from http://finance.yahoo.com/q/bs?s=JPM Balance Sheet&annual
JPM Income Statement " JP Morgan Chase & Co. Common St Stock - Yahoo! Finance. (n.d.). Retrieved January 21, 2015, from http://finance.yahoo.com/q/is?s=JPM Income Statement&annual





Running Head: J.P. Morgan Chase & Co. Financial Analysis 2