After reviewing the financial astatement of Bank of America and CitiBank, we can find several informations regarding the performance of the bank. This analysis could reflect several strengths and the weakness of the bank. If we closely look at the operating ratio, then it is increasing gradually from 2011. This shows that the bank is able to reduce its cost. The bank’s operation is being more efficient due to which the bank is able to save more dollars as operating income for each dollar of revenue earned. While it is in the increasing trend, except for 2014, it is still less than that of its competitor. The company’s return on assets and return on equity is also fairly good but it is still less than its competitor. The company is earning less than a dollar for each dollar of assets utilized. While ROA has decreased in 2014, for the other years it is in increasing trend and similar is the case with ROE. In 2015, for each dollar of equity employed, the bank has been able to earn $0.629. The bank is also utilizing its assets in a good way. While the higher turnover is preferable, the bank has been successful in utilizing its fixed assets in a increasing trend to earn higher revenue.
While the company is doing good on itself, however we cannot say that the bank is doing extremely well in the industry unless we companre it with the competitor. If we compare the financial strength of the bank with its competitor, then we can see that the bank is way behind in its competition. The competitor is always ahead of the bank in the competition in all metrics. This can be the indication that the bank is having hard time in meeting cometition, and is losing its business. Other thing that is reflected from the financial analysis is that the bank’s debt-to-equity ratio decreasing. This means that the bank is not taking the advantage of leverage (Paramasivan & Subramanian). The bank’s net interest income is also decreasing continously since 2011. This might be the indication that the bank is losing its loan lending capability i.e. the customers’ preference toward the bank’s loan is decreasing, and this situation can be detrimental to the bank. This has caused the net income to decrease since 2011.
("Growth, Profitability, and Financial Ratios for Bank of America Corporation (BAC) from Morningstar.com,")
("Growth, Profitability, and Financial Ratios for Citigroup Inc (C) from Morningstar.com,")
Prevailing rates set by the Federal Reserve Board and the company profitability
Following table shows the comparison of bond yield and conventional mortgage rate as determined by FED. If we compare these parameters with the bank’s operating margin, then we can see that it has some degree of correlation; however the correlation is not so very strong. With the increase in the bond yield, the operating margin of the bank is also increasing in the year 2013 and in 2014; it has decreased with decrease in bond yield. Looking at the graph and the table, we cannot strongly deduce any conclusion about the impact of yield on bank’s profitability. We need to look at the data of longer period to deduce the strong conclusion.
("FRB: H.15 Release--Selected Interest Rates--Historical Data," n.d.)
Announced mission, and future direction, as stated by the bank’s Chief Executive Officer
According to the CEO of the bank, year 2015 was a challenging year. Though the business is being challenging, the bank strives to serve its customer with the concrete mission of delivering the long-term value to all the customers, shareholders with the proper execution of customer and client strategy. The bank is committed on using its resources to deliver the best in its core business while it will gradually offset its non-core business. The bank stands on the industry with a core mission of making the financial lives of the people better by connecting them with the resource and the expertise that is needed to them to achieve their goal. The bank strives on responsible growth of the company and winning the market.
Looking at the financial report of the bank, we can say that it is doing well in the industry. The performance of the bank is good however; there are still many things that the bank must do to make it better. The bank’s financial parameters are behind its competitor so it must strive on the factors that will increase its net interest income, ROA, ROE and other financial indicators. The bank is already on its way to achieve capital requirement of 10% (Bank of America, 2015).
Forecast of Bank of America’s projected profitability
So, for 2016, x =6 and the forecasted net income will be
Y = 2953x6-1302
Y = $16,416
So, for the year 2016, the forecasted earning is $16,416 million.
Works Cited
Bank of America. Bank of America Corporation 2015 Annual Report. New York, NY: Bank of America, 2015. Print.
"FRB: H.15 Release--Selected Interest Rates--Historical Data." N.p., Web. <https://www.federalreserve.gov/releases/h15/data.htm>.
"Growth, Profitability, and Financial Ratios for Bank of America Corporation (BAC) from Morningstar.com." N.p., Web. <http://financials.morningstar.com/ratios/r.html?t=BAC®ion=usa&culture=en-US>.
"Growth, Profitability, and Financial Ratios for Citigroup Inc (C) from Morningstar.com." N.p., Web. <http://financials.morningstar.com/ratios/r.html?t=C®ion=usa&culture=en-US>.
Paramasivan, C., and T. Subramanian. Financial management. New Delhi: New Age International (P) Ltd., Publishers, 2009. Print.
