Financial Review JP Morgan Annual Report

1.0. Narrative Report and Presentation

This section provide an overview if JP Morgan performance over the past so that the readers can have a detail and clear understanding of the nature of the business, industry and overall financial performance of the company

1.1 Overview to JP Morgan

JPMorgan Chase &Co is a holding firm that specializes in offering financial services. It has been acknowledged under the 1968 Delaware law as the largest institution of banking the U.S with over 2.6 trillion dollars assets value and 256 billion equity shareholders wealth. The firm has global presence whereby it offers a wide range of financial services including but not limited to transaction processing, investment banking, and management of assets. The main activities of JP Morag and chase bank brand are banking services. It has 17 subsidiaries in the U.S (Morganchase.com, 2019, p.132). The JP Morgan subsidiary participates in managerial report activities which are divided into 6 units of business namely wholesale business, commerce banking, securities services, managing assets and treasury.

1.2 JP Morgan’s main competitors

Some of the main competitors for JP Morgan include Goldman, Stanley Morgan, Royal bank of Scotland and bank of America. Goldman comes second after JPO Morgan. It is evident from the internet research that Goldman was established in 1869 and has been named as the second largest bank in the globe. Goldman controls 8 percent of the investment banking market share while Morgan control 6.2 percent (Statista, 2019, p.12).

1.3 Significant issues in Chief Executive’s report

In 2018 annual report of JP Morgan the chairman and the CEO of JP Morgan Mr. Dimon Jamie argued that the company focuses at increasing investments in products, services and products. Some of the ways to accelerate investments include establishing new branches, and having digital platforms for making investments (Zeissler, & Metrick, 2019, p.192). The CEO highlighted positive performance of the firm in 2018 as well as impacts of the new U.S tax policy (Morganchase.com, 2019, p.123). The low tax rate enabled JP Morgan to make more profits that were invested in new branches, providing employees benefits as well as engaging in philanthropic activities

JP Morgan’s performance analysis earning per Share (EPS)

Earning per share is a measure of how much earning is allocated to common stocks. It was obtained by dividing the firm earning by the equity common stocks out standing in each period. Based on the bar graphs below it is crystal clear that JP Morgan has been having fluctuating trends of its EPS. The years that had the lowest EPS were 2004 where the EPS was 1.52 and 2008 the EPS was 1.35 (Morganchase.com, 2019, p.102).The highest EPS of 9 and 6.31 was reported in 2008 and 2017 respectively as shown in the diagram, below. The rising trend is a positive sign of improved business performance over the years.

2.1. Stock performance and Trend analysis in 2018

The graph below shows JP Morgan stock price performance trend. It can be scrutinize that the company stock price has been experiencing some fluctuating trends over the last six years (Morganchase.com, 2019). For instance in 2013 stock price was $100, however it continued fluctuation upwards and by 2017 the firm achieved the highest stock price value of $200 before falling slightly to $187 in 2018 as shown in the stock price trend graph below.

Common size and ratio analysis (Profitability ratio, Liquidity) (550 Words)

Common Size analysis

Common size income and balance sheet analysis involves making each item in the financial statement as a percentage in order to observe time series trends on how the company has been performing (Nadar, & Wadhwa, 2019.14). JP Morgan common size income statement has been provided in the appendix 1.0 and the balance sheet common size is in appendix1.0. The sales revenues were used as a base value whereby each line item within JP Morgan was divided by the revenue for each base year. From the common size income statement analysis of JP Morgan it is crystal clear that the selling and administrative expenses have been increasing each period. For example, in 2016 this expense was 4.13% but in 2018 it rose to 41.47%. Similarity the interest expense rose from 10.17 to % in 2016 to 20.73% in 2018. Irrespective of the increase in both variable and fixed expenses, the company portrayed a rising trend of its net income (Morganchase.com, 2019, p.15).

For instance, in 2016 the net income was 25.61% while in 2018 the net income increased to 29.78%. Increase in the net income in each year is a clear sign that the company is performing well and is able to effectively manage its operating cost. On the contrary, a common size balance sheet for JP Morgan was also prepared as indicated in appendix 1.1. It can be scrutinized that the total assets decreased from in 17.74 2016 to 13.42% in 2018. Such decrease in the current asset is a clear indication that the firm liquidity level has been experiencing a downward trend (Banerjee, & Mio, 2018, p.134). It is also clear that the total liabilities have shown a declining trend from 89.80% to 0.98% in 017 this is a good sign that JP Morgan has managed to maintain the amount it owes at a minimal level as possible (Kumar, 2019, p.44). The total shareholders’ equity also showed some declining trend from10.20% in 2016 to 9.78% in 2018. The results show that the value of the shareholders earning has been declining each year.

Ratio analysis

The two categories of ratios were used to analysis performance of JP Morgan over the last three years commencing from 2016 to 2018. Some of the profitability ratios computed as shown in appendix 1.2 include net profit margin ROE and ROA. Net profit margin ratio measures the ability of the firm to generate profits. A net profit margin that is above 10% is considered good while the one is at 5% is average while anything below 5% is poor (Morales-Díaz, & Zamora-Ramírez, 2018, p.121). Based on the trend graph below it can be scrutinize that the JP Morgan net profit margin was good as it was above ten percent over the last three years. It is also clear from the trend graph below that the net profit margin was higher in 2016 before it declined in 2017 and rising up to 305 in 2018, this is a clear indication that JP Morgan sales levels has been increasing while the cost of sales have been following which consequently helped the firm to make higher profits.

The pother profitability ratios utilized to analysis performance of JP Morgan is ROE and ROA. The ROE has been showing a rising trend as shown in the graph below it increased from 9.73% in 2016 but slightly declined to 9.56% in 2017 before rising even further up to 12.66% in 2018. The upward trend of ROE is a good indication that JP Morgan Company was able to effectively utilized shareholders funds to generate more income. A similar rising trend was evident t with ROA which mollies that the company was able to used its fixed assets more effective to make higher profits as shown by the rise in trend of ROA curve in the diagram below.

The liquidity ratio measures the ability of the firm to pays its short term and long-term debt obligations. The two liquidity ratios that were computed include current ratio, quick ratios and debt to equity ratio. The current ratio and quick ratio trend graphs below shows that JP Morgan ability to pay its short term credit obligation has been declining in each period. The decrease in liquidity ratio was attributed to lower levels of inventories, cash and receivables and higher amounts of payables and accruals. The management of JP Morgan should put in place mechanism to increase its liquidity cycle including reducing its accounting cycle by employing personnel’s to collect their receivables before they fall due.

The debt to equity ratio measure the level of debt and equity that is within the firm capital structure. When the level of debt-to-equity is significantly higher it is a bad sign because such firm my look less attractive to investors and financials because they might not be sure where the firm will be able to service in case of liquation (Osborne, Fuertes, & Milne, 2017,p.102). Based in the trend graph below it is crystal clear that the debt-to equity ratio of JP Morgan has been showing some declining trend which is a good indication that the level of debt within the firm capital structure has been falling. For example, in 206 the ratio was 0.80 but in 2018 the ratio had decreased to 0.08. Such decrease is a clear indication that JP Morgan level of debt has been reduced which consequently helped to minimize the risk of solvency and liquidation.

Conclusion

It is evuidnet that JP Moran is amont the top largets invetsiment banks in the U.S The firm has numeroiuse subsidiaries across the world. In 2018, the company reported postive pereforamnce not only on its stock privce tremnd but also in tertms of overall profitabiulity. JP moragn has been showing a rsiing trend over the last three ytears in tersm of protibility levels. However, the liqudity lebel has been falling each year as the company is not able to honour its short term credit obligation due to decline in isyt recievables and envetory level. Howver, the firm capityal stracture shows that the level ofd debt has been declining. This shows that the leverage level and liqudiation risk is minimal. It is recpommnded that JP Morgan should maiantin an optimal cpoaital stracture to abvoid fiancing the firm with too much equity wghiuch reduced the value of the firm equity due to dilutaion of equity stocks.