Financial Management: JP Morgan Chase and Co.

This report explores the financial statements of JP Morgan Chase and Co. using key financial ratios. It analyzes the company's profitability, liquidity, operational efficiency, and solvency. Additionally, it provides an overview of the company's corporate social responsibility activities.

financial management
JP Morgan Chase and Co.

Contents
Introduction................................................................................................................................2
Background of the company and ratio analysis.........................................................................2
Glimpse of the CSR activities....................................................................................................4
Conclusion..................................................................................................................................5
References..................................................................................................................................6

Introduction
The enhancement in technological innovations and globalised business practices have
led to requirements of even more transparent reporting of the business activities, in the
interest of not only the shareholders, but also the various stakeholder groups. Further, the
success in today’s dynamic business environment is highly dependent upon the evaluation of
the said financial statements (Higgins, 2012). The following report is aimed at exploring the
financial statements of the organisation JP Morgan Chase and Co. with the aid of the key
financial ratios. The analysis would be based on the computation of the key financial ratios
over the period of five years, together with the comparison of the same. The report would
additionally shed light on the corporate social responsibility segment of the financial
statements.
Background of the company and ratio analysis
The organisation JP Morgan Chase and Co. is headquartered in New York City, and
was founded in the year following the acquisition of the J.P. Morgan and Co by the Chase
Manhattan Corporation and hence the name. The company is engaged in the provision of the
investment banking, commercial banking, private banking, securities services, treasury
services, asset management services, wealth management and brokerage services (JP Morgan
Chase and Co., 2019a).
Ratio analysis is a technique of the financial statements evaluation where the data
from a company's financial statements is compared to gain valuable insights regarding
various aspects of the business operations such as the profitability, liquidity, operational
efficiency, and solvency (Fridson & Alvarez, 2011). The interpretation of the ratios for the
chosen company is presented as follows.
Profitability Ratios: Profitability ratios are the indicators of the ability of the business to
generate earnings and are calculated on the lines of the revenue, balance sheet assets,
operating costs, and shareholders' equity (Velnampy & Niresh, 2012).
2014 2015 2016 2017 2018
PROFITABILITY RATIOS
Return on total assets (Net Income/Sales) 0.23 0.26 0.26 0.25 0.30
Operating profit Margin (EBIT/SALES) 31.6% 32.8% 36.1% 36.0% 37.4%
Gross profit margin (Gross Profit/Sales) 84.68% 85.36% 82.44% 77.82% 71.10%
Net profit margin (Net income/Sales) 23% 26% 26% 25% 30%
Return on Equity (Net Income/ Shareholders equity) 9% 10% 10% 10% 13%

High profitability ratios are preferred in the analysis as the same describe positive
trends in core business activities. The comparison of the profitability ratios of the company
indicate that the net profit margins, operating margins and return on total assets are on a
rising trend, which is a good indicator of the health of the business operations. Further, the
gross profit has declined because of the rise in the interest expense, which is further
combatted by the increase in the other incomes of the entity and hence an overall rising trend.
Working capital ratios: These ratios are the indicators of the liquidity position of the
company, operational efficiency and the short-term financial health (Saleem & Rehman,
2011). High working capital ratio values are preferred near two or more, as the same indicate
ability of the company to pay short term debts with the short term assets.
As depicted above, there is a declining trend in the cash ratio of the company in five
years, and the decrease in the cash balances and due from the banks is attributed to the same.
There is a slight downfall in the current ratios of the company. It has been observed that the
increase in the short term borrowings, trading liabilities and the simultaneous fall in the debt
securities can be attributed to the decline in the current ratio of the organisation as compared
to the year 2017.
Solvency ratios: This group of ratios are indicator of the company’s ability to meet its
debt obligations and the set of the ratios are often used by the prospective business lenders to
the business to assess the position of the cash flow in the business (Delen, Kuzey & Uyar,
2013).
As depicted in the table above, the company has maintained a consistent level of the
long term debts in the business as against the shareholder’s equity, evident from the
WORKING CAPITAL RATIOS 2014 2015 2016 2017 2018
Current Ratio (Current Assets / Current Liabilities) 1.57 1.70 1.69 1.67 1.64
Cash Ratio (Cash and Short Term Marketable Securities / Current Liabilities) 0.64 0.42 0.40 0.56 0.31
SOLVENCY RATIOS 2014 2015 2016 2017 2018
Debt to assets ratio (Long term debt/Total Shareholders equity) 0.11 0.12 0.12 0.11 0.11
Financial Leverage (Total Liabilities/Total Shareholder's Equity) 10.09 8.50 8.80 8.91 9.22
Interest coverage ratio (EBIT/Interest Expense) 3.77 4.11 3.52 2.51 1.82

consistent levels of the debt equity ratio. However, there is an increase in the trade payables,
trading liabilities leading to increase in the overall financial leverage. The falling trend in
interest coverage ratio is attributed to the significant increase in the interest payments, as
against the stable overall earnings.
Market Prospects ratios: These are generally used by the investors to predict the trends of a
stock in the future period and to assess to what extent they would receive in earnings from
their investments. It is significant to note that from the point of view of the investors, high
ratios are preferred. This is because the investments are made in an entity with an objective to
earn returns, else the same can be shifted.
The table depicted above is indicator of a growing trend in the earning per shares,
which are directly attributable to the increase in the total interest incomes, increase in the
noninterest revenues of the company, and a comparatively less increment in the direct and
indirect expenses. Further, the company’s distribution of dividends is in line with the
earnings of the respective year. Hence, the ratios are showing a positive and stable trends
from the investment point of view.
Glimpse of the CSR activities
Some of the chief highlights of the company’s CSR activities is presented as follows.
As per the latest financial statements, it is significant to note that the organisation was
awarded a number of accolades for its contribution in the society. For example, the company
had received the “International Medical Corps’ Global Citizen Award,” was named an
“ENERGY STAR Partner of the Year” by the U.S. Environmental Protection Agency and U.S.
Department of Energy, “Black Enterprise’s 50 Best Companies,” in the area of diversity and
likewise (JP Morgan Chase and Co., 2019b, 68). Some of the recent contributions are stated
as follows. The community contributions involved spending of $150 million in Detroit which
included creation of 1,632 units of affordable housing and others, spending $25 million in the
Greater Washington area including provision of technical assistance or capital to the 722
small businesses and $40 million commitment in Chicago including financial assistance to
5341 individuals. On the lines of the energy contributions, the entity had spent a whopping
MARKET PROSPECTS RATIOS 2014 2015 2016 2017 2018
Earnings per share (Net profit after tax/ No of shares outsatnading) 5.43 6.14 6.26 6.37 9.06
Payout ratio (DPS/EPS) 29% 28% 30% 33% 30%

$3.2 billion for wind and solar projects in the U.S. in the year 2018. On the lines of diversity,
women represented 30% of the company’s global senior leadership and the entity has
established 10 Business Resource Groups (BRG) for fostering cultural diversity, sharing of
ideas and incidental objectives (JP Morgan Chase and Co., 2019b, 22). Further, the company
had made a donation with the aid of employees of more than $4 million to provide assistance
to the disaster relief efforts around the globe. Hence, it is evident that the organisation has
employed a comprehensive set of the environmental activities to serve the stakeholder
groups.
Conclusion
The discussions conducted in the previous parts enable to conclude that interpretation
of the financial statements is vital form the point of view of the stakeholder groups, as the
same provide the understanding of the business activities and financial health of an entity.
The work highlighted the technique of the interpretation of the ratios to evaluate the various
facets of business of JP Morgan. However, the success of a business is not only dependent on
the financial figures, rather also on the social wellbeing and value addition for the
stakeholders as presented in the form of CSR activities of the organisation. Thus, it can be
stated that as per the analysis conducted above, it is feasible to invest in the stock of the
company JP Morgan and Chase, depending on comprehensive evaluation.

References
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios:
A decision tree approach. Expert Systems with Applications, 40(10), 3970-3983.
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's guide
Vol. 597. UK: John Wiley & Sons.
Higgins, R. C. (2012). Analysis for financial management. UK: McGraw-Hill/Irwin.
JP Morgan Chase and Co. (2019). What we do. Retrieved from:
https://www.jpmorgan.com/country/US/EN/what-we-do
JP Morgan Chase and Co. (2019b). Annual Report 2018. Retrieved from:
https://www.jpmorganchase.com/corporate/investor-relations/document/annualreport-
2018.pdf
Saleem, Q., & Rehman, R. U. (2011). Impacts of liquidity ratios on profitability.
Interdisciplinary journal of research in business, 1(7), 95-98.
Velnampy, T., & Niresh, J. A. (2012). The relationship between capital structure and
profitability. Global Journal of Management and Business Research, 12(13).