Financial Accounting Report: JP Morgan Chase Financial Performance

This financial accounting report provides an in-depth analysis of JP Morgan Chase's financial performance. It begins with a profile of the company, detailing its investment solutions and market position. The report then delves into a comprehensive ratio analysis, covering current ratios, inventory turnover, days in inventory, receivables turnover, debt to total assets, earnings per share, and various profit margin and return ratios. Each ratio is examined with respect to the company's performance in 2016 and 2017, providing insights into liquidity, efficiency, and profitability. The report further includes a DuPont analysis to break down the return on equity and a horizontal analysis to compare financial data over the two-year period. The findings highlight trends in sales, interest expenses, net income, and asset and equity growth, supported by relevant references. This analysis offers a thorough evaluation of JP Morgan Chase's financial health and operational effectiveness.

Financial Accounting
FINANCIAL ACCOUNTING
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Financial Accounting
Contents
Profile of the company:...............................................................................................................................3
Ratios:..........................................................................................................................................................3
DuPont Analysis:..........................................................................................................................................5
Horizontal Analysis:.....................................................................................................................................6
References:..................................................................................................................................................6
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Financial Accounting
Profile of the company:
The company is engaged in the business of providing the investment solutions. It provides the
investment solution by way of various investment strategies such as assets management,
investment banking, market service, investment banking etc. The company provides the risk
management strategies services through its world-wide located investment professional and
experts. The company provides the investment solutions which ultimately protect the assets of
the individuals, corporates, bankers etc.
In facts, the company is performing well. It can be evidenced from the stock price, profitability
etc. Stock price of the company is at high level in the investment business industry (Anon, n.d.).
The company had followed the buy-back of the shares following the management of the unusual
capital generating in the company.
Ratios:
1) Current Ratios: Current ratio presents the liquidity position of the company. According to
the industry standard it should be 2 (Lan, 2012). Current Ratio of the JP Morgan Chase is
1.14 in 2017 which is less as compared to 1.16 in the year 2016. It means liquidity
position of the company is sound. In other words the JP Morgan has 1.14 times liquid
fund to pay its current liabilities which is positive sign for financial position of the
company.
2) Inventory Turnover Ratio: Inventory Turnover ratio presents how much time inventory is
rotated into the business in terms of turnover. The JP Morgan is into finance business
that’s why its trading assets are considered as turnover. Inventory turnover ofthe JP
Morgan is same in both the years which are showing stability.
3) Days in Inventory: It represents the number of days in which inventory is converted into
sales. Inventory is converted into sales in around 1400 days i.e. 4 years which is too high.
In the financial sector it is all depends upon the demand and supply of the fund.
4) Receivables turnover Ratio: It presents the no. of times receivables are converted into
turnover. In case of JP Morgan, it is showing decreasing trend which is negative for the
company. In the year 2017 it is 1.47 times as compared to last year 1.83. It means
company is not able to collect the debt in timely manner.
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Financial Accounting
5) Average Collection Period: It represents the number of days in which debtors are
collected. Average collection period of the JP Morgan is increased in 2017 as compared
to 2016. The JP Morgan should utilize human resources in such a manner that the debtors
are recovered in time.
6) Debt / Total Assets: Debt to Total Assets ratio represents how much debt company have
in its capital. According to standard it should be less than 0.5. In case of JP Morgan, it is
0.13 which is good for the company. The company is taking less risk which is beneficial
for the stakeholders of the company.
7) Times Interest Earned Ratio: It represents how much time interest expenses are covered
by the profit. The company is covering around 8 times in the year 2017. The debt of the
JP Morgan is highly secured. In the year 2016 it is 10 times but decreased due to increase
in interest cost of the company.
8) Earnings per Share: It represents the earning per share of the company. It means how
much company is earning for shareholders. Earnings per share of the JP Morgan are
continuously increasing as 6.35 in the year 2017 as compared to 6.24 in 2018.
9) Price Earnings Ratio: It represents earning capacity of the company into current market
price terms. It is highly reliable as it presents current situation of financial performance of
the company. P/E ratio of the company is good and increased as compared to last years.
10) Gross Profit Margin Ratio: It is the relationship between gross profit and total sales. It is
calculated without considering the non-operational activities. The ratio has been
decreased in the year 2017 from 37.39 in the year 2016.
11) Net Profit Margin Ratio: It represents the how company efficiently manages the expenses
to generate the revenue (Wilkinson, 2013). In the year 2016 ratio was 25.85 percent
which get reduced to 24.53 percent in the year 2017.
12) Return on Assets Ratio: It represents the company ability in terms of conversion of
investments in the assets to the profit. It means how company’s assets are generating the
profit to the organization. Higher the ratio means company assets are being utilized
better.
In this case, the ratio in the year 2017 is 0.96 percent which is lower than the ratio in the
year 2016 i.e. 0.99 percent. It means, in the year 2017 company was not able to utilized
the assets in better manner in comparison to the year 2016.
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Financial Accounting
13) Assets Turnover Ratio: This ratio is calculated to analyze the efficiency of the company.
By this ratio it can be analyzed that how assets are being utilized in generating the
revenue. Higher the ratio would be a good indicator to the company (Peavler, 2018).
In the present case, in the year 2016 the ratio was 0.0384 and in the year 2017 it increased
to 0.0393. Thus, ratio is increasing and showing that the company is continuously
improving the utilization of the assets in generating the revenue.
14) Dividend Payout Ratio: This ratio interprets that how much portion of the net income of
the company is distributed to the shareholders actually. Net income is taken which is
directly attributable to shareholders only. If the ratio is high, it would be a good indicator
to the company (Anon, n.d.).
In the present case, the ratio in the year 2016 was 29.32 percent but it has been increased
to 32.18 percent in the year 2017. As such, higher ratio would attract the shareholders to
the company in terms of more investment.
15) Return on Equity Ratio: This ratio is also termed as profitability ratio. By this ratio, one
can understand the profitability of the company and can understand that how efficiently
the company is utilizing the fund of the investors in generating the revenue to these
investors.
In the present case, the return on equity ratio is 0.10 that means revenue available to the
shareholders is quite low. In the year 2016 the ratio is also same as in the year 2017. It
can be said that fund provided by the shareholders is not being utilized in effective
manner to generate the profitability to these shareholders.
DuPont Analysis:
DU PONT Analysis = This equation must be followed:
Return on Equity = (Net Profit Ratio)*(Total Assets Turnover Ratio)*(Financial
Leverage)
0.1 = (24.53)*(3.93)*(2533600/255693)
0.1 = 0.25*0.0393*9.91
0.1 = 0.1
I=This analysis present better representation of the data in one ration. Comparison is
more effective in this case (Jaiswal, 2016).
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Financial Accounting
Horizontal Analysis:
HORIZONTAL ANALYSIS
Particulars 2017 2016 % Change Comment
Sales 99624 95668 4.14
Major increment in the
interest income as compared
to the year 2016
Interest Expenses 14275 9818 45.40
Interest expenses increased
as compared to the year
2016
Net Income 24441 24733 -1.18 Net income reduced due to
increase in finance expenses
Total Assets 25,33,600.00 24,90,972.00 1.71
Total Assets of the company
is showing increasing trend
which is good.
Stockholder's Equity 2,55,693.00 2,54,190.00 0.59
Stakeholders equity of the
company is also showing
increasing trend.
References:
Anon, n.d., Annual Report 2017, Available at
https://www.jpmorganchase.com/corporate/investor-relations/document/annualreport-2017.pdf
[Online] [Assessed on 26/10/2018]
Lan, 2012, 16 Financial Ratios for Analyzing a Company’s Strengths and Weaknesses, Available
at https://www.aaii.com/journal/article/16-financial-ratios-for-analyzing-a-companys-strengths-
and-weaknesses.touch [Online] [Assessed on 26/10/2018]
Anon, n.d., Key Ratios, Available at https://www.investopedia.com/terms/k/key-ratio.asp
[Online] [Assessed on 26/10/2018]
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Financial Accounting
Jaiswal, 2016, DuPont Analysis, Available at https://blog.elearnmarkets.com/dupont-analysis/
[Online] [Assessed on 26/10/2018]
Anon, n.d., What is DuPont Analysis? Available at
https://corporatefinanceinstitute.com/resources/knowledge/finance/dupont-analysis/ [Online]
[Assessed on 26/10/2018]
Peavler, 2018, Your Guide to Understanding and Using the Total Assets Turnover Ratio,
Available at https://www.thebalancesmb.com/calculating-total-asset-turnover-ratio-393209
[Online] [Assessed on 26/10/2018]
Anon, n.d., Price-to-Earning Ratio, Available at https://investinganswers.com/financial-
dictionary/ratio-analysis/price-earnings-ratio-pe-459 [Online] [Assessed on 26/10/2018]
Wilkinson, 2013, Net Profit Margin Analysis, Available at https://strategiccfo.com/net-profit-
margin-analysis/ [Online] [Assessed on 26/10/2018]
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