A Comparative Financial Analysis of Visa Inc. and JPMorgan (Report)

This report presents a comparative financial analysis of Visa Inc. and JPMorgan, examining their performance over the past five years. It begins with an introduction to both companies and then delves into a detailed comparison of their financial statements, including turnover, profit, and dividend trends. The analysis further explores historical trends in key accounting entries and computes and compares various financial ratios, categorized under profitability, liquidity, and solvency. The study highlights Visa Inc.'s stronger performance in profitability and liquidity ratios, while both companies exhibit high solvency ratios due to debt. The report concludes with an overall assessment of their relative financial health and performance, providing a comprehensive overview for financial analysis and comparison.

FINANCE

VISA INC
Executive Summary
To ascertain the financial performance of the company, it is essential that a financial analysis
should be conducted that will help in knowing the true position of the company. Further, a
comparison with the peer in the same industry can provide the best result. In this report, the
financial performance of Visa Inc is compared with that of JPMorgan. The report initiates with
the introduction followed by the discussion of the financial performance of both these
companies. Further, the report sheds light on the historical trend in the accounting statement
entries. To analyze the same, various aspect of Visa Inc such as turnover, profit, dividend, etc is
analyzed to provide a better view of the company.
The second part deals with the historical trends and the computation of accounting ratios done
under the heads of profitability, liquidity, and solvency. As per the profitability ratios, the
position of Visa INC is placed in a better position. When it comes to liquidity, once again Visa is
placed in a superior position while in case of solvency both are having a high ratio indicating the
presence of debt. Therefore, the overall analysis projects that Visa has performed better as
compared to its peer.
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Contents
Introduction.................................................................................................................................................4
Visa INC vs. JPMorgan.................................................................................................................................4
 VISA INC...............................................................................................................................................4
 JP Morgan............................................................................................................................................5
Comparison between the accounting statement items of JPMorgan Chase and Visa INC..........................5
 Business...............................................................................................................................................6
 Transactions in the accounting statements of the two companies in the next five years...................6
 Tax expense or benefits.......................................................................................................................7
Area of accounting statement.....................................................................................................................7
 The operating expenses.......................................................................................................................7
Ratio computation.....................................................................................................................................10
 Profitability ratios..............................................................................................................................10
 Liquidity ratios...................................................................................................................................11
 Solvency ratios...................................................................................................................................11
Conclusion.................................................................................................................................................13
References.................................................................................................................................................14
Appendix...................................................................................................................................................16
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VISA INC
Introduction
Visa direct is considered to be the most significant methods for making payments electronically.
Earlier the payments made either by cash or via cheque. There has been a change in the typical
payment flow using visa direct in which the account holders use their visa credit or debit card for
making purchases. In case of visa direct, the funds are pushed to the account holder which opens
up the network to various new ways of payment such as business to consumer, peer-to-peer
disbursements and various other bill payments. A large group of people is benefited by these are
direct such as the right share drivers and delivery service providers are paid the security and on
time. It is observed that there is strong growth in this field. In the last quarter of the fiscal year
2018, the growth rate year over year of visa direct was greater than 100%. In 12 months it was
observed that the volume of business-to-business payments reached $950 billion which is more
than 11 % of the total payment volume (VISA INC, 2018). The comparison will be based upon
VISA INC and its peer JP Morgan in the light of various financial parameters and ratio
computation.
Visa INC vs. JPMorgan
 VISA INC
There are various visa payment credentials which comprise of traditional cards card numbers that
are stored in files as well as card numbers that are stored on mobile devices. In the year 2018,
these payment credentials were used about 182 billion times which is almost half-billion
transaction for each day last year (VISA INC, 2018). This record has let us know the double-
digit growth rate in three major drivers that are mentioned below.
As per GAAP, the earnings per share growth were 58% and adjusted earnings per share growth
were 32%. In the year 2018, the result included certain special items such as US tax reform,
donation of available for sale investment securities and litigation provision which was related to
the interchange multidistrict litigation case. In the previous years, the special items that were
included were associated with the legal entity reorganization of Visa Europe and various other
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VISA INC
visa subsidiaries (VISA INC, 2018). The net operating revenue grew 12% which amounted to $
20.6 billion for the year 2018. There was a continuous growth in payments volume process
transactions as well as cross-border volume.
It was observed that the cross border volume growth was greater than 10% for the twelve months
which ended on September 30, 2018. According to GAAP, the operating expense was dollar 7.7
billion which was 23% more than last year.
 JP Morgan
The year 2018 was a golden year for JP Morgan because the form generated a record-high
revenue and net income. The revenue amounted to $111.5 billion and a net income of $32.5
billion which reflects a strong performance by the company. On the Adjustment for the
enactment of the tax cuts and jobs act, the company has performed brilliantly in the last eight
years and has the confidence to do so in the future also. Every line of business in the company
Adobe growing revenue as well as NET income for the year ear and also is focused on investing
in various products, people as well as technology. The loans increased by 7%, deposits increased
by 30% and also there was an increase in the market share of the company. However, the
company did not fail to maintain its credit discipline at all. The company raised capital of $2.5
trillion for its institutional clients, various businesses and US customers (JPMorgan, 2018).
In the past five years, the company has bought back its stock worth $55 billion and shares worth
$660 million. It is not a matter of much concerned if the company is buying back its talk at
tangible book value per share. Before 7 years and example was provided with stated that if a
large block of stock was bought back at its tangible book value bend earnings per share and book
value per share would be significantly higher after 4 years if the buyback was not done
(JPMorgan, 2018).
Comparison between the accounting statement items of JPMorgan Chase and
Visa INC.
The business lines of JP Morgan Chase and Visa Direct are very different. We need to
understand the nature of business for drawing a clear comparison between the accounting
statement entries.
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VISA INC
 Business
JP Morgan Chase has been one of the most popular and renowned investment banks for the past
few years. The 2018 year-end saw JP Morgan Chase holding 8.7 percent of world's wallet share.
Apart from investment banking also, JP Morgan Chase has ventured into many other areas such
as treasury services. Treasury services also have been growing with each passing day. Security
services have also received a lot of recognition as a business area of JP Morgan Chase
(JPMorgan, 2018).
Visa Direct, on the other hand, offers payment routing services. There are domestic, cross
border, multi-party and so many more types of transactions which are enabled by Visa Direct.
This company has revolutionized the age-old payment methods by cheque, cash and/or bank
transfers (VISA INC, 2018).
 Transactions in the accounting statements of the two companies in
the next five years
Operating revenues are those revenues which are received in between the normal course of
business. This applies to both incomes as well as expenses. Visa Direct's net operating revenues.
In 2014, the operating revenue was $12, 702 million, which increased to $13, 880 million, which
again increased in 2016 to $15, 082 million, increasing to $18, 358 million in 2017 and which
further increased to $20, 609 million. The operative revenue has been constantly increasing each
year (VISA INC, 2018).
JP MORGAN CHASE's net operating revenue is as follows. In 2016 the revenue was $12,822
million. In 2017, it increased to $13, 835 million, and in 2018 it further increases to $14, 076.
For both the companies, the revenues have been continuously growing constantly. However,
there is not much difference between the increases in revenues of both the companies. The
increase in both companies is similar in terms of increased percentage (JPMorgan, 2018).
Taxes are a part of the working fabric of any business. Taxes form a major part of operating
expenses because they are indispensable (Vaitilingam, 2014). However, there might have been
an extra tax which did not get realized immediately as soon.
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VISA INC
 Tax expense or benefits
Taxes act as an expense when So in the initial years, there was a tax expense for JP MORGAN
CHASE, however year after year with an increase in business, there was an increase in tax
benefits. Thus, the increase in business has lead to an increase in tax benefits.
Visa Direct has a decrease in the effective tax rate of the company from 2017 to 2018.2016 saw a
higher rate of tax.
Banking business cannot run without interest. Same is the case with our company. JP Morgan
Chase is an investment company. It needs to borrow and refund. The analysis of interest
expenses should be now done. For Visa Direct, the interest expense has increased. Each year the
interest expense has been increased. The reason is simple. The scale of operations, portfolio of
work and strategies keep changing year after year. These three factors increase interest expenses.
More business means more money necessary for business (Merchant, 2013)
JP Morgan Chase foes do not incur interest expense. It earns the same. The number was negative
in 2016, and as years went by, it became positive. And has been paid off in 2017 and turned
positive.
Both Visa Direct and JP Morgan chase are a part of the banking industry. But their kind of
operation and nature of transactions determine the nature of revenue and or loss.
Where JP Morgan chase is more into. Investment banking, and security services, There are more
chances of the company earning interest income rather than inviting the same, whereas Visa
Direct is involved in online payment and reception business, and hence incurs losses and or
expenses of interest (Mersland & Urgeghe, 2013).
There is not much scope of comparison between these two companies since their areas of work is
different.
Area of accounting statement
 The operating expenses
These expenses constitute the major part of the expenses of the company. They are almost all the
expenses which the company needs to run daily. They are the valid regular business expenses of
the business and also includes the tax and other such ancillary expenses of the business.
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VISA INC
The expenses of both companies have been on a constant increase. This can also be attributed to
the scale of operation. Hence since each year work is getting expanded, work is getting added.
And with those expenses to maintain the regular working of the business is also increasing.
The same is the case with both the companies. Hence there need not be a similarity and not a
comparison between.
On a proper evaluation, there is rarely a difference between the two companies when it comes to
company fundamentals of money. However, depending on the nature of business done, we can
try to categories for expenses and revenues and thereby differentiate.
Where we see that on one hand, the Visa Direct is depending on interest as an expense, JP
Morgan Chase considers interest as it's revenues. Visa direct cannot accept money on is own
name. It takes money on behalf of one party and transfers to the other one and incurs interest as
an expense (VISA INC, 2018).
Taxes also vary from company to company depending on the nature of businesses. One
company's tax is different from that of the other company because of the change in business.
The analysis thereby states that as we going into the detailed analysis of the two companies'
accounting statements, we see that both companies excel in their businesses and are giving a
stellar business performance (Parrino, Kidwell & Bates, 2012). They are recycling and
expanding and hence the scale of business, and the operating income and expense are
continuously increasing. This is not just as a result of scale but also a combination.
The taxes have changed over the years because of the various rebates received depending on
their scale and nature of businesses. This, there are changes from tax benefits to expenses and
vice versa.
Interest income for an investment bank is operating income. And that for a payment intermediary
is an expense. The two nature of transactions cannot be compared with each other and they need
to be established as separate fields of comparisons (Ross et. al, 2014).
JP Morgan Chase is an investment bank, and catering to the multiple countries across the globe,
has been increasing its wings to different areas and has been doing exceptionally well. It is
venturing into different areas and is spreading its wings in security service, and other corporate
services (JPMorgan, 2018). These result in a higher scale of operations and higher income and
expense.
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VISA INC
On the other hand, writing had Visa Direct, which is an established payment intermediary and
has earned a reputation for providing safe transactions and transaction platforms. And the above
analysis writeup shall enable in comparing the transactions between the two companies. The
services of both these companies have been recognized and most nations and their companies are
dependent on the services provided by these two companies for their operations (Lister, 2018).
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VISA INC
Ratio computation
 Profitability ratios
Profitability ratios of both the companies have showing same trends as during 2014-15 profit of
both the companies show a rising trend and fall during 2015-16 but 2016-17 profit of JPMorgan
fall but VISA INC rise and during 2017-18 profit of both the companies rise.
Thus with the above analysis, it is ascertained that profit of VISA INC is more volatile as
compared to JPMorgan as during the four-year VISA INC profit decreased to 87% as well as rise
as high as 137% and on the other hand profit of JPMorgan ranges between 91% to 120%. Thus
any change in the market condition will impact VISA INC more than JPMorgan.
Risk-averse investors shall invest in JPMorgan due to stability in profit margin and risk appetite
investor would like to take advantage of volatility in profits and share price of VISA INC.
Return on assets ratio shows the return per unit of assets employed to earn the income. In the
case of JPMorgan return on assets employed is on a rising trend except for a fall during 2016-17
thus JPMorgan is in utilizing its assets to generate wealth as return on capital employed is more
than the cost of capital (Melville , 2013) .
Return on Assets of VISA INC is also positive throughout which shows positive income during
the year but there are frequent ups and downs which does give certainty about the returns.
Return on equity is return earned by the company for its shareholders (Leo, 2011). Thus a debt
levered company may have high income but low return to equity as a share of debt holder effect
return available to equity shareholders. The equity shareholders get there return after adjustment
of all other liabilities (Hanley, Morales. & Cassells, 2018)
Return on Equity of VISA INC is always higher than that of JPMorgan. JPMorgan is showing an
average return of around 0.94% over 5 years whereas VISA INC is showing an average of
12.85%. Both the companies were showing higher return on assets than return on equity during
2014 but at the end during 2018 both the company is having the same return to assets as well as
equity this means earlier there was some outside debt which has been waved or paid during the
period and only equity liability is present in the company. Thus both the company has become
levered free during 2014-2018.
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VISA INC
 Liquidity ratios
The current ratio shows the short term basically during the 1-year liquidity of the company. It
determined how much the company would be able to meet up its short term liabilities and does it
have enough assets to back such liabilities (Bloomfield, 2015).
In the given case current assets and current liability of JPMorgan is almost same, thus it does not
have any excess assets to cover its liability and in any adverse case in which any of the assets
failed to realize than it may face liquidity problems (Bloomfield, 2015).
VISA INC is having 1.5 times the current assets as compared to its current liabilities thus it will
be always in the better position to pay-off its liability and may even withdraw come current
assets or even invest in any other short or long term plans.
Both the company is having the same current ratio and quick ratio that means all the current
assets of both the companies are quick assets, which can be converted to cash in short period to
pay its liabilities. Overall, it indicates that VISA INC has a better position of liquidity ratio
because the company has liquid assets to meet the obligations (Sword, 2018) .
 Solvency ratios
Debt equity ratio shows the solvency of the company basically in case of wound up will the
company able to pay all its liabilities. The focus in this ratio is mainly on long term loans and
advances taken as it impacts a return to equity in difficult market conditions and the case of
flexible rate even liability changes with change in economic conditions (Malmi, 2010). In the
given case debt coverage of JPMorgan is lower as compared to VISA INC. Thus equity
shareholders would have more confidence in VISA INC than JPMorgan.
Though both the company has debt asset is there to cover them and in case of liquidation, debt
can be paid (Kaplan, 2011).
The EPS of both the companies are on a rising trend. Though EPS of JPMorgan is higher than
VISA INC it depends on the number of shares issued by them and the market price of shares.
Thus a company with high EPS may reduce it by issuing bonus shares and any company having
Lower EPS may raise it by consolidating its shares. EPS is not proper financial control to
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analyze a company but a company having negative EPS is to be cautioned about (Ferris,
Noronha & Unlu, 2010). Thus overall both the company shows similar trends except JPMorgan
is showing more stable profits and VISA INC is having better assets backing and debt coverage.
The investor should analyze accordingly and invest as per its risk appetite.
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