Comprehensive Financial Analysis of JP Morgan Chase and Company

This report provides a comprehensive financial analysis of JP Morgan Chase & Co., examining its performance in light of recent international financial developments like Brexit and the US-China trade war. It delves into the company's background, including its historical roots and core business operations. The analysis includes an assessment of international financial management strategies, focusing on the impact of global events. Furthermore, the report conducts a detailed examination of JP Morgan Chase's financial statements, computing and interpreting key financial ratios, including working capital, profitability, solvency, and market prospects ratios, over a two-year period. The analysis highlights trends and provides insights into the company's financial health and performance, offering a valuable resource for understanding the complexities of financial statement analysis in a global context. The report concludes with a summary of findings and implications.

FINANCE
JP MORGAN CHASE AND COMPANY

Contents
Introduction................................................................................................................................2
Background of the company......................................................................................................2
Part a- Recent Financial Developments and Impact on the company........................................3
Part b- Analysis of international financial management strategies............................................4
Part c- Analysis of financial statements.....................................................................................4
Conclusion..................................................................................................................................9
References................................................................................................................................10
Appendix..................................................................................................................................11

Introduction
The business operations of the global business enterprises are highly affected by the
international financial developments, resulting in the political and economic changes in the
business environment. The increasing complexities in the global business environment,
numerous corporate collapses and the enhanced number of transactions beyond the borders
have called a greater attention on transparent presentation of the business activities in the
interests of the various stakeholder groups including the shareholders of the entities. Hence,
the success in dynamic business environment of today can be highly attributed to the analysis
of the financial statements of the enterprises to get the useful insights about the business
operations and the financial health (Higgins, 2012).
The following report is aimed at evaluating the various aspects of the business
operations and financial statement of one of the most popular global organisation JP Morgan
Chase and Co. The said analysis would include the study of impact of the international
financial developments on the business operations of JP Morgan Chase and Co. Further, the
financial statements would be studied with the aid of the computation of the key financial
ratios over the period of two years. The ratios would be further compared to understand the
progresses in the business activities.
Background of the company
The roots of the company JPMorgan Chase & Co. can be traced back to the year 1799
in the New York City where the company’s present headquarters are located. The present
firm is built on the foundation of a number of heritage firms namely the Chase Manhattan
Bank, J.P. Morgan & Co., First National Bank of Chicago, Bank One, The Bear Stearns
Companies Inc., Robert Fleming Holdings, Manufacturers Hanover Trust Co., Chemical
Bank, The National Bank of Detroit and others (JP Morgan Chase and Co., 2019a). The
present company was formed in the year 2000 resulting out of the merger between Chase
Manhattan Corporation and the J.P. Morgan & Co. and hence the present name of the
company. The chief business operations of the company include the provision of the
commercial banking, investment banking, private banking, asset management services,
wealth management and brokerage services, securities services and the treasury services
(JPMorgan Chase and Co. 2019b). The company is listed on the New York Stock Exchange.

Part a- Recent Financial Developments and Impact on the company
The two key and recent developments in the international financial market that have
created disruptions in the global markets are the Brexit and the US China Trade War. The
impact of the same on the business of the entity JPMorgan Chase & Co. has been explained
one by one.
The Brexit an abbreviation for “British exit,” which refers to the decision of the UK o
leave the European Union (EU) on June 23, 2016 in a referendum. The said decision caused
the global market disruption including the financial markets with the British Pound falling to
its lowest ever in the last 30 years, against the Dollar. The resulting impact at a general level
is the disruption of the trade agreements between the UK and the EU. In terms of the
business of the entity JPMorgan Chase & Co. the company faced the heat of the uncertainty
of the Brexit throughout the year as stated in the annual report of the company. The entity
has established a Firm wide Brexit Implementation program in the year 2017 for the effective
implementation of the strategies across the worldwide businesses and the functions
(JPMorgan Chase and Co., 2019c). The program is aimed at ongoing assessment of political,
legal and regulatory risk in the business environment. It is significant to note that the
company has planned a withdrawal from the business from the region of UK, if a “no deal
scenario” situation has reached. Under a no deal scenario, the impact of the Brexit in the
upcoming future would be that the company would be leveraging its EU legal entities in
order to ensure the continuation of services to the EU clients (Arnold, 2019). The company
already has banking licenses in Frankfurt, Dublin and Luxembourg. In order to serve the EU
clients as stated above, the company will have to recruit several additional number of
employees in its various EU locations and will be further required to relocate employees from
the UK to the EU.
Another key development in the international financial sector that has left a great
impact on the business operations of various entities irrespective of the industry across the
globe, is the US- China Trade War. The research division of the entity namely the JPMorgan
Research has already axed its GDP forecast for the year 2019 and 2020 to 6.3% and 6.1%
respectively in the China region (JPMorgan Chase and Co, 2019d). The prolonged US China
trade talks have led to the company JPMorgan Chase and Co. predicting the escalated tariffs
to be in place till the year 2020 (Curran & Anstey, 2019). As a result of the said prediction a

hike in the interest rates for the financial assistance provided by the company is expected in
near future period.
Part b- Analysis of international financial management strategies
The chief sources of finance of the entity deposits and long term borrowings
purchased and the deposits in context of the finance other than the shareholders equity. The
shareholder’s equity comprises of the 10 percent of the Total liabilities and stockholders'
equity. The following picture is descriptive of the dividend policy trend of the company over
the period of last two decades. The severe fall in the dividend in the year 2010 is attributed to
the global financial crisis. Otherwise the company has been paying good dividend and an
increasing trend can be seen in the dividend per share over the years.
Part c- Analysis of financial statements
One of the most popular practices of analysis of the financial statements is by using
the technique of the ratio computation. The various ratios gives the useful information about
the various facets of finance and business activities such as the operational efficiency,
profitability, liquidity, solvency and the market expectations and the prospects (Fridson &
Alvarez, 2011). The results can be further compared within the industry with the data of the
other firm or with the data of previous year (s) to track the progress of a company over the
years and the position in the market. The interpretation of the ratios over the period of two
years for the company JPMorgan Chase & Co. is presented as follows.

Working capital ratios
These ratios indicate the soundness of the liquidity position, short-term financial
status and the operational efficiency of an entity (Saleem & Rehman, 2011). A working
capital ratio of 2:1 or on the higher side is desired ass the same demonstrates the capacity of
the company to pay off the short term loans of the company using the short term assets. The
following table indicates the two key ratios of the working capital for entity JPMorgan Chase
and Co.
Current Ratio (Cash and Short Term
Marketable Securities / Current
Liabilities)
Cash Ratio (Current Assets / Current
Liabilities)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Working Capital Ratios
2017 2018
WORKING CAPITAL RATIOS 2017 2018
Current Ratio (Current Assets / Current Liabilities) 1.67 1.64
Cash Ratio (Cash and Short Term Marketable Securities / Current
Liabilities)
0.56 0.31
Following observations are noteworthy from the table depicted above. There can be
seen a declining trend over the period of two years in the cash ratio of the company. The resin
for the same can be stated to be the decrease in the cash balances of the company together
with the due from the banks. The current ratio of the company has also declined slightly. The
various reasons can be attributed for the said declining trend that is the increase in the trading
liabilities, together with the short term borrowings, of the company. Further, the fall in the
debt securities of the company have also contributed to the decline in the current ratio for the
year 2018 as against the previous year.

Profitability Ratios
The capability of the business to generate earnings can be analysed with the aid of the
profitability ratios. The various aspects analysed with the aid of the profitability ratios are the
trends in the revenues, operating costs, net profits and shareholders' equity of an enterprise
(Velnampy & Niresh, 2012). The following table is descriptive of the key profitability ratios
of the entity. High profitability ratios indicate the positive trends in core business activities of
an enterprise and therefore the profitability ratios on higher sides and rising trends are
preferred.
Gross profit margin (Gross Profit/Sales) Net profit margin (Net income/Sales)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
78%
25%
71%
30%
Profitability Ratios
2017 2018
PROFITABILITY RATIOS 2017 2018
Gross profit margin (Gross Profit/Sales) 77.82% 71.10%
Net profit margin (Net income/Sales) 25% 30%
The above table depicting the comparison of the profitability ratios of JPMorgan
Chase & Co. are indicative of a rising trend in overall the net profit margins which is a good
indicator in terms of the soundness of the core business operations. However, a decline can
be seen in the gross profit margin of the entity. The company is in the business of the
provision of the financial services, hence interest expense is the part of the core operating
expenses in the said industry. Thus, the rise in the interest expense, has led to declining trend

in the gross profit margin. It must be further noted that there is an increase in the other
incomes as depicted in the statement of profit and loss which did offset the decline in gross
profits and hence the overall net profits of the company have increased.
Solvency ratios
A company’s ability to repay its long term obligations in the form of debt can be
analysed by the computation of the said group of ratios. The prospective business lenders,
regulatory authorities, and the shareholders of an entity are keen on computing the said
financial ratios and the position of the cash flow in the business is assessed through the same
to evaluate the financial health of the enterprise (Delen, Kuzey & Uyar, 2013). The following
chief solvency ratios of the company in relation of the company JPMorgan Chase & Co. are
calculated and compared as follows.
SOLVENCY RATIOS 2017 2018
Debt to assets ratio (Long term debt/Total Shareholders’
equity)
0.11 0.11
0.00
2.00
4.00
6.00
8.00
10.00
Chart Title
2017 2018

Financial Leverage (Total Liabilities/Total
Shareholder's Equity)
8.91 9.22
The data in the table above describes, that a consistent level of the long term
borrowings is maintained in the business by the company as against the shareholder’s equity.
There is no change in the debt equity ratio of the company over the two years and thus no
major change in the capital structure of the entity. In contrast to this, the short term
borrowings have changed slightly with the increase in the trading liabilities such as the trade
payables. The said increase has resulted in the increment in the overall financial leverage.
Market Prospects ratios
The trends of the prices of the stock and the earnings for the upcoming period can be
analysed by the investors with the aid of this groups of ratios. High ratios are preferred that
are indicative of stock performing well at the stock exchange. The market prospects ratios of
JPMorgan Chase and Co. are provided as follows.
MARKET PROSPECTS RATIOS 2017 2018
Earnings per share (Net profit after tax/ No of shares
outstanding)
6.37 9.06
Pay-out ratio (DPS/EPS) 33% 30%
2 0 1 7 2 0 1 8
33%
30%
Payout rati o (DPS/EPS)

A growth trend in the earning per shares is visible from the data in the table above.
The total interest incomes and the simultaneous and relatively lesser increment in the direct
and indirect expenses have led to the increase in the earning per share of the enterprise. A
declining trend in the pay-out ratio is descriptive of upcoming developmental projects of the
company. Hence, the ratios demonstrate a stable and positive and stable trends in the
company from the point of view of the investments.
Conclusion
The discussions conducted in the previous parts lead to the conclusion that analysis
and the interpretation of the financial statements is the key to understand the business
activities of an entity and the financial health in context of the international financial
developments. The work highlighted the various financial happenings and provided an insight
in the future impact of the same on the business activities of the entity JPMorgan Chase &
Co. Further the business strategies of the company on the lines of the international financial
and the risk management strategies of the company are evaluated to widen the understanding
of the business operations of the entity. The financial statements of the entity are further
evaluated with the aid of the technique of the interpretation of the ratios and the results are
compared from the past year figures to analyse the trends in context of the business
environment.
2017 2018
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Earnings per share (Net profit after tax/ No of
shares outsatnading)

References
Arnold, M. (2019). JPMorgan issues bleak warning on Brexit damage. Retrieved from:
https://www.ft.com/content/af41135c-8436-11e8-96dd-fa565ec55929
Curran, E. & Anstey, C. (2019). Full-Blown Trade War Is Quickly Shifting From Risk to
‘Baseline’ Retrieved from:
https://www.bloomberg.com/news/articles/2019-05-23/full-blown-trade-war-is-
quickly-shifting-from-risk-to-baseline
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.
JPMorgan Chase and Co. (2019a). Our History. Retrieved from:
https://www.jpmorganchase.com/corporate/About-JPMC/our-history.htm
JPMorgan Chase and Co. (2019b). What we do. Retrieved from:
https://www.jpmorgan.com/country/US/EN/what-we-do
JPMorgan Chase and Co. (2019c). Annual Report 2018. Retrieved from:
https://www.jpmorganchase.com/corporate/investor-relations/document/annualreport-
2018.pdf
JPMorgan Chase and Co. (2019d). China's Big Decisions. Retrieved from:
https://www.jpmorgan.com/global/research/china-outlook-2019
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).

Appendix
JP MORGAN CHASE & CO (JPM) BALANCE SHEET
Fiscal year ends in December. USD in millions 2017 2018
Assets
Cash and due from banks 404294 256469
Federal funds sold 198422 321588
Securities borrowed 105112 111995
Trading assets 413714
Derivative assets 56523
Debt securities 575279 261828
Loans 930697 984554
Allowance for loan losses -13604 -13445
Net loans 917093 971109
Receivables 67729 73200
Premises and equipment 14159 14934
Goodwill 47507
Other intangible assets 6885 54349
Other assets 140597 143346
Total assets
253360
0 2622532
Liabilities and stockholders' equity
Liabilities
Deposits
144398
2 1470666
Federal funds purchased 158916 182320
Trading liabilities 123663 144773
Payables 189383 196710
Short-term borrowing 24186 69276
Long-term debt 284080 282031
Other liabilities 53697 20241
Total liabilities
227790
7 2366017
Stockholders' equity
Preferred stock 26068 26068
Common stock 4105 4105
Additional paid-in capital 90579 89162
Retained earnings 177676 199202
Treasury stock -42595 -60494
Accumulated other comprehensive income -140 -1528
Total stockholders' equity 255693 256515
Total liabilities and stockholders' equity
253360
0 2622532

JP MORGAN CHASE & CO (JPM) INCOME STATEMENT
Fiscal year ends in December. USD in millions 2017 2018
Revenue
Interest income
Loans and Leases
4100
8 47620
Deposits with banks 4219 5907
Federal funds sold 2290 4547
Other assets
1685
5 19368
Total interest income
6437
2 77442
Interest expense
Deposits 2857 5973
Short-term borrowing 481 1144
Other expense
1093
7 15266
Total interest expense
1427
5 22383
Net interest income
5009
7 55059
Noninterest revenue
Commissions and fees
2735
9 29413
Lending and deposit-related fees 7549 7306
Securities gains (losses) -66 -395
Credit card income 4433 4989
Other income
1025
2 12657
Total noninterest revenue
4952
7 53970
Total net revenue
9962
4
10902
9
Provisions for credit losses 5290 4871
Noninterest expenses
Compensation and benefits
3100
9 33117
Occupancy expense 3723 3952
Tech, communication and equipment 7706 8802
Professional and outside services 6840 8502
Other expenses 9156 9021

Total noninterest expenses
5843
4 63394
Income (loss) from cont ops before taxes
3590
0 40764
Provision (benefit) for taxes
1145
9 8290
Net income
2444
1 32474
Preferred dividend 1663 1551
Net income available to common shareholders
2277
8 30923
Dividend paid per share 2.12 2.72
Weighted average shares outstanding
Basic 3577 3414