Today's financial environment makes business analysis difficult and hard to predict. Globalization and rapid changing trends dominate business news and affect both Wall Street and Main Street in different yet substantial ways. Bank of America is a very popular topic of discussion in today's world of economics and global markets. The business environment Bank of America currently lives within is rapidly changing and fiercely competitive. Bank of America is seemingly in much trouble today in many different ways. The purpose of this essay is to discuss the business environment Bank of America operates within, and compare and contrast its practices and procedures with its competitors.
A useful tool in understanding the financial health of any particular corporation begins with looking at its financial statements. Income statements, balance sheets and cash flows often determine the financial health of any particular company. Bank of America's financial statements are often in the news and are held to high scrutiny due to the size and scope of its power over the American economic institutions. Furthermore, recent government aid focused on helping this company survive within the financial industry providing a substantial ownership to all who wish to see it succeed in the future.
Bank of America's income statement lists its revenue at $82.68 billion, and its revenue per share would be a .26. Through 2010 the company grew 4.10%, however its quality earnings growth with -35.60%. Looking at Bank of America's balance sheet provides even more data. While cash on hand was $609.40 billion in total debt was $806.78 billion. The balance sheet demonstrated that as assets are continually growing many liabilities continue to grow alongside or even a greater pace. This trend has continued for the last three years as well making Bank of America a troublesome problem for those wishing to invest in this company. Looking at the cash flow statement for Bank of America it is noted that the operating cash flow is $58.14 . Capital expenditures and investments in general continue to decline as a trend throughout the last few years. This company seems to be amassing more debt and more problems as they continue to lose investors confidence.
It is also necessary to provide some context in order to present Bank of America's case. It is necessary to examine the cash flow statements of this large company's competitors as well. Citigroup and J.P. Morgan's financial information will help provide a context to examine Bank of America's truthful situation within its own business environment. These two ranking institutions provide the majority of Bank of America's competitors in terms of financial strength and investor interest.
Like Bank of America, Citigroup is a global financial service company. The company operates through two segments according to their business model. One branch of their business, Citicorp operates as a global bank and provides consumer banking as well. Citi Holdings is a brokerage and asset management business segment of Citigroup. This company has approximately 1 million customers and operate in approximately 160 countries. Citigroup's financial statements look very similar in some aspects to Bank of America's. Citigroup's income revenue is $61.81 billion, this is $20 billion less then Bank of America. Citigroup's gross profit or an income statement is $55.06 billion. Much like Bank of America, it's quality earnings growth was -32.30%. Citigroup's balance sheet lists its total assets $783.24 billion with total cash per share at 268.17. The cash flow statement lists Citigroup's operating cash flow at $1.47 billion. Comparing this to Bank of America's $58.14 billion cash flow, the stark difference provides insight into the differences of these companies.
J.P. Morgan's financial condition will also help give context to Bank of America's status within the business environment and its overall stature within the financial industry. J.P. Morgan Chase & Co. is a financial holding company that provides financial services worldwide, also it has investment bank segment and a commercial bank segment as well. This model is very similar to both Bank of America and Citigroup. But unlike Citigroup or J.P. Morgan does not provide its company into two segments explicitly. J.P. Morgan is listed as one of the Dow Jones primary stocks within the Dow Jones composite.
Within J.P. Morgan's income statement its total revenue is $89.45 billion. The similar revenue streams of Bank of America and J.P. Morgan are in contrast to the $20 billion more than Citigroup. J.P. Morgan has had success recent times unlike these other two companies. J.P. Morgan had a quarterly earnings growth of 67% last quarter. According to the balance sheet its total cash is $826.30 billion much more than either Citigroup or Bank of America. According to the cash flow statement its operating cash flow is a negative $27.12 billion also providing a difference when compared to Bank of America.
Bank of America's Financial Health
Interpreting these numbers requires insight into the financial industry. Accounting procedures and regulations dictated by government institutions fall short in providing accurate and honest interpretation, in my opinion. Management can use this information by applying it in certain aspects. These aspects need to include an understanding of the entire market and how globalization can both positively and negatively affect banking and financial investment. Everything is being reported and listed in United States Dollars as well, making this interpretation completely reliant on this particular currency. Concern about these financial statements, as they are used more as investor tools then the true health of the company, is legitimate. The additional assistance provided by federal government institutions, and the monetary policy, which is run by the federal reserve banks demonstrate the true interests of the financial industry.
Son (2011) interpreted Bank of America's recent environment as questionable and in great jeopardy. In his analysis he claimed that Bank of America " may suffer $1.5 billion in losses for every four percentage points at home price declines exceeded its estimates for market told shareholders on May 11 still faces enormous challenges." Bank of America is web of trouble and mismanaged accounting procedures within the housing industry seems to predicate its gloomy future. Bank of America is anticipating losses with in the housing market as it has continued to slide over the last few years. Accounting procedures need to represent this fact accurately. Many believe that Bank of America does not practice this same view. It is not in Bank of America's best interest to predict an overly pessimistic market forecast within their investing groups. The dual interest within their commercial banking groups and in the housing mortgage lending industries seems to be at odds with each other causing much conflict within the bank itself and not presenting any easy solutions to difficult problem that is affecting most of the country and spilling over towards the whole global economy.
Technological Advantages and Globalization Impacts
The financial industry does require some technological knowledge to sustain competitive advantage. The technology required to improve a banking service, in my opinion, relies on seamless transaction and limited human interaction. Cutting costs by dehumanizing the entire banking system will undoubtedly cut costs and provide quicker and more manageable systems. Eliminating the human element within the labor force will also seek to improve profitability as well. Currency exchange seems to be the future of the global market as it continues to grow. Local currency's are now relegated to a global scale instead of just a national scale. This will most likely require some type of technology that can convert currencies quickly efficiently and effectively. Bank of America would be wise to seek out these solutions if they wish to remain competitive in this aspect.
Comparing Bank of America, J.P. Morgan and Citigroup is difficult due to the fact that they are very similar in many different ways. They are all global financial institutions that serve as…