Analyzing financial statements: Bank of America/Citigroup analysis

Résumé du document

Bank of America Corporation is a financial holding company founded in 1874, with its headquarter in Charlotte, North Carolina. It provides banking and nonbanking financial services in the United States and other countries The company is divided into 3 segments namely, Global consumer / Small business banking segment, Global corporate and investment banking segment and the Global wealth and investment management segment. All of these segments offer varied services to consumers like: savings accounts, money market savings accounts, certificate of deposits, individual retirement accounts, and regular and interest-checking accounts; consumer cards, business cards, debit cards; mortgage products for home purchase and refinancing needs; insurance services; and lines of credit and loans, commitment facilities, real estate lending products, and leasing and asset-based lending products for banking clients, middle market commercial clients, multinational corporate clients, public and private developers, homebuilders, and commercial real estate firms; advisory services, financing, and related products for institutional investor clients in support of their investing and trading activities; merger-related advisory services, and risk management solutions; and treasury management, trade finance, credit facilities, and options for correspondent banks, investment and brokerage services, estate management, financial planning services, fiduciary management, credit and banking expertise, and diversified asset management products to institutional clients and high-net-worth individuals.

Extraits

[...] The operating expenses represented the most important part in 2004 whereas it's the operating income in 2005 and 2006 what wants to say that the 2 companies were previously spending more money to pay salaries, or in research and development than they received profit of these expenses whereas they are now profitable. Analyzing Financial Statements 11 Bank of America / Citigroup analysis We can then make a ratio analysis. This one is used to know how well a company is performing financially and to explain financial performance. The liquidity ratios are here to calculate if a company is able to meet its short term obligations. [...]

[...] To conclude: we can see that Bank of America and Citigroup seem to act in the same way. They have no decrease in their balance sheet between 2005 and 2006 whereas it was the case between 2004 and 2005 and especially on the intangible assets and liabilities. Nevertheless, we can note that there is an important difference between the two companies: Citigroup doesn't have any expend in property, plant and equipment whereas this post is increasing all the year in the Bank of America's balance sheet. [...]

[...] The debt ratio is more or less equal and stable for the 2 companies during the 3 years (there is just a big decrease in 2005 for Citigroup but it comes back at its old level in 2006 so we can suppose it was just due to a punctual problem). This ratio is really high (more than what wants to say Analyzing Financial Statements 12 Bank of America / Citigroup analysis that the biggest part of the companies' funds comes from debt and that it will thus be difficult to use assets to cover the debt load. We are in a particular situation as the 2 companies are banks but in a general way, creditors will not lend money at a company in this situation. [...]

[...] The gross margin is in a little decrease for Bank of America but stays quite high. The one of Citigroup can be analyzed because we don't have the cost of sales. Return on total assets is the best overall measure of a company's profitability. Return on assets for Bank of America and Citigroup are low (as for the industry) and stable over the years. Return on common shareholders equity indicates how well the company employed the owners' investments to earn income. [...]

[...] Bank of America is also presenting good data. It's quite difficult to choose which one I have to invest in as a general investor because these two companies have quite the same ratios over the three last years. Nevertheless, Citigroup has a better price earning ratio than Bank of America and even if the dividend yield is just a little lower for Citigroup, this one has known the best growth rate of the industry during the last years what lets hope good years to come. [...]