Analysis of Financial Reporting and Financial Statement Finance Essay

JP Morgan Chase & Co (NYSE: JPM) is one the biggest financial institutions in the United States and is one of the respected in the whole world. JP Morgan Chase & Co stand today for over 200 year back history and here's JP Morgan Chase stand today:A Leading world financial services institution with assets of $2.1 trillion. Active operating in more than 60 countries. Built of more than 200,000 employees. Serves millions of consumers, small businessesA and many of the world's most prominent corporate, institutional and government clients. A leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity It's stock is a component of the Dow Jones Industrial Average Activities of JPMorgan Chase & Co are organized, for management reporting purposes, into six business segments, as well as Corporate/Private Equity. The Firm's wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments. The Firm's consumer businesses comprise the Retail Financial Services and Card Services segments. A description of the Firm's business segments and the products and services they provide to their respective client bases is provided in the "Business segment results" section of Management's discussion and analysis of financial. [1]

Competition

JPMorgan Chase and its subsidiaries and affiliates operate in a highly competitive environment. Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, insurance companies, mutual fund companies, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based companies, and a variety of other financial services and advisory companies. JPMorgan Chase's businesses generally compete on the basis of the quality and range of their products and services, transaction execution, innovation and price. Competition also varies based on the types of clients, customers, industries and geographies served. With respect to some of its geographies and products, JPMorgan Chase competes globally; with respect to others, the Firm competes on a regional basis. The Firm's ability to compete also depends on its ability to attract and retain its professional and other personnel, and on its reputation. The financial services industry has experienced consolidation and convergence in recent years, as financial institutions involved in a broad range of financial products and services have merged and, in some cases, failed. This convergence trend is expected to continue. Consolidation could result in competitors of JPMorgan Chase gaining greater capital and other resources, such as a broader range of products and services and geographic diversity. It is likely that competition will become even more intense as the Firm's businesses continue to compete with other financial institutions that are or may become larger or better capitalized, or that may have a stronger local presence in certain geographies. [2]

Competitors

JP Morgan Chase & Co for last annual year has increased it's market capitalization, company's size and riskiness, by 147.77b compared with other investment banking instructions like Bank of America Corporation 113.16b and City Group, Inc 119,40b. The Employees number in JP Morgan Chase & Co is 236,810, which is less then Bank of America Corporation by 41,190 and less then City Group, Inc by 21,190, which may imply to that JP Morgan Chase & Co's employees is much more profitable and managerial behaviors might be more unite and consistent achievable on organizing staff operation. Quarterly revenue growth is 11,20%, the lowest compared to other competitors and industry. The highest is 48.70% quarterly growth of Bank of America Corporation. Total revenue of JP Morgan Chase & Co is 90.08b. It's really impressive, it reaches nine times more then industry, and it's almost 20b and 40b respectively more then Bank of America's and City Group, Inc's total revenue. It seems, they gain more on investment security sales, interests on loans, on credit card rates, trading assets and etc. Net income of JP Morgan Chase & Co is 14,30b, and compared with Bank of America Corporation it is 21.48b more, with City Group, Inc it is 9.05b more. Within the industry Barclays PLC has gained in net income 5.25b, and gives fist place to JP Morgan Chase & Co stepping down on second place. Barclays PLC stands first with earnings per share 5.22 leaving JP Morgan Chase & Co for second high 3.59. Bank of America Corporation and City Groups, Inc's EPS (earnings per share) is considerably really low, almost by -21% and 1.3% of JP Morgan Chase & Co's earnings per share and they might releasing more shares, which increases the number of total shares further diluting the net earnings. JP Morgan Chase & Co is might be more efficient at using it's capital to generate income.

The consumer businesses include:

Branch, ATM, Telephone and online banking, Small businesses Credit Cards, Home finance and home equity loans, Auto Finance, Education Finance, Retirement and Investing, Retail checking .

The commercial banking businesses include:

Middle Market, Mid corporate, Commercial real estate, Business credit, Equipment Finance, Commercial Term leading, Community development J.P. Morgan clients include the world's most prominent corporations, governments, wealthy individuals and institutional investors. These businesses use theA J.P. Morgan brand:A Investment Bank, Asset management, Treasury services, Worldwide security services, Private banking, Private Client services, online equity partners. Recent developments in JP Morgan Chase & Co are: Commits $10 billionA in lending to support small businesses. Raises more than $150 billion since 2009A for state and local governments, hospitals and educational facilities. Offers more thanA 900,000 mortgage modificationsA for struggling homeowners. Provides financingA for affordable housing and community development projects.

Direct competitor comparison:

Letter to Shareholders

The past two years have been among the most extraordinary and challenging in recent history for JPMorgan Chase, the financial services industry and the global economy. JPMorgan Chase has endured a once-in-a-generation economic, political and social storm, the impact of which will continue to be felt for years or even decades to come. As we see signs of recovery and the debates about financial reform wage on, it's easy for us to forget the fear and panic we felt a year ago. The market was down an astonishing 50% from its 2008 highs to its low on March 9, 2009. For JPMorgan Chase, these past two years have been part of a challenging, yet defining, decade. JPMorgan Chase began it as three separate companies: Bank One, Chase and J.P. Morgan, with each facing serious strategic and competitive challenges. Today, their strategic position is clear, and JPMorgan Chase is a leader in all of its businesses. If you had been a Bank One shareholder from 2000 to year-end 2009 (this represents approximately 40% of the current company) and you held on to your stock, you would have received a total return on your investment of 131%. Over the same time period, if you were a Chase or J.P. Morgan shareholder, your returns would have been 12% and 70%, respectively. By comparison, the Standard & Poor's 500 Index was down 9% over the same period. Throughout this decade, we made and executed on many transformative decisions. When the global financial crisis unfolded in 2008, the people of JPMorgan Chase understood the vital role their firm needed to play and felt a deep responsibility to their many stakeholders. It is this sense of responsibility that enables us to move beyond the distractions of the moment and stay focused on what really matters: taking care of their clients, helping the communities in which they operate and protecting their company. It is because of this focus - even amid the daunting and ongoing challenges - that JPMorgan Chase is able to weather this economic crisis and continue to play a central, if sometimes misunderstood, role in rebuilding the U.S. economy. This is a testimony to the collective strength of character and commitment of their people. On March 16, 2008, JPMorgan Chase announced it's acquisition of Bear Stearns at the request of the U.S. government; on September 25, 2008, 10 days after the collapse of Lehman Brothers, JPMorgan Chase bought Washington Mutual. JPMorgan Chase loaned $70 billion in the global interbank market when it was needed the most. With markets in complete turmoil, JPMorgan Chase was the only bank willing to commit to lend $4 billion to the state of California, $2 billion to the state of New Jersey and $1 billion to the state of Illinois. Additionally - and, frequently, when no one else would - JPMorgan Chase loaned or raised for their clients $1.3 trillion, providing more than $100 billion to local governments, municipalities, schools, hospitals and not-for-profits over the course of 2009. Overall results - performance improved from 2008 but still was not great. JPMorgan Chase revenue this year was a record $100 billion, up from $67 billion in 2008. The large increase in revenue was due primarily to the inclusion for the full year of Washington Mutual (WaMu) and the dramatic turnaround in revenue in JPMorgan Chase's Investment Bank. Profits were $12 billion, up from $6 billion in the prior year but down from $15 billion in the year before that. While these results represent a large improvement over 2008, they still are an inadequate return on capital - a return on tangible equity of only 10%. Relative to the competition of JPMorgan Chase, the company fared extremely well. JPMorgan Chase did not suffer a loss in any single quarter over the two-year crisis (we may have been one of the few major global financial firms to achieve this). In absolute financial terms, however, our results were mediocre. [3]

Recent news:

JP Morgan Chase crosses pivot point support at $39.65 as of Nov 16, 2010. Smart Trend has detected shares of JP Morgan Chase have bearishly opened below the pivot of $40.14 today and have reached first level of support $39.65. In the past 52 weeks, shares of JP Morgan Chase have traded between a low of $35.16 and high of $48.20 and are now at $39.23, which is 12% above the low price. [4]

JP Morgan Chase says European stocks may 'overhoot' in 2011; RBS sees 20% gains.

JPMorgan Chase & Co. advised investors to buy European equities for the coming 6 to 12 months, while Royal Bank of Scotland Group Plc forecast stocks may rise "potentially very strongly" in 2011. We are "very bullish on equities on a rolling 6-12 months horizon, with the potential for a '99 type of extreme upward move not to be dismissed," JPMorgan strategists Mislav Matejka and Emmanuel Cau wrote in a report today, adding that returns on a 5- to 10-year period will be "poor." RBS strategists Ian Richards and Graham Bishop in London forecast gains of 20 percent for European stocks. "Rarely has the valuation of the equity market appeared so anomalous in the context of other asset classes," Richards and Bishop wrote. "But another dose of liquidity, normalising inflation expectations, and a corporate sector that is at last showing signs of using the exceptionally low cost of debt to drive shareholder return, all bode well for an aggressive valuation re-appraisal." [5] The benchmark Stoxx Europe 600 Index has climbed 17 percent since May as the U.S. Federal Reserve boosted its asset- purchases plan to stimulate growth, offsetting concern that Greece and Ireland may struggle to reduce their budget deficits. The index is still trading at 12 times its companies' estimated earnings, down from a ratio of almost 16 at the end of 2009. [6]

Stock Market Research

As of last trade of 22nd Nov, 2010, the market value per share of JP Morgan Chase & Co was $ 38.51. Price range in the latest trading day, the lowest was $ 38.21 and the highest was $ 39.02. Price range in the last 52 weeks, the lowest was $ 35.16 and the highest was $ 48.20. The volume (the number of shares) traded on the last trading day was 54,216.00 and average volume over 30 days is 44.71M. Market capitalization (the total value of the company in a stock market), which is calculated by multiplying total shares outstanding by the current price per share is 148.63B. Price to earnings ratio (the ratio of the stock price to the sum of it's reported earnings) is 10.60. Latest dividend (divined per share paid to shareholders) is $ 0.05 and dividend yield (value of the latest dividend, multiplied by number of times dividends are typically paid per year, divided by stock price) is $ 0.53. Net income per share according to the most recently quarterly report is $ 3.59. The measure of a fund's or stock's risk in relation to the market or to alternative benchmark Beta is 1.12 . [7] Analysing market activity over the most recent 10 years, the market value per share of JP Morgan Chase & Co fall the lowest price on 6th March, 2009 by $ 15.97 and the highest was on 24th March, 2000 by $ 64.15. From 2000 to October, 2002, the company'sstock price stable was falling down and afterwards to April, 2007 it was stable growing as the financial position of company has increasingly changed. Annual dividends issued on 2000 was $1.06 , has gone stable from 2003 to 2007 $1.36, reached highest on 2008 by $1.52 and as of 2010 reached the lowest by $0.20. In past 10years the company's stable grow was on 2006, total assets increased by 12.72%, return on common equity increased by 4% and book value per share increased by 8.92% as it from previous year, where the net income reached almost the second highest by $ 14,444. The highest income was $ 15,365 during the year of 2007, as the total assets increased by 15% from previous year but the provision for credit losses had almost doubled up as from 2006. From April, 2009 the company has started to get back to it's stable financial position in a stock market.

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Computing ratios and comparing to industry norms.

Operating liquidity available for business, net working capital, of JP Morgan Chase & Co through the three years from 2007 to 2009 are negative, which derives from less current asset then current liability respectively through this years, and constantly growing on negative making working capital deficit. As of negative working capital in the company through this years, it is currently unable to meet its short term liabilities with its current assets. The current ratio of the company has fall from 0.71 (2007) to 0.25 (2009) which indicates of its not favorable. Usually it's suggests that if the company's current ratio is less then 1, it would not be able to pay off its obligations, and it doesn't really mean that it may derive to bankruptcy, only showing that the company is not in a good financial health. The same situation with the company's quick ratio, as it represents the company's short term liquidity , through the years from 2007 to 2009, it is falling indicating the company's position poor. The cash flow liquidity ratio of JP Morgan Chase & Co is 0.78 , 0.38 , 0.52 from 2009 to 2007 respectively, indicating whether or not the company has enough money from it's current operations to pay off it's current liabilities, and if it is less then 1, it indicates of the company's non-solid financial health. But it's slightly raised more then, double times from 2008 to 2009, which showing improvement in current operation. The debt ratio of the company is decreasing leaving it positive sign, as it showing the company is paying off its short term debt or possibly refinancing its short term debt to long term debt. The proportion of debt and equity the company using to finance it's assets was low on 2009, by 2.38 and the highest was on 2007, by 2.82 . To find out if the company goes in real financial trouble if it cannot pay an interest on its debt, we may check through it's times-interest-earned. On 2007 the company's time-interest-earned was 0.864, which was most likely to pay on its interest on debt rather then, two following years. On 2009, free cash flow of the company reaches $121,897,000, and represents cash the company is able to generate after laying out money required to maintain or expand its asset base. The company is quickly turning its accounts receivables into cash with successfully executing its credit policies on 2007 when it's accounts receivables reached 2.875 but the company missed up its potential sales with strict credit policies on 2008 when its accounts receivable turnover reached 1.103 low. The company has been less effective in the use of investment made in the company from 2007 to 2008, as its asset turnover falls from 2.875 to 1.103, then from 2008 to 2009 the company slightly has started to be more effective on a use of investment. The accounts payable was falling from 2007 to 2008 which explains that the company paid off to supplier longer then it used to be and from 2008 to 2009 the accounts payable was raising indicating the company paid supplier as a faster rate. The company received more profit of it's sales on 2007, when it was 21.52% and as well as $4.38 on earnings per share and 1.05% on return on assets. Overall the company's profitability is better than the last year's results. JP Morgan Chase & Co's share price compared to its earnings per share, price-earnings ratio, as of 2010 is 9.5 and it is decline on 59% from 2008, and increase on 20% from 2007 to 2008. Price-earnings ratio does not really useful for investors. It is good if, its compared with the same industry's P/E to make any actual decision, because different Industry Company's growth prospects are much different. Dividend yield and dividend rate change more often because of dividend, market share value and earnings per share are regularly changeable. Dividend yield measures how much of return will one share of stock bring. Dividend yield and dividend rate declined on about 5% from 2008 to 2009 and the same decline was from 2007 to 2008, 61% on dividend yield and 20% on dividend rate. To recognize the level of safety of each share after all debts paid, JP Morgan Chase & Co's book value accordingly increased on 10% from 2008 to 2009, and almost remained unchangeable from 2007 to 2008. In case of if company liquidate, the amount of book value, a holder of common share would get, more high the book value less risk it may occur to an shareholder.

Report of analysis, on each financial statements.

The assets of JP Morgan Chase during 2006 and 2007 has increasingly changed as the total asset increased from 2006 to 2007 by 15%, respectively other assets fall by 11% , but the role of quick liquid cash, current assets, increased by 76% but the property plan and equipment had remained almost unchanged just playing small role of 6%. The highest total assets increasing happened through 2007 to 2008 by 39% where in opposite current asset fall by 50% and other assets increased by 120% and PPE increased only by 7%. And at the same year liabilities increased on long term liabilities by 76%, capital by 55% and current liability and treasury stock respectively increased by 32% and 35%. The company's liquidity plays really important role to the company's financial position. In the recent year, the company's total assets, current asset and other asset have fallen respectively decreased by 6%, 4% and 7% , and only PPE has been increased by 10% where didn't really played a big role. Property plan and equipment plays really small role as we could see on vertical trend, it has only 0.5 % power over whole asset in total. And through these three years current asset decreased by 30%, so accordingly the company's cash and cash equivalent, prepaid expenses, marketable securities, accounts receivables and other easy converted to cash assets have decreased. But in other hand other assets of company had been increased by 30%, where loans, long term assets and intangibles had been respectively increased. Treasury stock has been fallen up to the 70% and capital by 13% on the recent year of 2009. Overall analysis tells us about that the JP Morgan Chase & Co had a good grow during 2006 to 2008 and then has been shaken up in the first quarter of 2008, where gave final result for 2009 negative. Changes in cash from operating activities of JP Morgan Chase & Co had increased enormously by 123% from 2006 to 2007 and cash from investing activities had fallen by 27%. By the of the 2007 period net change in cash had fallen by 107% where cash from financial activities and effect of exchange rate on cash respectively increased by 20% and 113%. Next year change in cash had decreased enormously by 4844% same as net cash from operating activities and overall effect of exchange rate decrease by 220%. On 2009, net change in cash increased by 95% which drown from a big increase on cash from operations and effect on exchange rate, but the only cash from financial activities and investing activities had fallen by 110% and 161%. [9]

Conclusion

Strong buy The decision was made to buy strongly the shares of the company, now. The first reason to do the purchase of the stocks now is the rational decision according to present financial position of the company. The risk of investment in any financial institution has been high during financial crisis but JP Morgan Chase & Co did well during past two years compared with other related industry. On the other hand, some may claim that price of shares is increasing as well. In this case, it will be more reasonable to buy now in order to sell for the more expensive price possible. The decision to buy is made according to a good impression of JP Morgan Chase & Co made during the previous periods of a difficult financial situation which company did overcome. In spite of decline of many figures on financial statements and high number of debts JPM presented a steady platform for the growth potential, plus insider trading analysis showed that employees of the company keep their stocks, in other words still believe in the prosperity of the company. During the examination for the growth potential there were found a lot of articles of the financial consultants with the positive comments on JPM's future development. JP Morgan Chase &Co has not suffered any loss in any quarter for the last two years. The company's earnings growth rate is pretty high than the industry's and which conclude that the company is in strong financial growth. There is still risk of financial crisis, despite the company's performance within the financial market is much more getting better but it is not great as the same time.

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