Interim Report on JP Morgan Chase and Co. 10K

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Balance sheet

The balance sheet of JP Morgan & Chase Co. shrunk in 2015. This can be seen in the drop of the value of the total assets from $2,572,274m in 2014 to $2,351,698m in 2015. The decline is equivalent to 8.58%. A further review of the balance sheet shows that loans make up a significant proportion of the assets. The proportion of loans was 28.89% in 2014 and 35.03% of total assets. This was followed by deposits with banks, securities, and debt& equity instruments. Despite the decline in the value of total assets, the loan book of the company grew by 10.84%. The other major component of total assets such as deposits with banks, debt and equity instruments, and securities declined during the period. Thus, the decline in the other components exceeded the increase in loans. This resulted in a decrease in total assets. The total liabilities dropped from $2,340,547 in 2014 to $2,104,125 in 2015. The decline is equivalent to 10.10%. Further, deposits make a significant proportion of total liabilities followed by long-term debt and accounts payable.

The value of deposits dropped by 6.14%, while account payables dropped by 14.16%. Long-term debt grew by 4.44%. A further review of the balance sheet shows that the stockholders equity grew from $231,727 in 2014 to $247,573 in 2015. The growth is equivalent to 6.84%. A comparison of total liabilities and stakeholders equity shows that in 2015, total liabilities accounted for 89.47%, while equity accounted for only 10.53% of the total assets. Thus, a significant proportion of the total assets are financed by liabilities. The high balance of total liabilities is common with companies that operate in the financial sector. Therefore, a review of the balance sheet indicates that the financial standing of the institution dropped. A decline in the balance sheet values is detrimental to the operations of the entire company. For instance, it reduces the ability of the entity to generate high revenue (Wahlen, Baginski & Bradshaw, 2014). The appendix below shows the balance sheet values and percentage change.

Current assets and liabilities

The table presented below show a summary of the current assets and liabilities of the company for the year 2014 and 2015.

2015 2014 Vertical analysis
Current assets 2015 2014 Percentage change
Cash and Cash Equivalents $573,080,000 $728,111,000 92.48% 91.22% -21.29%
Short-term Investments $0 $0 0.00% 0.00%
Net Receivables $46,605,000 $70,079,000 7.52% 8.78% -33.50%
Inventory $0 $0 0.00% 0.00%
Other Current Assets $0 $0 0.00% 0.00%
Total Current Assets $619,685,000 $798,190,000 100.00% 100.00% -22.36%
Percentage of total assets 26.35% 31.03%
Current Liabilities
Accounts payable $177,638,000 $206,939,000 10.79% 11.13% -14.16%
Short-term debt / Current portion of long-term debt $189,345,000 $288,667,000 11.50% 15.53% -34.41%
Deposits $1,279,715,000 $1,363,427,000 77.71% 73.34% -6.14%
Total current liabilities $1,646,698,000 $1,859,033,000 100.00% 100.00% -11.42%
Percentage of total liabilities 78.26% 79.43%
Percentage of total assets 70.02% 72.27%
Working capital ($1,027,013,000) ($1,060,843,000)
Current ratio 0.38 0.43
Quick ratio 0.38 0.43

The total current assets dropped by 22.36% in the year 2015. Further, cash and cash equivalents constituted a significant percentage of the current assets. Each of the components of the current assets declined during the period. Further, current assets as a percentage of total assets dropped from 31.03% in 2014 to 26.35% in 2015. The current liabilities dropped by 11.42% in 2015. Further, deposits accounted for a significant proportion of current liabilities in 2015 (77.71%) and in 2014 (73.34%). The total deposits declined by 6.14% in 2015. A further review of the balance sheet shows that the current liabilities accounted for a significant proportion of total liabilities both in 2015 (78.26%) and 2014 (79.43%). Also, it can be noted that a significant portion of the current liabilities accounts for the total assets / total liabilities and equity. This shows that the current liabilities, especially deposits are a significant component of the balance sheet. This scenario is common with most financial institutions.

Further analysis of the current assets and liabilities shows that the company had a negative working capital in 2014 and 2015. This implies that the values of current liabilities exceeded current assets. There was a slight improvement in working capital during the period. The current and quick ratio for the entity dropped from 0.43 in 2014 to 0.38 in 2015. The three measures show that the liquidity of the bank was quite low. The company cannot settle immediate obligations using current assets. This shows that it lacks short-term resilience to liquidity risk. A closer review of the current assets shows that the entity lacks enough stock of unencumbered high-quality current and liquid assets that can easily and quickly be converted to cash to meet the liquidity needs within a short period (Wahlen, Baginski & Bradshaw, 2014). Considering that the company operates in the finance sector, it lacks the ability to absorb shocks that may arise from both economic and financial stress. Even though the financial sector is characterized by low liquidity levels, a review of current assets and liabilities shows that JP Morgan Chase & Co. failed to manage their liquidity in a prudent way (Wahlen, Baginski & Bradshaw, 2014).

References

Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis, and valuation: a strategic perspective (7th ed.). Boston: Cengage Learning.

Appendix

Selected Consolidated balance sheets data Vertical analysis
December 31, (in millions) 2015 2014 Horizontal analysis 2015 2014
Assets
Cash and due from banks $ 20,490 $ 27,831 -26.38% 0.87% 1.08%
Deposits with banks 340,015 484,477 -29.82% 14.46% 18.83%
Federal funds sold and securities
purchased under resale agreements 212,575 215,803 -1.50% 9.04% 8.39%
Securities borrowed 98,721 110,435 -10.61% 4.20% 4.29%
Trading assets:
Debt and equity instruments 284,162 320,013 -11.20% 12.08% 12.44%
Derivative receivables 59,677 78,975 -24.44% 2.54% 3.07%
Securities 290,827 348,004 -16.43% 12.37% 13.53%
Loans 837,299 757,336 10.56% 35.60% 29.44%
Allowance for loan losses (13,555) (14,185) -4.44% -0.58% -0.55%
Loans, net of allowance for loan
losses 823,744 743,151 10.84% 35.03% 28.89%
Accrued interest and accounts
receivable 46,605 70,079 -33.50% 1.98% 2.72%
Premises and equipment 14,362 15,133 -5.09% 0.61% 0.59%
Goodwill 47,325 47,647 -0.68% 2.01% 1.85%
Mortgage servicing rights 6,608 7,436 -11.14% 0.28% 0.29%
Other intangible assets 1,015 1,192 -14.85% 0.04% 0.05%
Other assets 105,572 102,098 3.40% 4.49% 3.97%
Total assets $2,351,698 $2,572,274 -8.58% 100.00% 100.00%
Liabilities
Deposits $1,279,715 $1,363,427 -6.14% 54.42% 53.00%
Federal funds purchased and
securities loaned or sold under
repurchase agreements 152,678 192,101 -20.52% 6.49% 7.47%
Commercial paper 15,562 66,344 -76.54% 0.66% 2.58%
Other borrowed funds 21,105 30,222 -30.17% 0.90% 1.17%
Trading liabilities: 0.00% 0.00%
Debt and equity instruments 74,107 81,699 -9.29% 3.15% 3.18%
Derivative payables 52,790 71,116 -25.77% 2.24% 2.76%
Accounts payable and other
liabilities 177,638 206,939 -14.16% 7.55% 8.04%
Beneficial interests issued by
consolidated variable interest
entities (VIEs) 41,879 52,320 -19.96% 1.78% 2.03%
Long-term debt 288,651 276,379 4.44% 12.27% 10.74%
Total liabilities 2,104,125 2,340,547 -10.10% 89.47% 90.99%
Stockholders equity 247,573 231,727 6.84% 10.53% 9.01%
Total liabilities and stockholders
equity $2,351,698 $2,572,274 -8.58% 100.00% 100.00%

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