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.
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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 stakeholder’s 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.
|Current assets||2015||2014||Percentage change|
|Cash and Cash Equivalents||$573,080,000||$728,111,000||92.48%||91.22%||-21.29%|
|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%|
|Short-term debt / Current portion of long-term debt||$189,345,000||$288,667,000||11.50%||15.53%||-34.41%|
|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%|
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).
Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis, and valuation: a strategic perspective (7th ed.). Boston: Cengage Learning.
|Selected Consolidated balance sheets data||Vertical analysis|
|December 31, (in millions)||2015||2014||Horizontal analysis||2015||2014|
|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%|
|Debt and equity instruments||284,162||320,013||-11.20%||12.08%||12.44%|
|Allowance for loan losses||(13,555)||(14,185)||-4.44%||-0.58%||-0.55%|
|Loans, net of allowance for loan|
|Accrued interest and accounts|
|Premises and equipment||14,362||15,133||-5.09%||0.61%||0.59%|
|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%|
|Federal funds purchased and|
|securities loaned or sold under|
|Other borrowed funds||21,105||30,222||-30.17%||0.90%||1.17%|
|Debt and equity instruments||74,107||81,699||-9.29%||3.15%||3.18%|
|Accounts payable and other|
|Beneficial interests issued by|
|consolidated variable interest|
|Total liabilities and stockholders’|