JP Morgan Chase and Citigroup are two of the largest financial firms in the world. Both
have offices around the globe and offer an vast array of financial services. Despite the
abundance of similarities between the two, there were large differences in their financial
statements between 2009 and 2010. This was due in large part to the financial collapse in
2008 and the overleveraging of bank assets. Citigroup took an enormous hit and was on
the brink of bankruptcy. It took a huge government bailout to save the company that is
infamously now known as “Too big to fail.”
Fixed asset turnover ratio measures the sales dollars generated by each of dollar of fixed
assets used. This ratio is usually analyzed by creditors to asses a firm’s effectiveness in
generating sales from its fixed assets. JP Morgan had a .20 ratio for both 2009 and 2010.
Net sales revenues for both years were around $50 billion and average net fixed costs were
around $255 billion. Citigroup’s numbers were steady as well just not as large; however
Citigroup saw a slight increase in its fixed asset turnover ratio from 2009 to 2010. Citi
averaged about $30 billion in Net Revenue between both years but did realize lower
average net fixed costs which led to the slight increase in the ratio.
Looking at Table 1 on page 4, there is a huge difference between JP Morgan and Citi with
respect to two other tests of profitability; Return on equity and financial leverage of assets.
As mentioned above, Citi had fallen on tough times in 2008 and therefore, the companies’
financials suffered as well. That’s why return on equity and financial leverage of assets
were negative in Citi’s fiscal year 2009. Return on equity measures income earned in
respect to the investment made by investors, or owners. Of course in 2009, Citi’s stock
plummeted to a few dollars per share, down from around $40 per share. In contrast, JP
Morgan weathered the storm and was able to maintain throughout the downturn. Secondly,
financial leverage of assets was also negative for Citi in 2009. This percentage quantifies
the advantage or disadvantage that occurs when return on equity differs from return on
assets. For instance, if a company can borrow money at one rate and invest it for a higher
rate that firm has leverage. As you can see, Citigroup lacked leverage in 2009.
On the flipside, both JP Morgan and Citigroup showed progress and recovery in 2010. JP
