Comparison Of Bancorp ( Usb ) Financial Ratio Analysis
1892 WordsOct 25, 20148 Pages
U.S. Bancorp (USB) Financial Ratio Analysis
Write an essay analyzing the ratios of U.S. Bancorp, indicating strengths and weaknesses discovered when examining the ratios over time as well as examining the ratios compared to a competitor. Financial ratio analysis is not a concrete science, disagreement amongst financial analyst is present throughout industry, and therefore, some consider the practice to be part art and part science. A sound financial analysis consists of an organization’s future income and growth potential as well as a financial statement analysis. The evaluation process in itself is complex, made even more difficult factoring in the ever changing market conditions, therefore, it cannot be evaluated just on its own…show more content…
Both type of analysis complement each other, as one evaluates organization performance across a determined amount of time and the other evaluates the organization against a suitable competitor or benchmark.
Return on Equity (ROE)
Return on Equity (ROE) evaluates an organization 's profit generating efficiency in relation to every dollar of shareholders ' equity. Also, desirable ROEs range between 15% and 20% (Guru Focus, 2014). USB’s ratios for the last three years show a .02% increase due to net income and shareholders’ equity showing continued growth across all three years. Also, ROE is positively correlated with return on assets (ROA) which also shows the same pattern. When comparing USB to BAC, USB has consistently maintained an ROE difference of 8% or higher in 2013 and 2012. This simply means USB shareholders have received a higher return on their equity investment.
Return on Asset (ROA)
Return on assets (ROA) evaluates an organization’s management team ability to to utilize company assets to generate earnings. In other words, it measures the organization 's profit generating efficiency from shareholders ' equity plus its liabilities (Guru Focus, 2014). The banking industry should have an ROA well under 2% (Guru Focus, 2014). USB’s ratios for the last three years show a .16% increase due to net income and total assets showing continued growth across all three years. When comparing USB