Financial Analysis : The Financial Health Of An Organization

1317 WordsApr 3, 20166 Pages
Financial Analysis U.S. Bancorp Financial ratios are highly important because they offer insight into the financial health of an organization. Through the use of financial ratios one can assess a financial firms’ profitability and risk, thereby determining if the institution is taking proper efforts to control risk and increase profits. One way to measure a large financial firm’s profitability is to analyze their stock prices, which reveal the markets assessment of the institution. However, this measurement of profitability is inadequate when looking at smaller financial institutions, as a result, profitability ratios are used to help indicate the effectiveness of the organizations various forms of profitability. In addition, financial…show more content…
Due to the fact that banks are highly leveraged organizations an ROA above 1% indicates substantial profits. However, U.S. Bancorp’s ROA has decreased .06%, suggesting management has become less efficient and should focus on increasing efficiency. In comparison to Bank of Americas ROA of .74%, U.S. Bancorp demonstrates significantly better efficiency at turning investments into net income. In addition, ROE demonstrates how much profit a company is able to generate with funds invested by shareholders, by illustrating whether shareholders return on equity is an attractive investment decision (Keown et al., 2014). Over the past two years U.S. Bancorp’s ability to create profit from shareholder funds has decreased, in 2015 their ROE was 12.67% whereas, in 2014 it was 13.38%. If their ROE keeps decreasing the organization may need to find alternative investments in order to provide greater return to their shareholders. On contrary, U.S. Bancorp shows a greater ability to increase shareholder returns than Bank of America who only has an ROE of 6.20%. Overall when analyzing U.S. Bancorp’s profitability with ROA and ROE, they have outperformed their competitor, however, both measurements had decreased between 2014 and 2015, suggesting a change of strategy may be needed. Refining ROA Furthermore, to create and maintain profitability, financial organization needs to focus on organizational efficiency. Through the use of net operating margin,
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