Homework Help is Here – Start Your Trial Now!
Business
Finance
What have been the possible reasons for the changes in  Return of Equity (ROEs )? •Decompose the ROE into the main components: ROA and EM (Equity Multiplier) •Analyse the sources of  Return of Asset (ROA) : Asset Utilisation (AU) and Profit Margin ratios.(PM) •Identify the sources of the changes in Asset Utilisation and Profit Margin

What have been the possible reasons for the changes in  Return of Equity (ROEs )? •Decompose the ROE into the main components: ROA and EM (Equity Multiplier) •Analyse the sources of  Return of Asset (ROA) : Asset Utilisation (AU) and Profit Margin ratios.(PM) •Identify the sources of the changes in Asset Utilisation and Profit Margin

Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter9: Metric-analysis Of Financial Statements
Section: Chapter Questions
Problem 9.17E: Profitability metrics The following selected data were taken from the financial statements of The...
See similar textbooks
icon
Related questions
Question

What have been the possible reasons for the changes in  Return of Equity (ROEs )?

•Decompose the ROE into the main components: ROA and EM (Equity Multiplier)

•Analyse the sources of  Return of Asset (ROA) : Asset Utilisation (AU) and Profit Margin ratios.(PM)

•Identify the sources of the changes in Asset Utilisation and Profit Margin

Table 1: Six-Year Summary of Selected Financial Data % Five-year Change compound 2010/ growth (in millions, except per share amounts) 2010 2009 2008 2007 2006 2005 2009 rate Income statement 44,757 40,453 Net interest income 46,324 25,143 20,974 19,951 18,504 (3) % 19 Noninterest income 42,362 16,734 18,546 15,817 14,591 (5) 23 Revenue 85,210 88,686 41,877 39,520 35,768 33,095 (4) 21 Provision for credit losses 15,753 21,668 15,979 4,939 2,204 2,383 (27) 46 Noninterest expense Net income before 50,456 49,020 22,598 22,746 20,767 18,943 22 noncontrolling interests 12,663 12,667 2,698 8,265 8,567 7,892 - 10 Less: Net income from noncontrolling interests 301 392 43 208 147 221 (23) Wells Fargo net income 12,362 12,275 2,655 8,057 8,420 7,671 1 10 Earnings per common share 2.23 1.76 0.70 2.41 2.50 2.27 27 Diluted earnings per common share 2.21 1.75 0.70 2.38 2.47 2.25 26 Dividends declared per common share 0.20 0.49 1.30 1.18 1.08 1.00 (59) (28) Balance sheet (at year end) 172,710 41,834 310,837 Securities available for sale 172,654 151,569 72,951 42,629 - % 33 Loans 757,267 782,770 864,830 382,195 319,116 (3) 19 Allowance for loan losses 23,022 24,516 21,013 5,307 3,764 3,871 (6) 43 Goodwill 24,770 24,812 22,627 13,106 11,275 10,787 18 Assets 1,258,128 1,243,646 1,309,639 798,192 575,442 481,996 481,741 1 21 Core deposits (1) 780,737 745,432 311,731 288,068 253,341 2 26 Long-term debt 156,983 203,861 267,158 99,393 87,145 79,668 (23) 15 Wells Fargo stockholders' equity 126,408 111,786 99,084 47,628 45,814 40,660 13 25 Noncontrolling interests 1,481 2,573 3,232 286 254 239 (42) 44 Total equity 127,889 114,359 102,316 47,914 46,068 40,899 12 26 (1) Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).
Transcribed Image Text:Table 1: Six-Year Summary of Selected Financial Data % Five-year Change compound 2010/ growth (in millions, except per share amounts) 2010 2009 2008 2007 2006 2005 2009 rate Income statement 44,757 40,453 Net interest income 46,324 25,143 20,974 19,951 18,504 (3) % 19 Noninterest income 42,362 16,734 18,546 15,817 14,591 (5) 23 Revenue 85,210 88,686 41,877 39,520 35,768 33,095 (4) 21 Provision for credit losses 15,753 21,668 15,979 4,939 2,204 2,383 (27) 46 Noninterest expense Net income before 50,456 49,020 22,598 22,746 20,767 18,943 22 noncontrolling interests 12,663 12,667 2,698 8,265 8,567 7,892 - 10 Less: Net income from noncontrolling interests 301 392 43 208 147 221 (23) Wells Fargo net income 12,362 12,275 2,655 8,057 8,420 7,671 1 10 Earnings per common share 2.23 1.76 0.70 2.41 2.50 2.27 27 Diluted earnings per common share 2.21 1.75 0.70 2.38 2.47 2.25 26 Dividends declared per common share 0.20 0.49 1.30 1.18 1.08 1.00 (59) (28) Balance sheet (at year end) 172,710 41,834 310,837 Securities available for sale 172,654 151,569 72,951 42,629 - % 33 Loans 757,267 782,770 864,830 382,195 319,116 (3) 19 Allowance for loan losses 23,022 24,516 21,013 5,307 3,764 3,871 (6) 43 Goodwill 24,770 24,812 22,627 13,106 11,275 10,787 18 Assets 1,258,128 1,243,646 1,309,639 798,192 575,442 481,996 481,741 1 21 Core deposits (1) 780,737 745,432 311,731 288,068 253,341 2 26 Long-term debt 156,983 203,861 267,158 99,393 87,145 79,668 (23) 15 Wells Fargo stockholders' equity 126,408 111,786 99,084 47,628 45,814 40,660 13 25 Noncontrolling interests 1,481 2,573 3,232 286 254 239 (42) 44 Total equity 127,889 114,359 102,316 47,914 46,068 40,899 12 26 (1) Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).
Table 2: Ratios and Per Common Share Data Year ended December 31, 2010 2009 2008 Profitability ratios Wells Fargo net income to average assets (ROA) 1.01 % 0.97 0.44 Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE) 10.33 9.88 4.79 Efficiency ratio (1) 59.2 55.3 54.0 Capital ratios At year end: Wells Fargo common stockholders' equity to assets 9.41 8.34 5.21 Total equity to assets 10.16 9.20 7.81 Risk-based capital (2) Tier 1 capital 11.16 9.25 7.84 Total capital 15.01 13.26 11.83 Tier 1 leverage (2)(3) 9.19 7.87 14.52 Tier 1 common equity (4) 8.30 6.46 3.13 Average balances: Average Wells Fargo common stockholders' equity to average assets 9.17 6.41 8.18 Average total equity to average assets 9.96 9.34 8.89 Per common share data Dividend payout (5) 9.0 27.9 185.4 Book value 22.49 20.03 16.15 Market price (6) High 34.25 31.53 44.68 Low 23.02 7.80 19.89 Year end 30.99 26.99 29.48 (1) The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income) (2) See Note 25 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information. (3) Due to the Wachovia transaction that closed on December 31, 2008, the Tier 1 leverage ratio, which considers period-end Tier 1 capital and quarterly averages in the computation of the ratio, does not reflect average assets of Wachovia for the full period ended December 31, 2008. (4) See the "Capital Management" section in this Report for additional information. (5) Dividends dedared per common share as a nercentage of earnings ner common share
Transcribed Image Text:Table 2: Ratios and Per Common Share Data Year ended December 31, 2010 2009 2008 Profitability ratios Wells Fargo net income to average assets (ROA) 1.01 % 0.97 0.44 Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE) 10.33 9.88 4.79 Efficiency ratio (1) 59.2 55.3 54.0 Capital ratios At year end: Wells Fargo common stockholders' equity to assets 9.41 8.34 5.21 Total equity to assets 10.16 9.20 7.81 Risk-based capital (2) Tier 1 capital 11.16 9.25 7.84 Total capital 15.01 13.26 11.83 Tier 1 leverage (2)(3) 9.19 7.87 14.52 Tier 1 common equity (4) 8.30 6.46 3.13 Average balances: Average Wells Fargo common stockholders' equity to average assets 9.17 6.41 8.18 Average total equity to average assets 9.96 9.34 8.89 Per common share data Dividend payout (5) 9.0 27.9 185.4 Book value 22.49 20.03 16.15 Market price (6) High 34.25 31.53 44.68 Low 23.02 7.80 19.89 Year end 30.99 26.99 29.48 (1) The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income) (2) See Note 25 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information. (3) Due to the Wachovia transaction that closed on December 31, 2008, the Tier 1 leverage ratio, which considers period-end Tier 1 capital and quarterly averages in the computation of the ratio, does not reflect average assets of Wachovia for the full period ended December 31, 2008. (4) See the "Capital Management" section in this Report for additional information. (5) Dividends dedared per common share as a nercentage of earnings ner common share
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Accounting for Financial Instruments
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
Accounting
ISBN:
9781305961883
Author:
Carl Warren
Publisher:
Cengage Learning
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Financial Accounting
Financial Accounting
Accounting
ISBN:
9781337272124
Author:
Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS