Report on Citigroup Company Analysis

2021-07-19 02:06:46
6 pages
1588 words
University/College: 
Carnegie Mellon University
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Report
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Economy Analysis

The following study will focus on Citigroup, the company falls under investment banking industry operating in America, which is considered to be a cyclical industry. The US economy is known to be one of the most advanced mixed economies in the world, and it is in a moderate phase but has a solid growth (Financial Crisis Inquiry Commission, & United States, 2011). The US economy is the largest in terms of the nominal GDP and the second largest when it comes to the purchasing power parity (PPP). In the year 2006, the US GDP was projected to be $18.46 trillion, and was ranked in the 2016 economic statistics as the seventh highest in the world in term of the per capita GDP (nominal) and the eleventh in per capita GDP (PPP). There are some of the events that can possibly influence industries in the US, consequently affecting Citigroup company, such events include: Lower interest rates which reduce the profit margin of the banks; The economic slowdown or collapse which affects the lending rates of the customers; Political uncertainty which might lead to bad debts; The negative performance of global economics which affects the strength of the dollar in the market. Most of the economic crises affect the local banks due to their vulnerability (KPMG Report, 2017)

Industry Analysis

As at 31st December 2011, the largest banks that operate in the US included Citigroup, Bank of America, Wells Fargo, JP Morgan Chase and Goldman Sachs. It was established that as at December 2011, the assets for the big five banks were equated to 56% of the US economy, a growth of 43 percent that was seen five years ago. The performance of the consumer banking in the US remain resilient and stable, however, there is need to be boosted. The return on assets in the banking system remains in a narrow band, as the bank's equilibrium weaker net interest margin with outstanding asset quality as well as some efficiency gains. The US banking sector is in the center of challenges at a time of tough regulatory environment, they include: The Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21st, 2010) it is meant to develop the government authorities like Orderly Liquidation Authority and Financial Stability Oversight Council that monitor the companies finances that cannot possibly collapse and can influence the overall economy. The council can further liquidate or restructure the firms with the vulnerable finances (Giroux, 2006).

Company Analysis

Citigroup Company was incorporated as a financial holding firm on March 8th, 1988. Citigroup provides consumers, governments, institutions, and corporations with a range of financial services and products that include; consumer credit and banking, investment and corporate banking, securities brokerage, trade and wealth management as well as securities services. Citigroup operates in two segments; Citi holdings and Citicorp (Conklin, 2006).

Citicorp is the global bank for businesses and consumers and it represents the company's core franchises. Citicorp, at the same time, is focused on giving services and products to clients and leveraging ContiGroup's global network and other economies. As at 2016, ContiGroup had spread to 97 countries and jurisdictions and that it offered services to over 160 jurisdictions. Businesses that Citicorp operates include; global consumer banking, and clients in institutional groups (Milford & Chomsky, 2005).

The competitive positions of Citigroup within the industry include;

Corporate and investment banking: It provides advisory services, financing products, and strategy to local and multinational corporations, governments, private businesses and financial institutions. They too give customer services such as acquisition and merger advice (Mills, 2003).

Securities and marketing services: they include; direct custody, clearing and investor services, private equity together with hedge fund servicing. It gives financial products by underwriting, trading, and sales of a variety of investment assets. The products offered include; servicing of credit, commodities, futures, emerging markets, and prime finance services, securitized markets such as mortgage-backed securities and G10 rates (Milford & Chomsky, 2005).

Treasury and trade solutions: It provides management of trade, securities, and cash services to governments, companies and in other institutions in the US and other countries (Milford & Chomsky, 2005).

Citibank retail banking, it comprises of the global branch networks which are branded Citibank. Citibank has 4,600 branches worldwide. Citibank is ranked 4th in the retail sector in the US on deposits (Mills, 2003).

Financial Statement Analysis

Table I: Ratio Analysis/Summary Table

LEVERAGE: 2011 2012 2013 2014 2015 2016

Interest Burden group 0.489 0.349 0.657 0.503 0.835 0.867

JP Morgan 0.962 0.861 0.813 0.848 0.869

Interest Coverage Industry Banking

group 9.89 9.02 8.17 7.96 7.19 6.98

JP Morgan 12.34 11.56 11.44 11.1 9.499

Leverage Industry Banking

group 0.905 0.898 0.89 0.885 0.871 0.874

JP Morgan 0.919 0.913 0.913 0.909 0.895

Compounded Leverage Factor Industry Banking

group 0.44 0.31 0.58 0.45 0.73

JP Morgan 0.88 0.78 0.74 0.77 0.78

ASSET UTILIZATION: Total Asset group 0.01 0.004 0.007 0.004 0.01 0.008

JP Morgan 0.02 0.02 0.02 0.02 0.02

Fixed Asset Industry Banking

group 9.4 9.9 11.9 12.8 12.6 11.8

JP Morgan 1.7 2.3 2.1 2.9 3.7
Turnover Industry Banking group 6.49 4.11 6.95 3.53 7.98 6.67
JP Morgan 10.55 10.98 8.63 9.82 10.2 9.8
Inventory Industry Banking group 15.38 4.87 20.83 15.29 13.23 18.67
Days Sales JP Morgan 24.6 6.58 28.54 9.72 19.85 5.58
In Receivables Industry Banking LIQUIDITY: Current Ratio group 1.05 1.08 1.11 1.09 1.07 1.13
JP Morgan 1.12 1.13 1.11 1.16 1.05 1.11
Quick Ratio Industry Banking group 9.47 10 10.51 10.84 11.85 11.49
JP Morgan 7.76 8.27 8.28 8.23 9.42 9.16
Cash Ratio group 12.79 10.55 9.45 12.11 11.63 11.5
JP Morgan 11.81 11.91 11.26 12.78 14.05 13.42
PROFITABILITY: Industry Banking Return on Assets group 0.58 0.4 0.73 0.39 0.97 0.85
JP Morgan 0.87 0.92 0.75 0.87 0.99 1.02
Return on Equity Industry Banking group 6.37 4.04 6.88 3.37 8.03 6.64
JP Morgan 10.21 10.72 8.4 9.75 10.35 10.05
Profit Margin Industry Banking group 40.68 34.48 42.09 35.18 45.6 45.77
JP Morgan 27051 29.8 26.82 32.28 32.28 36.1
MARKET PRICE: Industry Banking Market-to-Book group 0.43 0.64 0.8 0.82 0.75 0.8
JP Morgan 0.71 0.86 1.1 1.1 1.09 1.35
Price-Earnings Industry Banking group 6.75 8.59 11.79 11.41 8.92 11.51
JP Morgan 6.42 7.51 9.3 10.97 11.94 14.15
Ratio Industry Banking group 3.9 4.61 4.42 4.74 5.8 5.17
JP Morgan 5.18 5.86 6.29 5.71 5.53 6.1
Earnings Yield Industry Banking group 3.9 4.61 4.42 4.74 5.8 5.17

JP Morgan 5.18 5.86 6.29 5.71 5.53 6.1

DEPT MANAGEMENT - Total Debt Ratio group 8.43 5.39 -0.72 -0.18 5.10 -1.67

JP Morgan -8.80 -11.20 -3.97 -3.48 -16.52 -7.42

Debt management- I chose to add debt management because it is a very important aspect of management. It measures the company's use of financial leverage and the ability of the company to avoid financial distress in long-term plans.

Financial Statement Analysis

Liquidity Ratios

Current ratio; current ratio of a company is the measure of its current assets alongside the firm's liabilities. In a period beginning 2011 to 2016, JP Morgan had an average current ratio of 1.113 with the year 2015 recording the smallest ratio of 1.05 and 2014 recording the highest value of 1.16. The average ratio of 1.113 implies that if the firm liquidated all its owned current assets, it can cover the current liabilities and still remain with 11.3% to operate the firm. At the same period 2011 - 2016, Citigroup Company experienced an average current ratio of 1.09. This value, when compared to its competitor the JP Morgan, is quite small, but still, Citigroup Company is currently able to liquidate all its current liabilities, yet remain with 9% of the assets to operate with.

Quick ratio

The quick ratio is a liquidity ratio that is a little bit stricter as compare to current ratio. In the year beginning 2011 to 2016, Citigroup Company had an average of 10.69; figures of the six years are clustered around this mean value with the highest figure being 11.85 of 2013 and the lowest being 9.47 of the year 2011. In a close comparison to its competitor JP Morgan, the year beginning 2011 to 2016, JP Morgan had an average of 8.52.

The essence of the quick ratio in accompany is to compare short-term securities that are marketable, cash and accounts receivable to current liabilities. According to the analyzed ratios of both companies, they are able to cover all the current liabilities with the cash on hand.

Cash ratios

Between 2011 and 2016, Citigroup Company had an average of 11.33, while JP Morgan had an average of 12.53. This indicates that Citigroup Company is able to cover all the current liabilities with its short-term marketable securities and its cash on hand and still have 11.33% remaining. The same case applies to JP Morgan. This ratio is the most reliable ratio.

In drawing a conclusion of the liquidity ratios, Citigroup company and its competitor, JP Morgan have the full potential to cover their short-term obligations (Conklin, 2006)..

Profitability

The year beginning 2011 to 2016, Citigroup had an average of 5.88, the year 2014; the smallest ratio was recorded of 3.37. In comparison with its competitor, JP Morgan, it had an average of 0.9. In a nutshell, what this means is that Citigroup is very efficient in utilizing its assets by generating enough earnings, unlike JP. An average of 5.88% of Citigroup means that for every $1 of the firm's assets, the company generates $0.0588 in net income.

Return on Equity

In the year starting 2011 to 2016, Citigroup Company had an average of 4.47, while JP had an average of 9.91.The ROE of 4.47% in Citigroup suggest that in each of $1 of shareholders equity, the company generates $0.447 in net income, while in its competitor $0.99 is generated.

Margin profit

In the specified period in the table above, Citigroup had an average of 40.63 while JP had an average of 30.8. This analysis shows that in Citigroup Company 40.63% of generated revenue is used by the company in payment of the cost of goods sold while JP spent 30.8% of its generated revenue. Citigroup stands an advantage position over JP Morgan due to its nearness to attaining the typical profit margin of the industry.

A close assessment of the above analyzed profitably ratios, it is arguably correct to state that Citigroup investment earns adequate returns when compared to the typical industry and its competitor JP Morgan.

Asset management ratios

Fixed assets ratio

In the duration of the six years, Citigroup had an average fixed asset ratio of 34.2 while JP Morgan had an average of 2.54; this means that Citigroup utilizes its assets well to generate revenue. Citigroup has a higher ratio indicating that the company has little money tied up in fixed assets for revenue generated. The case of a low ratio as in JP, it means the company is overspending on equipment and other fixed assets.

Debt management

Total debt ratio

This ratio helps a company to measure its leverage and its ability to avoid financial stress. For the six years, Citigroup had an average of -8.6 while its competitor JP Morgan had an average of 1.03. This means Citigroup is working on a negative debt. It acquires its assets and funds the operations within its own means, while JP Morgan has 10% of its assets on the debt.

SWOT Analysis

SWOT analysis table I for Citigroup

Strength Weakness

Citigroup has earned recognition in terms of baking industry.

The company has ret...

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