Financial Statement Analysis
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FINANCIAL STATEMENT ANALYSIS
2005
Current ratio
Current Asset
471,282.00
552,006.00
535,360.00
785,855.00
764,409.00
Current Liability
146,955.00
186,074.00
127,750.00
140,392.00
139,788.00
3.21
2.97
4.19
5.60
5.47
CURRENT RATIO. The current ratio (Sannella, 1991) above shows that in the year 2001 the current assets of J P Morgan (MIkdashi, 2001) are 3.21 times larger than the current liabilities. The current ratio went down to 2.97 times in the year 2002. The current assets were 4.19 times larger than the current liabilities during the year 2003. The current ratio went up further to 5.60 times in the year 2004. The current assets finally went up to 5.47 times the current liabilities in the year 2005. The current ratio is very important because the creditors prefer that the current assets must be larger than the current liabilities.
2001 2002 2003 2004 2005
Quick Ratio
Current Assets – Inventory
471,282.00
552,006.00
535,360.00
785,855.00
764,409.00
Current liability
146,955.00
186,074.00
127,750.00
140,392.00
139,788.00
3.21
2.97
4.19
5.60
5.47
QUICK RATIO. Under the quick ratio method, the current ratio of J P Morgan (Laulajaine, 2003)for the year 2001 is 3.21. Also, in the year 2002, the current assets is 2.97 times larger than current liabilities. In the year 2003, the current assets increased to 4.19 times higher than current liabilities. Again, in 2004, the current assets increased to 5.60 times larger than current liabilities. In the year 2005, the current ratio has gone done a little bit. Current assets are now 5.47 times larger than current liabilities. The results using the current ratio and quick ratio are the same because the banks are offering services and they do not sell inventory. Only merchandising or buy and sell businesses buy items that we call inventory or purchases and then sell the items bought.
2001 2002 2003 2004 2005
Debt to Equity ratio
Total debt
651,926.00
716,494.00
724,758.00
1,051,595.00
1,091,731.00
Stockholders equity
41,099.00
42,306.00
46,154.00
105,653.00
107,211.00
15.86
16.94
15.70
9.95
10.18
DEBT TO EQUITY RATIO. Under the debt to equity ratio, the debt is 15.86 times higher than total stockholders equity in the year 2001. In the year 2002, the total debt is has increased to 16.94 times higher than total stockholders equity. In the year 2003, the total debt decreased a bit to only 15.70 times the total stockholders equity. In the year 2004, the debt to equity ratio had improved to 9.95 this means that the company had decreased its outstanding debt to total stockholders equity ratio by increasing by a big amount total stockholders equity.
Again, in the year 2005, the total debt has increased to 10.18 times higher than total stockholders equity. It is preferable, on the side of the creditors of J P Morgan, that the total debt is almost equal to or lower than the total stockholders equity. A negative debt to equity ratio shows that the total stockholders equity is higher than the total debt. This situation means that the company owners will be able to pay all bills due.
2001 2002 2003 2004 2005
Debt to Assets
Total Debt
651,926.00
716,494.00
724,758.00
1,051,595.00
1,091,731.00
Total Assets
693,575.00
758,800.00
770,912.00
1,157,248.00
1,198,942.00
0.94
0.94
0.94
0.91
0.91
DEBT TO ASSETS RATIO. Under the Debt to Assets , the total debt is .94 times larger than total assets in 2001. In the year 2002, the total debt is also .94 times larger than total assets. In the year 2003, It is still the same .94 ratio of total debt to total assets. In the year 2004, the debt is has now been reduced to .91 times as compared to total assets. Finally in 2005, the debt remains at .91 times as compared to the total assets. This is a good sign. Creditors and future investors prefer that there is a one to one ratio of total debt to total equity because it shows that the company will be able to pay its debt on time to creditors in case of bank closure due to bankruptcy or otherwise.
2005
Net profit ratio
Net Profit before tax
1,628.00
1,612.00
6,668.00
4,414.00
8,470.00
Sales
32,181.00
25,284.00
23,444.00
30,595.00
45,200.00
0.05
0.06
0.28
0.14
0.19
NET PROFIT RATIO. Under the profit ratio, net profit before tax in 2001 is only five percent of the total interest income. In the year 2002, the net profit has increased to six percent of the total interest earned from bank services offered. The big surprise comes in the year 2003 because the net income has increased to twenty eight percent of interest income earned for that year. The net income has been reduced to a whopping fourteen percent in the following year, 2004. Finally, the net profit for the year 2005 has increased to nineteen percent. This shows that J P Morgan will have a continuous good profit for the coming years unless, of course, a fortuitous or unexpected event occurs.