Bank of America Corporation (BAC) works like a bank. BAC is considered as the most significant financial and banking service company in the US (Becker, 2016). In 1998, the corporation was established via BankAmerica' NationsBank's acquisition. BAC is headquartered in Charlotte, North Carolina, US and provides online banking services, mobile, insurance, credit and debit cards, investment fund, deposit' certificate, wealth and case management, construction loans and mortgages, deposits, and saving accounts (Qu, 2020). In essence, BAC serves customers across the globe. The bank keeps reliable risk management procedures and a strong balance sheet.
In 1998, the newly create BankAmerica Corporation was operated in Delaware as a Bank of America NT & SA and other financial entities' holding corporation. The Bank of America, in 1991, was considered the first bank to provide coast-to-coast operation in the country (Qu, 2020). With the emergence of the global crisis in 2008, BAC began to struggle as the most significant American mortgage lender was affected. The Bank of America announced to receive about $ 20 from the federal government Aid and extra $ 118 billion in guaranteed experienced based on Merryl Lynch acquisition ("Bank of America," n.d.). The United States government sued BAC, in 2013, for financial fraud, and on the same year, the bank agreed to pay about $ 16.65 billion.
Financial analysis of Bank of America Corporation entails the use of financial data to assess the bank performance and recommend how it can improve. By the use of historical data, projection is made on variance, scenario and sensitivity, valuation, cash flow, liquidity, rate of return, efficiency, profitability, growth, leverage, horizontal, and vertical (Yu & Van Luu, 2017). Profitability analysis entails analyzing the income statement to determine the attraction of business. Profitability ratios intend to measure the returns produced on investment and sales, which determines the banks potential to generate profit. BAC profitability measures Net profit margin, EBIT margin, EBITDA margin, and Gross Margin (Becker, 2016). Liquidity analysis relies on the spreadsheet to enable the BAC to realize its short-term obligation, such as networking capital, cash ratio, and current ratio. Liquidity ratios and capital structures measure the rate at which the bank depends on debt to funds its function and potential to pay the debt (Qu, 2020). Growth rates intend to analyze the historical growth rate and projecting them in future, which entails regression analysis, year-over-years, top-down analysis, and bottom-up analysis. In essence, the growth ratio measures the BAC' growth rates and predict the potential future growth such as EBIT growth, EBITDA growth, and Net Sales Growth.
The techniques used to analyze financial statement and ratios of BAC entails vertical, horizontal, and ratio analysis. In this context, vertical analysis entails different income statement' components which are divided by the revenue to give the revenue. BAC also explore horizontal analysis where many years of financial data is explored and compare with one another to produce the growth rate in a forecast way (Becker, 2016). Leverage analysis entails the use of leverage ratios to evaluate the bank' performance. In this context, a single financial metric is explored, such as total debt to be compared to the total equity to reflect on the capital structure. Leverage ratios entails EBIT/interest, Debt/ EBITDA, and Debt/equity (Yu & Van Luu, 2017). The financial statements and ratios allow BAC to compare themselves with other companies to increase their competitive edge.
In terms of capital and liquidity, the book value per share from 2018 to 2019 increased by 10%, which was approximately $ 26.41. The average Global Liquidity Sources was estimated to be $ 552 billion ("Bank of America financial ratios for analysis 2005-2020 | BAC," n.d.). The Common Equity Tier 1 Capital was $ 171 billion and its ration of 11.7 percent. Client balances entail the average leases and loan in a business segment that increased by 4 percent. Consumer investment assets increased by 15 percent and were estimated to be $220 billion ("Bank of America financial ratios for analysis 2005-2020 | BAC," n.d.). The Average deposits in terms of client balances increased by 6 percent and were about $ 75 billion.
In term of return and efficiency, the efficiency ration of 57 percent increased by 117bps ("Bank of America financial ratios for analysis 2005-2020 | BAC," n.d.). Also, the return on average tangible common shareholder's equity improved by 109 bps from 16.24 percent. The return on average common shareholders' equity of 11.62 percent improved 87 bps. Return on average assets of 1.23 percent increased six bps.("Bank of America financial ratios for analysis 2005-2020 | BAC," n.d.). In terms of earning, the average diluted common shares decreased from 7 percent to $ 9.6 billion. There was a strong asset quality in terms of earning. There was operating leverage of fewer than 200 bps which included noninterest expense stable at $ 13.3 billion and total revenue of about two percent to $ 23.1 billion.
From the financial results, there is a need for the Bank of America Corporation to assess the appropriate amount of extra liquidity to keep the balance between the broker-dealer subsidiaries and the bank. One of the metrics that BAC can explore is "time-to-required funding" to assess the excess liquidity level. In this context, the debt coverage measure shall depict the number of months the bank can realize under unsecured contractual obligations.
BAC needs to access contingency funding via the US government Discount Window. In other words, non-US subsidiaries have the privilege to access every facility of the central bank in places they operate. However, BAC does not depend on sources as liquidity modelling, which enable it to maintain its governance processes, procedures, and policies that help it access the references at the required time.
Future StepsToday, BAC thrives in an environment where there is a technological advancement which is marred with unprecedented challenges in the banking sector to make the services convenient, seamless, and innovative. BAC' future plan is to combine the corporation-leading expertise with advanced technology to establish a forward-thinking and smart solution that will help individuals to lead the way of assisting others to have better financial lives. Also, these solutions shall help institutional investors and companies to enhance financial output.
One of the steps is to include the use of Artificial Intelligence in financial services. AI shall help the BAC to understand their clients' expectation, enhance their financial and risk management, and improve their facilities more reliably and efficiently. BAC should use high-touch and high-tech technology to enable clients to operate their services whenever they are ready. By the use of this technology, BAC can transform the banking sectors via innovative services and products. BAC' financial centers should meet the growing demand for face-to-face financial expertise and digital environment for what the clients want. The financial centers should be renovated to make the place attractive and comfortable for clients' financial lives. There is a need to improve the interactive tools and dedicated learning spaces to increase high-touch and high-tech experience.
Bank of America financial ratios for analysis 2005-2020 | BAC. (n.d.). https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/financial-ratios
Bank of America. (n.d.). https://www.britannica.com/topic/Bank-of-America-Corporation
Becker, E. (2016). Knowledge capture in financial regulation: Data-, information- and knowledge-asymmetries in the US financial crisis. Springer.
Qu, P. (2020). Bank of America stock price research. Journal of Financial Risk Management, 09(02), 126-140. https://doi.org/10.4236/jfrm.2020.92007
Yu, E. P., & Van Luu, B. (2017). Pay dispersion, culture and bank performance. Growth Frontiers in International Business, 257-286. https://doi.org/10.1007/978-3-319-48851-6_13
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