Bank of America Analysis, Case Study Example

The financial and operational success of any company can often be determined by the strength of its operational efficiency within the economic market in which it functions.  Many variables are associated with operational efficiency.  To clearly illustrate this point, a financial, operational and economic analysis must be conducted on the best possible company for such analysis – a bank.  Bank of America operates across the country and provides a number of services to its consumers and investors.  Through a series of recent case studies and economic analyses, the financial statements of Bank of America can be utilized as a tool to project a telling story of the successes or failures of the company in regards to the overall economic market and environment in which the company operates.

One important impact of the Bank of America financial positioning stems directly from macroeconomic policies as promoted by the government in lieu of the bank crisis experienced in this country.  Due to the trading and loan losses in late 2008, Bank of America was provided economic relief from the federal government in the amount of $45 billion plus receiving a guarantee of $118 billion of its assets through the Troubled Asset Relief Program (AFLCIO.org, 2010).  However, the company was able to come out from the TARP program relatively unscathed and providing its own financial resources after the financial crisis.  Nevertheless, the company must still follow federal and regulatory guidelines of developing new sales products and delivering loans to consumers and businesses.  Bank of America has been well-known for its innovation in delivering banking products for all consumers such as the Keep The Change program which provided a round-up procedure for all purchases made with a Bank of America card and placed the rounded up figures into a special interest-bearing savings account (“Case study”, 2006).  This and other programs are one way in which the company is able to adhere to macroeconomic policies and still make the best of the situation by attempting to increase sales and revenue.

The financial health of any organization is very important to analyze, especially for banks as is evident from the recent bank crisis and bail out.  A large portion of Bank of America’s financial statements for 2009 include discussions from the CEO and other managing partners regarding the health of the company.  Bank of America is reportedly doing business with 98% of Fortune 1000 companies in this country and also has relationships with almost 50% of every household in the United States – a lofty feet for such a difficult economic time (“Bank of America”, 2009).  This shows that the company’s overall operations have remained constant and plans to experience continued growth are under way.  At the end of 2008, Bank of America had experienced a decrease in overall net income from 2007 by roughly $10.9 billion; however, the company was able to finally see an improvement in net income in 2009 by showing an increase in 2009 by around $2.27 billion with final figures showing $6.3 billion in year-end net income (“Bank of America”, 2009).  While these improvements are very good in the eyes of shareholders, investors and consumers of Bank of America, there are other issues at stake that must be analyzed to determine a company’s overall financial health.

Perhaps the largest test for a company’s financial health is performing quick financial ratios from the financial statements.  One such ratio is called the debt ratio in which total assets are divided by total liabilities to determine a company’s ability to use its assets to pay its debts.  Bank of America has an debt ratio of 1.12, which is not a strong relationship as not all assets as liquid and can be used to pay off current or long-term debts (“Bank of America”, 2009).  While the company’s net income may be increasing, the company has been forced to dig deeper into debt by increasing liabilities from 2008 to 2009 by almost $350 trillion which is definitely an alarming amount (“Bank of America”, 2009).  The company is showing signs of growth and financial improvement in net income and acquired assets, but this does not mean that the company’s financial health is good by any means.

References

AFLCIO.org. (2010). Bank of america case study. Retrieved from http://www.aflcio.org/corporatewatch/paywatch/retirementsecurity/case_bankofamerica.cfm

Bank of america 2009 annual financial statements. (2009, December 31). Retrieved from http://media.corporate-ir.net/media_files/irol/71/71595/reports/2009_AR.pdf

Case study: bank of america – how it learned that what customers really want is to keep the change. (2006, June 19). Business Week, Retrieved from http://www.businessweek.com/magazine/content/06_25/b3989445.htm

Solimano, A. United Nations Research Institute for Social Development, UNRISD – Sida/SAREC Workshop. (2006). Comments on macroeconomic policy and inequality Buenos Aires, Argentina: Retrieved from http://www.unrisd.org/unrisd/website/events.nsf/d063b7f4013ddaeb80256b59004b47a3/3012b4f00b5d36d0c125717f003c993a/$FILE/Solimano.pdf