Prudential Financial, Inc. (PRU), Essay Example

Return on Assets

This is a crucial indicator of profitability of the financial information. It indicates the amount of profit realized from the capital that has been invested in the financial institution. Banks generally strive to realize an ROA of between 1.5% or above. However, a bank that depicts an ROA between 1% and 1.5% is considered to be just financially sound. Prudential Financial, Inc. realized a considerably low ROA relative to the prevailing industry average for the year 2014. Prudential Financial registered an ROA of 0.18% in 2014, which is far below the industry average of 1.02% (Federal researve Bank of St. Louis, 2014). Furthermore, the bank experienced a general decline in the amount of profit generated from capital invested in the financial institution.

Return on Equity

This measures the ability of the financial institution to realize profits from investments made by its shareholders. This ratio is particularly useful to the financial institution’s stockholders. The company realized an ROE of 3.3062% in 2014. This is far below the industry average for 2014 (9.12%) (Bank Reg Data, 2015). However, the company recorded an increase in ROE. The bank had recorded an ROE of -1.8907% in 2013. This translates to an increase in profitability for stockholders between 2013 and 2014.

Total Operating Income / Total Assets (Return on Total Assets – ROTA)

This is a measure of how efficiently the financial institution utilizes it total assets to generate income before the consideration of contractual agreements. Owing to the fact that banks are considerably leveraged, they strive to achieve a ROTA of 1%. Prudential Financial depicts a a considerably poor ability to generate income before the consideration of contractual agreements. The bank experienced an increase in ROTA between 2013 and 2014, from 0.2294% to -0.2301%.

Non-Interest Expense/Total Operating Income

This is an efficiency measure that gauges the overhead structure of the Prudential Financial, Inc. This measures the proportion of the financial institution’s operating income is consumed by costs. This essentially indicates the level of operational efficiency. Prudential Financial realized 511.4083% for this ratio in 2014. This was a considerable improvement from 2013 where the financial institution recorded -3,147.27%.

Summary

Prudential Financial, Inc. depicts considerably poor perofrmance. The bank appears to be recovering from a period of considerably poor performance, ending in 2013. Even though the bank is recovering, its performance is still below the required standards, i.e. relative to the industry average. The bank is also inefficient in the application of the stockholders’ equity to generate income. This particular element is far below the industry average for each respective year, indicating efficiency. The bank also experiences poor utilization of its assets. The bank is considerably below the advisable ROTA within the industry. However, it is important to consider that the drop in performance between 2012 and 2013 may be resultant of market forces. The industry depicts a similar trend in performance.

The bank appears to be inefficient in its use and application of assets and capital to generate and realize income. The bank also depicts poor operational efficiency. However the bank needs to find ways of reducing costs. The bank has a high non-interest expenditure that may potentially inhibit the realization of more profits and revenue. I would not recommend investing in Prudential Financial, Inc. as it depicts considerably poor financial performance, relative to the performance of the banking industry.