Bank Of America - Financial Institution Analysis

Bank of America - Financial Institution Analysis
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Table of Contents TOC \o "1-3" \h \z \u Environment PAGEREF _Toc6074203 \h 3Risk environment PAGEREF _Toc6074204 \h 5Regulatory impact PAGEREF _Toc6074205 \h 9Influence of technology PAGEREF _Toc6074206 \h 10Influence of financial innovation PAGEREF _Toc6074207 \h 11Performance Analysis and interpretations PAGEREF _Toc6074208 \h 12References PAGEREF _Toc6074209 \h 17
Environment
Primary purpose
Financial analysis is necessary to evaluate study and interpret the accounting and financial reports of Bank of America (BAC) to assess its current financial situation and potential for growth. Financial ratios and other indicators help to make objective views about the corporation’s financial wellbeing while considering the impact of risk on financial performance current situation and how it is expected to be exchange in the future. As such, financial analysis is carried out through observation of the corporation’s financial statements in different financial years, and in this case 2016 to 2018. The ratios and other indicators together with additional information will help determine the areas that require improvement to enhance competitiveness and compliance with the regulatory frameworks.
Profitability, liquidity and solvency are the three common types of financial rations necessary for analysis, and there is focus on risk management to reduce exposure to market risks. Profitability reflects the difference between income and the expenses and higher profitability represents higher returns, while liquidity is the ability to pay the short-term obligation and solvency refers to the ability to meet long-term debts and also be able to invest to grow in the future.
Asset mix
The asset mix is the breakdown of all assets within the bank, and the assets can be assigned to one of the main asset classes: stocks, bonds, cash and real estate. A breakdown of the asset mix helps investors understand the composition of a portfolio. The asset mix is an important consideration for investors, and a key determinant of the risks the rewards, which also affect performance (SEC, 2019). The major classes of assets are: cash and equivalents, fixed income instruments and equity instruments. The total assets were $ 2,354,507,000 million in 2018, an increase from 2017, which was 2,281,234,000 million and 2,188,067,000 million in 2016. The loans and lease was the largest share of the assets at loans and lease at loans and lease million in 2018 and 936,749 million in 2017 compared to debt securities of 441,753 million and 440,130 million in 2018 and 2017. On the other hand, the Cash and cash equivalents were $ 177,404 M and $157,434M in the two years. The $73.3 billion total increase in assets from 2017 to 2018 was mostly because of “higher securities borrowed or purchased under agreements to resell due to investment of excess cash levels in higher yielding assets and increased client activity, and higher cash and cash equivalents driven by deposit growth” (BAC, 2019).
Economic functions performed
Banks like the Bank of America are financial institutions, which play a key role in the economic system and financial markets. The bank allows the trans...