Wells Fargo & Company Financial Ratios Analysis Research Paper

Wells Fargo & Company Financial Ratios Analysis - Research Paper Example The bank has positioned itself with a niche in specialized lending activities. It is the nation’s largest consumer lending bank with profits as high as $4 billion for the third quarter of 2011. Since 2008, Wells Fargo & Company has enjoyed increased revenue year by year until 2010. The three quarters for 2011 have however, experienced an increase in its earnings. The highest rise in its net income was attained from 2008 to 2009 of 362% increase i.e. from $ 2,655, 000 to $12,275,000. This has since then stabilized at the $12million range. Financial ratios analysis Profitability ratios Return on assets The ratio was 0.96% in 2008 and has risen to 5% in 2010. The return on assets has been increasing steadily from 2009 to date. It rose sharply in 2008/2009. Investment in bonds and notes, preferred and common stocks and other securities in its diversified portfolio of assets have seen a tremendous rise in its assets for the last three years. The ratio indicates that the returns from use of assets in the company are effectively invested in to generate high earnings for the bank. A comparison with the peer shows a big difference. The peer has ROA of 2.2% currently and the trend for the 4 years is an increase from 0.8%. Return on equity The ratio rose sharply in 2008 – 2009 then has stabilized for the following years. The ratio was at 4.84 in 2008 then rose to 10.42. Currently, the range is 10 – 11. That of its peers rags behind with 2008 having a negative of 3.86, and in 2010 a ROE of 5.10. Wells Fargo and Company has doubled its ROE in comparison to its peer group. The ma nagement team of Wells Fargo & Company has done a tremendous job in investing the shareholders equity and generating a high return therefrom. The return on equity is very high compared to its industry. The management has achieved this high mark through the investment strategies it has adopted. The company retained earnings are as high as $61 million this year compared to $48.9 million in September, 2010. These have been used as internal equity for reinvestment. The company investments are seen as a high diversified portfolio in the different sectors of the economy. The 4 year analysis of Wells Fargo financials indicate that both preferred and common equity is in surplus. The company is not highly geared, but it uses its earnings for investment purposes. The year 2008 experienced a huge increase in its equity when the company added its share capital. Efficiency ratios: Net Interest Margin – This is a measure of the difference between the cost of funds and the income generated by those funds. This stands at highs of 20.66%. The increase is owed to the reduction in provisions for credit losses. Net Noninterest Margin - Measures fees and service charges relative to noninterest expenses. It stands at 9.62%. This has resulted from the decrease in operating expenses that are not directly related to credit taking. Net Operating Margin The figure stands at an increase of 30.28% in 2011. This is owed to both reduced noninterest expense and the provision for credit losses in the year. Earnings per Share This stands at 0.72 in 2011 and has increased for the 7 consecutive quarters. This indicates that the company’s efficiency is high although its revenues have decreased. Earnings Spread This stood at 6% in 2010 compared to the third quarter of 2011 of 22%. Its peers have however, managed highs