Finance/Annual report analysis

 

 

 

 

Obtain an annual report of (1) a commercial bank, (2) a savings institution, (3) a securities firm, and (4) an insurance company. The annual reports will allow you to relate the theory in specific related chapters to the particular financial institution of concern. The exercises in Part II of this comprehensive project require the use of these annual reports. The annual reports can be obtained by calling the shareholder services department for each financial institution, or they may be available online. Also, order a prospectus of a specific mutual fund in which you are interested. The prospectus can be obtained from the specific investment company that sponsors the mutual fund, or it may be available online. 1. Commercial bank operations (from Chapter 17) For the commercial bank that you selected at the beginning of the term, use its annual report or any other related information to answer the following questions: a. Identify the types of deposits that the commercial bank uses to obtain most of its funds. b. Identify the main uses of funds by the bank. c. Summarize any statements made by the commercial bank in its annual report about how recent or potential regulations will affect its performance. d. Does it appear that the bank is attempting to enter the securities industry by offering securities services? If so, explain how. e. Does it appear that the bank is attempting to enter the insurance industry by offering insurance services? If so, explain how. 2. Commercial bank management (from Chapter 19) For the commercial bank that you selected at the beginning of the term, use its annual report or any other related information to answer the following questions. a. Assess the bank ’s balance sheet as well as any comments in its annual report about the gap between its rate-sensitive assets and its rate-sensitive liabilities. Does it appear that the bank has a positive gap or a negative gap? Appendix A: Comprehensive Project 711 © 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product. b. Does the bank use any methods to reduce its gap and therefore reduce its exposure to interest rate risk? c. Summarize any statements made by the bank in its annual report about how it attempts to limit its exposure to credit risk on the loans it provides. 3. Commercial bank performance (from Chapter 20) For the commercial bank that you selected at the beginning of the term, use its annual report or any other related information to answer the following questions. a. Determine the bank’s interest income as a percentage of its total assets. b. Determine the bank’s interest expenses as a percentage of its total assets. c. Determine the bank’s net interest margin. d. Determine the bank’s noninterest income as a percentage of its total assets. e. Determine the bank’s noninterest expenses (do not include the addition to loan loss reserves here) as a percentage of its total assets. f. Determine the bank’s addition to loan loss reserves as a percentage of its total assets. g. Determine the bank’s return on assets. h. Determine the bank’s return on equity. i. Identify the bank’s income statement items described previously that would be affected if interest rates rise in the next year, and explain how they would be affected. j. Identify the bank’s income statement items described previously that would be affected if U.S. economic conditions deteriorate, and explain how they would be affected. 4. Savings institutions (from Chapter 21) For the savings institution (SI) that you selected at the beginning of the term, use its annual report or any other related information to answer the following questions. a. Identify the types of deposits that the SI uses to obtain most of its funds. b. Identify the main uses of funds by the SI. c. Summarize any statements made by the SI in its annual report about how recent or potential regulations will affect its performance. d. Assess the SI’s balance sheet as well as any comments in its annual report about the gap between its rate-sensitive assets and its rate-sensitive liabilities. Does it appear that the SI has a positive gap or a negative gap? e. Does the SI use any methods to reduce its gap and therefore reduce its exposure to interest rate risk? f. Summarize any statements made by the SI in its annual report about how it attempts to limit its exposure to credit risk on the loans it provides. g. Determine the SI’s interest income as a percentage of its total assets. h. Determine the SI’s interest expenses as a percentage of its total assets. i. Determine the SI’s noninterest income as a percentage of its total assets. j. Determine the SI’s noninterest expenses (do not include the addition to loan loss reserves here) as a percentage of its total assets. 712 Appendix A: Comprehensive Project © 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product. k. Determine the SI ’s addition to loan loss reserves as a percentage of its total assets. l. Determine the SI ’s return on assets. m. Determine the SI ’s return on equity. n. Identify the SI ’s income statement items described previously that would be affected if interest rates rise in the next year, and explain how they would be affected. o. Identify the SI ’s income statement items described previously that would be affected if U.S. economic conditions deteriorate, and explain how they would be affected. 5. Mutual funds (from Chapter 23) For the mutual fund that you selected at the beginning of the term, use its prospectus or any other related information to answer the following questions. a. What is the investment objective of this mutual fund? Do you consider this mutual fund to have low risk, moderate risk, or high risk? b. What was the return on the mutual fund last year? What was the average annual return over the last three years? c. What is a key economic factor that influences the return on this mutual fund? (That is, are the fund ’s returns highly influenced by U.S. stock market conditions? By U.S. interest rates? By foreign stock market conditions? By foreign interest rates?) d. Must any fees be paid when buying or selling this mutual fund? e. What was the expense ratio for this mutual fund over the last year? Does this ratio seem high to you? 6. Securities firms (from Chapter 24) For the securities firm that you selected at the beginning of the term, use its annual report or any other related information to answer the following questions. a. What are the main types of business conducted by the securities firm? b. Summarize any statements made by the securities firm in its annual report about how it may be affected by existing or potential regulations. c. Describe the recent performance of the securities firm, and explain why the performance has been favorable or unfavorable. 7. Insurance companies (from Chapter 25) For the insurance company that you selected at the beginning of the term, use its annual report or any other related information to answer the following questions. a. How does the insurance company allocate its funds? (That is, what is its asset composition?) b. Is the insurance company exposed to interest rate risk? Explain. c. Does the insurance company use any techniques to hedge its exposure to interest rate risk? d. Summarize any statements made by the insurance company in its annual report about how it may be affected by existing or potential regulations. e. Describe the recent performance of the insurance company (using any key financial ratios that measure its income). Explain why its recent performance was strong or weak.

 

 

 

 

Sample Solution

While a set of frameworks complement and build on each other, the delineation of the concept focuses heavily on vertical versus horizontal dimensions in a time-sliced fashion. That is, time dimension in accountability has not been of primary importance. However, it is worth noting that the time dimension is closely interrelated with a series of conceptual distinctions made in previous literature, and it may cover complementary aspects of the question concerning two sequential lines represented by administrative responsibility versus political accountability. First, the positioning of accountability actors depends on the time dimension. Civil servants usually have longer terms to serve the public interest over the long term. At the same time, they are responsible to the elected representatives of the public who tend to have “a limited time horizon” and “prefer policies that yield tangible benefits for constituents in the near term” (Posner, 2004: 137). For this reason, the priorities expressed by elected officials may be far more related to short-term issues and temporal problems instead of long-term solutions, whereas the long-lasting forms of civil service personnel would prioritize sustainable solutions to secure a long-term perspective of the citizens, both current and in the future. Second, the time frame is essential to distinguishing between two main streams of accountability. Accountability mechanisms focus predominantly on retroactive accountability for the past outcomes, while accountability as a virtue takes a proactive approach to ensuring ethical behaviors in the future. The timeline is also useful to distinguishing between ex ante accountability of the decision-making process leading up to the decision and ex post accountability where the results available from the decision already taken or where questions of compliance are identified and addressed. In other words, ex ante accountability refers to being accountable for the decision before an administrator act, while ex post accountability is suggestive of situations where administrators are accountable for the outcome of their decisions. For example, the focus of traditional bureaucratic administration is very much

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