7 pages/≈1925 words
Business & Marketing
Wells Fargo (Research Paper Sample)
Please use Wells Fargo as a U.S. publically-traded company and perform a financial analysis. Submit a report of 7-8 pages. Study report requirements are attached.
Source of financial data: www(dot)morningstar(dot)com
This is an analysis of financial ratios, stock prices, as well as an assessment of the required rate of return using the DCF approach. The information was collected from the financial records of Wells Fargo and Co focusing on the income statements and Statement of financial position for the years 2011 to 2015. The main purpose of the study was to collect the most relevant information to make decisions on whether it is worthwhile to invest in the company. Subsequently, suing the DCF model showed that investors ought to buy the stock, which has the possibility of rising over time. The Capital Asset Pricing Model – (CAPM) to determine the risk premium, which represented the expected return above the risk free rate, with the expected rate of return being 1.45%.
Wells and Fargo mainly operate in the U.S. in the financial services sector, providing the services in the consumer, banking, mortgage, investing and credit cards. Wells Fargo has operations in more than 35 countries, with operations divided into the wholesale banking, community banking, wealth as well as brokerage and retirement segments (Wells Fargo, 2015).
The financial analysis will focus on ratio analysis, and stock analysis, and this is relevant to making decisions about the company. There are various users of financial information, whereby creditors and investors focus more on the financial information to assess the viability of the company.
The information was collected from largely collected form HYPERLINK "" , and HYPERLINK "http://finance.yahoo.com" http://finance.yahoo.com, focusing on the financial information pertaining to the income statement and balance sheets. In cases where the financial ratios were not provided, they were calculated from the available information covering the years 2011 to 2015. This was necessary to compare the results and determine and emerging patterns. Information on stock analysis was also based on past information, but also integrated information on expectations about the growth in the company’s dividends and earnings per share.
2014201320122011Assets1,687,1551,527,0151,422,9681,313,867Liabilities (Debt)183,943152,998127,379125,354Equity184,394170,142157,554140,241Sales84,34783,78086,08680,948Operating Costs50,43251,15157,61557,292
The assets and equity of Wells Fargo increased from 2011 to 2015, but the sales increased from 2011 to 2012, but then increased in 2013 and 2014. On the other hand, the operating costs decreased from 2012 to 2015, after initially rising in the years 2011 to 2012. The implication is that it was possible to manage the operational costs. The change in assets is one that cannot be controlled by the management as they dedicate funds for such investments. However, the sales level was not controllable hence the changes in the revenue. Even though, the operating costs fell as the sales declined, the costs were controllable compared to sales.
b] Internal Liquidity
Wells Fargo did not provide total current assets, but the cash and cash equivalents are assumed to represent the total of the current assets. Both the current and quick ratio indicate the ability to meet short-term obligations as they fall due, and also represents ability to maintain solvency The current and quick ratios are all below 1.0 indicating that the company may face problems to meet its financial obligations. Well Fargo’s management then has to focus on whether there is a possibility of better long-term prospects as this affects their borrowing ability. The ratios also rank lower than the industry median.
2] Operating Performance:
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