Hailing from the busy city of Bridgeport in the Connecticutian state of the United States of America, People’s United Bank has become a national player in the United States of America's financial industry. With constant improvement in the operations of the company, while involving technology and investing more money, the organization has secured its business future. The country is mainly competitive in the financial sector with other giants such as Bank of America, an institution that has always been making it into the headlines for excellent financial performance. All the same, the People’s United Bank has made deliberate efforts to get closer to the local America customers by opening branches in the other areas within the northeastern megalopolis.
The financial ratios of People’s United Bank have indicated a promising economic future for the company. With liquid assets, more than those of its main competitor, Bank of America, the bank has shown its ability to clear short-term debts within a short time. The investments made in the company, such as those indicated by the returns on total assets and those on fixed assets, have been a perfect ingredient for its undoubted success. Apparently, People’s United Bank is slowly escalating to the top of the United States of America's banking sector. Of course, the media will be head over heels for the new company on the top of the industry in the country, hoping to hear of vexes made by the management to get to the top.
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People United Bank Financial Analysis
Introduction
The northeastern megalopolis in the United States of America is a globally renowned area of economic performance in the upward trend. The region encompasses states such as New York, New Jersey, Pennsylvania, New Hampshire, Connecticut, Massachusetts, Vermont, among others. Also known as the Bos-Wash corridor, the eastern megalopolis is one of the largest megaregions in the US, as well as, in the whole world. The area, stretching from Boston, Massachusetts to Washington, District of Columbia, has had some financial institutions operating in the region. The financial institutions range from banking to those that provide insurance services to the companies in the area (Rosenberg, 2004).
One of the banking institutions in the area is People’s United Bank. People’s United Bank is a subsidiary of the Peoples United Financial Inc. People’s United Bank was founded in 1842 at Bridgeport, Connecticut as Bridgeport savings bank. That was the period when the American economy had already begun to skyrocket owing to the development of the industries that resulted to the urban sprawl, foundation of the cities making up the northeastern megalopolis in the country. People’s United Bank, the then Bridgeport savings bank, effected an acquisition of Southport savings bank back in 1955. The bank also became the pioneer of the provision of a bill paying service in the communities over the telephone in the United States of America (People’s United Bank, 2018).
Bridgeport savings bank was renamed to people's bank in 1983, and later to People’s United Bank in 2007. The state-of-the-art People’s United Bank is headquartered in Bridgeport, Connecticut in the unsuited states of America. Currently, it holds the title of the second largest banking institution in the New England region of the United States of America with a total of more than 5000 employees in 403 branches spread across Connecticut, southeastern parts of the state of New York, Maine, New Hampshire, Vermont, and Massachusetts. The bank is also one of the institutions in the banking industry with the highest revenues as at 2017 ( Bank of America, 2018) .
One of the major competitors of People’s United Bank is Bank of America. Bank of America is a financial institution based in Charlotte, North Carolina, the United States of America. Bank of America has around 209000 employees spread in its branches across the globe. It is one of the largest banks in the United States of America by assets. The bank has been a stiff competitor on the national financial platform to the Bridgeport-based People’s United Bank ( Bank of America, 2018) .
Ratios Analysis
Ratio analysis is one of the most quintessential methods of identifying the economic trend of a given company, in any sector in the world of business. More so, in the world of the financial institutions such as where People’s United Bank is categorized, the leaders of the companies in the United States of America and beyond have been making use of financial ratios to establish the strengths and weaknesses of the business. Since the coefficients indicate the trend of a company's performance on the different aspects of economic analysis, the managers can easily spot the strongholds and the setbacks that affect a particular business and rectify the problems concerning the operations of the company.
Liquidity Ratios
Liquidity refers to the ability of an asset in a specific company to be bought or sold within a short time without affecting its market value. More often than not, the most liquid asset that has been in the companies in the modern world is cash. Assets sold can also be expressed in equivalents of money. Cash can be used to meet the short-term liabilities in a company such as the debts or loans with a short repayment period. A liquidity ratio is one of the most instrumental tools of gauging whether a company can pay off its debts without affecting the margin of the safety in an organization's revenues. For instance, the People’s United Bank based in Bridgeport, Connecticut, the United States of America may need to liquidize some of its assets to cater for the loans and debts it owes other institutions within and without Connecticut. High liquidity in a company occurs when the assets that can be purchased or sold to cater for liabilities are many. Low liquidity is the opposite of high liquidity in the same context (Amadeo, 2018).
The liquidity ratios to be analyzed in People’s United Bank are current ratio and quick ratio. Current ratio indicates People’s United Bank's ability to pay short-term liabilities using the short-term assets in the organization. The current ratio is usually obtained by dividing the current assets by the current liabilities in an organization. Both current assets and liabilities can be converted on an annual basis.
Current ratio
The current ratio for People’s United Bank in 2017 was 0.22. That meant that for every $1 of current liabilities there are $0.22 of current assets. Therefore, People’s United Bank has low liquidity. The current ratio of the Bank of America was 0.098 in 2017. That meant that for every $ 1 of current liabilities, there was $ 0.098 of current assets. In 2016, the current ratio for peoples united bank was 0.15 while that of its main competitor, Bank of America was 0.083 in the same year. The People’s United Bank has more liquidity than the Bank of America. Therefore, People’s United Bank can settle short-term debts faster compared to the Bank of America.
Quick ratio
The quick ratio for People’s United Bank in 2017 was 1.50. That means that the bank had $1.50 of available liquid assets to cover $1 of current liabilities. The quick ratio for the Bank of America in 2017 was 0.03. That meant that the bank had $0.03 of liquid assets available to cover $1 of liabilities. The quick ratio for the People’s United Bank in 2016 was 1.51. The quick ratio for the Bank of America in 2016 was 0.02. The quick ratio of People’s United Bank is higher than that of Bank of America which suggests that the former has more readily available liquid assets to cover its debt than the latter.
Efficiency Ratios
Accounts receivable turnover
The accounts receivables turnover is a measurement of how efficiently an organization uses its assets. It is the result of the division of the net revenue of a company and the accounts receivables values. The accounts receivables turnover for People’s United Bank in 2017 was 1.70 which was a drop from 2.19 in the year 2016. The accounts receivables turnover for the Bank of America was 0.55 in 2017, a slight decrease from 0.57 in the previous year. Evidently, People’s United Bank uses its assets more efficiently than the Bank of America from the values obtained. A drop of accounts receivables turnover in People’s United Bank from 2016 to 2017 is an indicator of less efficiency in handling the assets.
Day's sales in accounts receivables
Day's sales in accounts receivables, also known as a DSO ratio, are the daily sales that a business makes about its products or services. It can be obtained by dividing the accounts receivable by the net revenue per day. The net income per day can be obtained by dividing the annual net revenue by 365 days. The DSO ratio for People’s United Bank in 2017 and 2016 were 215.33 and 166.38 respectively. The DSO ratios for the Bank of America in 2017 and 2016 were 657.84 and 644.25 respectively. Bank of America has had a higher DSO than peoples united bank in both 2017 and 2016. That means that the Bank of America has a higher customer base with credit than the case in People’s United Bank, impeding some of the activities of the former.
Inventory turnover
Inventory turnover is the ratio that indicates how many times the inventory in an organization has been sold and replaced over a given period, say a year. The inventory turnover ratio for People’s United Bank was 22.17 in 2016 and drooped to 22.09 in 2017. The decrease indicated that the operational aspects of the organization were being reduced or relaxed, leadership may also have been made more relaxed in the company. The Bank of America had its inventory turnover slightly increase from 7.1 in 2016 to 7.4 in 2017. Compared to People’s United Bank, Bank of America has a relatively lower rate of the sale of inventory in a year.
Working capital
Working capital is the capital that is used to run the day to day operations in a running business. It is calculated as a difference between the current assets and the current liabilities. The working capital for People’s United Bank in 2017 was ($32,212,000,000) while in 2016 it was ($34,427,000,000). The company's current liabilities exceeded the current assets in both years. The working capital for Bank of America in 2017 was ($1,442,829,000,000) while in 2016 it was ($1,636,657,000,000). The company had the same case as People’s United Bank, its competitor.
Profitability Ratios
Operating margin
Operating margin is the measure of how much of a single dollar of revenue is left after the costs of goods sold, and the operational expenses are considered. It is expressed as a percentage, and it is obtained by dividing the operating income by the net revenues and then multiplying the rest by 100. The operating margin for People’s United Bank was up at 76.4% in 2017 from 74.6% in the previous year. That indicates an improvement in the company's efficiency to utilize its revenue. Its main competitor, Bank of America, had its operating margin at 51.1% in 2017 from 49.1% in 2016. Comparatively, Bank of America had a lower efficiency than peoples united bank in making use of the valuable revenue, despite its improvement in the same.
Contribution margin
Contribution margin, in accounting, helps a given company determine the profitability of each of its products or services. In 2017 and 2016, the contribution margin ratio for People’s United Bank was constantly at 21.5%. The stagnation may have been as a result of lack of adjustments in the operational setup of the company. Looking at the competitor's edge, the Bank of America improved its contribution margin ratio from 6.9% in 2016 to 7.3% in 2017. The margin ratio of Bank of America was still comparatively lower than that of People’s United Bank. That is to say that the People’s United Bank has higher profitability on individual services compared to a Bank of America.
Return on equity
Return on equity is a measurement that companies use to indicate how well they have used their investments to bring forth the growth of their earnings. Both the ROE of Bank of America and People’s United Bank have been steadily increasing since 2015 up to 2017. In 2015, people's Bank of America had an ROE of 5.1%, which accreted to 5.5% in 2016 and later to 6.7% in 2017. The company laid down strategies to maximize the earnings from their investments in the various states in the New England region of the United States. The fruits of their efforts were their upward trend in ROE. Bank of America had its ROE ahead of that of propels united bank for the three consecutive years at 6.6% in 2015, 7.4% in 2016 and later 7.6% in 2017. Bank of America has sure as shooting worked on maximizing their ROE and gain a competitive advantage within and without the United States.
Return on total assets
The yield on total assets is another ratio of determining the profitability of an organization. The return on total assets (ROTA) measures the earnings of a firm before taxation against the total assets the company owns. From 2015 to 2017, both People’s United Bank and the Bank of America have had a slight accretion of the ROTA values. People’s United Bank had a ROTA of 0.63% in 2015, which rose to 0.68% in 2016 before leaping again to 0.82% in 2017. Bank of America was still ahead of People’s United Bank on the ROTA values at 0.72% in 2015 before having a leap to 0.81% in 2016 and a slight step up to 0.82% in 2017. The increase of the ROTA in both companies was a sign of good news which precisely targeted the effectiveness of the two financial giants using their assets to generate earnings.
Return on fixed assets
Business analysts in the world today have been using gains on fixed assets to gauge the performance of organizational operations. Incisively, the return on fixed assets looks at the ability of a company to earn from investing in its fixed assets, plant, and equipment. People’s United Bank has demonstrated the increasing ability to invest in its fixed assets after having a 0.83% in 2017 from a 0.69% in 2016. The company's management has had a keen focus on the financial investments the company can make, and as a result, the improvement has been evident. Not being left behind, the Bank of America, the chief competitor to peoples united bank, has surpassed the latter's ability to invest form its fixed assets and has stood at 0.89% in 2017 from a 0.87% in 2016. That is because Bank of America is extensive over the United States and beyond the borders and hence has significantly more assets compared to People’s United Bank.
Market Value Ratios
Price/earnings
The price or revenues based on the shares of a company is a quintessential and sure way of telling its performance. In the same line, People’s United Bank has had a nosedive in the price of its shares from a 17.23 in 2016 to a 16.91 in 2017. Distinctly, the company has reduced in its performance owing to the reduction in the earnings. The company needs to come up with new strategies to improve their operational performance. In the diminution list regarding price of shares, the famous Bank of America has also made a presence on it having dropped its earnings from 15.27 in 2016 to 14.60 in 2017.
Conclusion
The United States of America is one of the countries in the world with the most stable financial sector. Globally, the United States has been ranked 36th country with the safest banks (Martin, 2016). Among the key players in the industry are People’s United Bank, based in Bridgeport, Connecticut, and the Bank of America, based in Charlotte, North Carolina. The latter has had global presences while the former is mostly concentrated in the New England region of the United States. The different financial ratios have ostentated People’s United Bank as better performing than the Bank of America although the former has lower revenues and income compared to the latter. People’s United Bank has continuously showcased chances of improvement shortly, and at some point, it will ultimately edge its competitors in the United States of America. The bank has continually been profitable in the recent past, which has a promising business future.
References
Amadeo, K. (2018, March 29). Liquidity is the lever that controls your finances . Retrieved from https://www.thebalance.com/liquidity-definition-ratios-how-its-managed-3305939
Bank of America. (2018). About Bank of America - Service, commitment & philanthropy . Retrieved from https://about.bankofamerica.com/en-us/index.html#fbid=c3e00Xj94nE
Martin, W. (2016, October 3). These are the 14 countries with the safest banks in the world| Independent . Retrieved from https://www.independent.co.uk/news/business/these-are-the-14-countries-with-the-safest-banks-in-the-world-a7343011.html
People’s United Bank. (2018). About People's United . (2018). Retrieved from https://www.peoples.com/peoples/Footer/About-People's-United
Rosenberg, M. (2004, May 9). Get to know America's major megalopolis . Retrieved from https://www.thoughtco.com/megalopolis-urban-geography-1433590
Appendices
Liquidity Ratios
| People’s United Bank | |||||||
| Current Ratio | |||||||
| Current ratio= current assets÷ current liabilities | |||||||
| Therefore; | |||||||
| Current ratio of People’s United Bank in 2017= 882600000/4103800000 | |||||||
| Current ratio in 2017= 0.22 | |||||||
| Current ratio of People’s United Bank in 2016= 614100000/4056800000 | |||||||
| Current ratio in 2016= 0.15 | |||||||
| Bank of America | ||||||
| Current Ratio | ||||||
| Current ratio= current assets÷ current liabilities | ||||||
| Therefore; | ||||||
| Current ratio of Bank of America in 2017= 157434000000/1600263000000 | ||||||
| Current ratio in 2017 = 0.098 | ||||||
| Current ratio of Bank of America in 2016= 147738000000/1784395000000 | ||||||
| Current ratio in 2016= 0.083 | ||||||
| People’s United Bank | |||||||
| Quick Ratio | |||||||
| Quick ratio= (current assets- inventory) ÷ current liabilities | |||||||
| Therefore; | |||||||
| Quick ratio of People’s United Bank in 2016= (614100000- 6737900000)÷ 4056800000 | |||||||
| Quick ratio= 1.51 | |||||||
| Quick ratio of People’s United Bank in 2017= (882600000-7043000000) ÷ 4103800000 | |||||||
| Quick ratio in 2017= 1.50 | |||||||
| Bank of America | ||||||||
| Quick Ratio | ||||||||
| Quick ratio= ( current assets- inventory) ÷ current liabilities | ||||||||
| Therefore; | ||||||||
| Quick ratio of Bank of America in 2017= (157434000000-212747000000)÷ 1600263000000 | ||||||||
| Quick ratio= 0.03 | ||||||||
| Quick ratio of Bank of America in 2016= (147738000000-198224000000)÷ 1784395000000 | ||||||||
| Quick ratio= 0.02 | ||||||||
|
Efficiency Ratios |
|||||||
| People’s United Bank | |||||||
| Accounts Receivables Turnover | |||||||
| Accounts receivables turnover= net revenues÷ accounts receivables | |||||||
| Accounts receivables turnover in 2017= 1496100000/882600000 | |||||||
| Accounts receivables turnover= 1.70 | |||||||
| Accounts receivables turnover in 2016= 1347200000/ 614100000 | |||||||
| Accounts receivables turnover= 2.19 | |||||||
| Bank of America | ||||||||
| Accounts Receivables Turnover | ||||||||
| Accounts receivables turnover= net revenues÷ accounts receivables | ||||||||
| Accounts receivables turnover of Bank of America in 2017= 87352000000/ 157434000000 | ||||||||
| Accounts receivables turnover= 0.55 | ||||||||
| Accounts receivables turnover of Bank of America in 2016 = 83701000000/ 147738000000 | ||||||||
| Accounts receivables turnover= 0.57 | ||||||||
| People’s United Bank | |||||||||
| Days Sales In Accounts Receivables | |||||||||
| Days sales in accounts receivables= accounts receivables÷(net revenue/365) | |||||||||
| Days sales in accounts receivables for People’s United Bank in 2017= 882600000÷(1496100000/365) | |||||||||
|
215.33 |
|||||||||
| Days sales in accounts receivables for People’s United Bank in 2016= 614100000÷(1347200000/365) | |||||||||
|
166.38 |
|||||||||
| Bank of America | |||||||||
| Days Sales In Accounts Receivables | |||||||||
| Days sales in accounts receivables= accounts receivables ÷ (net revenue/365) | |||||||||
| Days sales in accounts receivables for Bank of America in 2017= 157434000000/(87352000000÷365) | |||||||||
| Days sales in accounts receivables in 2017= 657.84 | |||||||||
| Days sales in accounts receivables for Bank of America in 2016= 147738000000/(83701000000÷365) | |||||||||
| days sales in accounts receivables in 2016= 644.25 | |||||||||
| People’s United Bank | |||||||
| Inventory Turnover | |||||||
| Inventory turnover= cost of goods sold÷ average inventory | |||||||
| Inventory turnover for People’s United Bank in 2017= 33056000000/1496100000 | |||||||
| Inventory turnover=22.09 | |||||||
| Inventory turnover for 2016= 29861000000/1347200000 | |||||||
| Inventory turnover=22.17 | |||||||
| Bank of America | |||||||
| Inventory Turnover | |||||||
| Inventory turnover= cost of goods sold÷ average inventory | |||||||
| Inventory turnover for Bank of America in 2017= 646930000000/87352000000 | |||||||
| Inventory turnover=7.4 | |||||||
| Inventory turnover for 2016=592417000000/83701000000 | |||||||
| Inventory turnover=7.1 | |||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank of America | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Working Capital | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Working capital= current assets-current liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Working capital for Bank of America in 2017= 157434000000-1600263000000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Working capital= (1442829000000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Working capital for Bank of America in 2016= 147738000000-1784395000000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Working capital= (1636657000000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Profitability Ratios |
|||||||
| People’s United Bank | |||||||
| Operating Margin | |||||||
| Operating margin= operating income÷ net revenue×100 | |||||||
| Operating margin for People’s United Bank in 2017= 1143200000/1496100000×100 | |||||||
| Operating margin=76.4% | |||||||
| Operating margin for People’s United Bank in 2016= 1004500000/1347200000×100 | |||||||
| Operating margin= 74.6% | |||||||
| Bank of America | |||||||
| Operating Margin | |||||||
| Operating margin= operating income÷ net revenue×100 | |||||||
| Operating margin for Bank of America in 2017= 44667000000/87352000000×100 | |||||||
| Operating margin= 51.1% | |||||||
| Operating margin for Bank of America in 2016=41096000000/83701000000×100 | |||||||
| Operating margin=49.1% | |||||||
| People’s United Bank | ||||||
| Contribution Margin | ||||||
| Contribution margin ratio= contribution margin÷ net revenue×100 | ||||||
| ratio in 2017= 32126300000/1496100000×100 | ||||||
| ratio in 2017= 21.5 | ||||||
| ratio in 2016= 28996900000/1347200000×100 | ||||||
| ratio in 2016=21.5% | ||||||
| Bank of America | ||||||
| Contribution Margin | ||||||
| Contribution margin ratio= contribution margin÷ net revenue×100 | ||||||
| Contribution margin ratio= 634930000000/87352000000×100 | ||||||
| ratio in 2017= 7.3 | ||||||
| ratio in 2016= 580417000000/83701000000×100 | ||||||
| ratio=6.9 | ||||||
| People’s United Bank | |||||||
| Return on Equity | |||||||
| Return on equity= net income÷ common equity×100 | |||||||
| Return on equity for People’s United Bank in 2017= 337200000/5065600000×100 | |||||||
| ROE= 6.7% | |||||||
| Return on equity for People’s United Bank in 2016= 281000000/5065600000×100 | |||||||
| ROE=5.5% | |||||||
| Return on equity for People’s United Bank in 2015= 260100000/5065600000×100 | |||||||
| ROE= 5.1% | |||||||
| Bank of America | |||||||
| Return On Equity | |||||||
| Return on equity= net income÷ common equity×100 | |||||||
| Return on equity for Bank of America in 2017= 18232000000/239288000000×100 | |||||||
| ROE=7.6% | |||||||
| Return on Equity for Bank of America in 2016= 17822000000/239288000000×100 | |||||||
| ROE= 7.4% | |||||||
| Return on equity for Bank of America in 2015= 15910000000/239288000000×100 | |||||||
| ROE=6.6% | |||||||
| People’s United Bank | ||||||||
| Return On Total Assets | ||||||||
| Return on total assets= net income÷ total assets×100 | ||||||||
| Return on total assets for People's Bank Limited in 2017=337200000/41336700000×100 | ||||||||
| Return on total assets=0.82% | ||||||||
| Return on total assets in 2016=281000000/41336700000×100 | ||||||||
| Return on total assets=0.68% | ||||||||
| Return on total assets in 2015=260100000/41336700000×100 | ||||||||
| Return on total assets=0.63% | ||||||||
| Bank of America | ||||||||
| Return On Total Assets | ||||||||
| Return on total assets=net income÷ total assets×100 | ||||||||
| Return on total assets for Bank of America in 2017= 18232000000/2206462300000×100 | ||||||||
| Return on total assets=0.83% | ||||||||
| Return on total assets in 2016= 17822000000/2206462300000×100 | ||||||||
| Return on total assets=0.81% | ||||||||
| Return on total assets in 2015= 15910000000/2206462300000×100 | ||||||||
| Return on total assets=0.72% | ||||||||
| People’s United Bank | ||||||||
| Return On Fixed Assets | ||||||||
| Return on fixed assets=net income÷ net property and plant equipment×100 | ||||||||
| Return on fixed assets for People’s United Bank in 2017=337200000/40454100000×100 | ||||||||
| Return on fixed assets= 0.83% | ||||||||
| Return on fixed assets in 2016= 281000000/40722600000×100 | ||||||||
| Return on fixed assets=0.69% | ||||||||
| Bank of America | ||||||||
| Return On Fixed Assets | ||||||||
| Return on fixed assets= net income÷ net property and plant equipment×100 | ||||||||
| Return on fixed assets for Bank of America in 2017= 18232000000/2049028300000×100 | ||||||||
| Return on fixed assets=0.89% | ||||||||
| Return on fixed assets in 2016=17822000000/2058724300000×100 | ||||||||
| Return on fixed assets=0.87% | ||||||||
Market Value Ratios |
||||||
| People’s United Bank | ||||||
| Price/Earnings | ||||||
| Price/Earnings= market price per share/ earnings per share(EPS) | ||||||
| Price/Earnings in People’s United Bank in 2017=16.40/0.97 | ||||||
| Price/Earnings= 16.91 | ||||||
| Price/Earnings in 2016= 15.85/0.92 | ||||||
| Price/Earnings= 17.23 | ||||||
| Bank of America | ||||||
| Price/Earnings | ||||||
| Price/Earnings=market price per share/earnings per share(EPS) | ||||||
| Price/Earnings in Bank of America in 2017=23.80/1.63 | ||||||
| Price/Earnings=14.60 | ||||||
| Price/Earnings in 2016= 23.97/1.57 | ||||||
| Price/Earnings=15.27 | ||||||
