1. How much leverage does the BOFA have, and how does it compare to its peers?
2. YOUR ANALYSIS OF BOFA: Can you determine what type of business the bank relies upon for its cash flow (what sort of lending or other financial activity does the bank do)? Do the bank’s activities carry any unusual risks? Does the bank’s geographic or business specialization present special challenges or risks? Do you think the bank is sound enough to weather the next recession?
3. Excel Spreadsheet – at least 2 years of data to be obtained from SEC/Edgar and/or FDIC.gov since these are the primary sources for financial data. In other words, don’t necessarily trust Yahoo! Finance or MSN Money. Or, go directly to the source: SEARCH THE BANK’S WEBSITE AND LOOK FOR ANNUAL REPORTS AND DOWNLOAD
Calculate the Financial Institution’s:
a. ROE and ROA
b. Equity Multiplier
c. Profit Margin (net income/total operating income), plus these detailed sub-ratios: interest income/total operating income, provision for loan loss/total operating income, non-interest expense/total operating income, and income taxes/total operating income (for banks)
d. Asset Utilization (total operating income/total assets), plus these sub-ratios: interest income/total assets and non-interest income/total assets (for banks).