Financial Statement Analysis for Bank of America Merrill Lynch

Topics: Subprime mortgage crisis, Collateralized debt obligation, Financial crisis Pages: 11 (4138 words) Published: November 5, 2011
This objective of this report is to analyse and evaluate the financial data of Merrill Lynch through 2006, 2007 and 2008. It also looks at the developments in the financial markets during these years and its impact on Merrill Lynch, a what-if analysis of the possible financial performance that might have existed had the economic downturn not occurred and in the end summary and conclusions based on the findings. Introduction to Merrill Lynch

Merrill Lynch is one of the world’s premier providers of wealth management, securities trading and sales, corporate finance and investment banking services. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York Stock Exchange under the ticker symbol MER. Merrill agreed to a purchase by Bank of America on September 14, 2008, at the height of the 2008 Financial Crisis. It ceased to exist as a separate entity in January 2009. The company was founded on January 6, 1914, when Charles E. Merrill opened his Charles E. Merrill & Co. for business at 7 Wall Street in New York City. A few months later, Merrill's friend, Edmund C. Lynch, joined him, and in 1915 the name was officially changed to Merrill, Lynch & Co In the succeeding years, Merrill Lynch became one of America’s top firms in terms of securities and investment profits as well as brokerage network strength. By 1971, the company went public. We begin by taking a look at the company’s performance for 2006, 2007 and 2008. Performance in 2006

The financial statements, annual report, CEO’s statement and CFO’s report all indicate a very strong performance by the company for the year 2006. In fact the last quarter of 2006 and the entire year of 2006 were reported to be the strongest quarter and year for Merrill Lynch ever with record revenues and earnings. Some of the highlights of the company’s consolidated financial statement for the year 2006 are as follows: * Total Net revenues for the year 2006 were $34.7 billion as against $26 billion in 2005 which indicates an increase of 33%. * Net earnings were $7.5 billion against $5 billion in 2005 and $4.4 billion in 2004 marking an increase of 47% and 69% respectively. * Earnings per diluted share were $7.59.

* Earnings before Income Taxes rose from $7.2 billion to $10.4 billion, a rise of 44.4% * Pre-tax profit margin rose to 30.1%
* Return on Equity is defined as the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. For Merrill Lynch this value increased to 21.3% for the year 2006.(Its calculated as Net Income/Shareholder’s Equity) * Book value per common share increased to $41.35.

* 2006 dividends on common stock increased by 32% from 0.76 to $1.00 per share. Performance in 2007
As per the Balance sheet of the company on Dec 26 2007, the total assets had gone up from $841.3 billion in 2006 to $1020.05 billion in 2007. The important point to note however is that $70.7 billion worth of doubtful account is has been accounted for as ‘Other Receivables’ by the company. Doubtful accounts are receivables that may go uncollected. Thus, even though the Balance sheet shows a rise in the company’s Total Assets from 2006, it did not exactly mean that the company had had better performance as compared to the previous year. Net revenue was down to $11.25 billion, a huge drop of 66.7% from the previous year. Dividends on common share increased from $1.00 per share to $1.40 per share and although this may seemingly look like a good thing, there are many ways in which this figure can be manipulated to show a better picture than the one that actually exists. It’s a well-known fact that the stock markets were going crazy during...
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