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The Ratio Comparison of Wells Fargo and JP Morgan Chase

Updated on October 12, 2016
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The United States of America has always been founded on home-ownership qualities. With tourists pouring in from all over and new homes being constructed, local banks and loan assistance is helping our economy grow and succeed.

Many Americans can recall the “famous” Wells Fargo trademark pictured with a stagecoach pulled by six horses filled with gold. Founded on March 18, 1852 Wells Fargo has been there with Americans during the Great Depression, Wars, as well as the Gold Rush. The stagecoach pictured to be traveling across the American West has symbolized its history for over 160 years being the only banker’s bank in the West. Wells Fargo has definitely earned a reputation of trust over the years due to customer loyalty and attention to detail.

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Despite the New York Stock Exchange’s notoriety, it was not the first stock exchange in the United States. That distinction belongs to the Philadelphia Stock Exchange, which was founded in 1790.

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In 2015, Wells Fargo reported net income growth of 25.3% due to growth in loans and deposits, solid credit quality, and maintained strong capital levels while continuing to return capital to shareholders. Wells Fargo stock is a very enticing investment this year because it yields more than the average stock at the same time that it offers meaningful upside potential. Wells Fargo’s current ratio to measure short-term debt paying ability amounted to 112% as well as JP Morgan Chase. Meaning, both companies succeeded in paying short-term debt and freed up cash flow for more investments. Also, Wells Fargo’s asset turnover ratio to measure how efficiently assets are used to generate sales totaled 51% whereas JP Morgan Chase amounted to 3.97%.

Ratio Analysis
Wells Fargo
JP Morgan Chase
Current Ratio
112.165%
111.766%
Quick or Acid Test Ratio
22.992%
27.236%
Accounts Receivable Turnover Ratio
11.722%
44.004%
Asset Turnover Ratio
50.626%
3.977%
Profit Margin on Sales
2.529%
26.129%
Return on Assets
1.280%
1.039%
Debt to Assets Ratio
89.153%
89.472%
Times Interest Earned
9.364%
5.113%

Wells Fargo had a slightly higher asset turnover to indicate a company is growing into full capacity. Purchases of assets made in anticipation of future growth has immediately effected Wells Fargo’s asset turnover ratio. Wells Fargo also had a slightly higher times interest earned ratio compared to JP Morgan Chase, which measures its ability to pay interest payments as they come due. Wells Fargo’s reported interest earned ratio of 9.36% compared to JP Morgan Chases’ of 5.11% shows that Wells Fargo is far more capable of paying interest payments on time. This is extremely beneficial to a company’s future growth and ability to avoid bankruptcy.

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JP Morgan Chase is labeled as one of the oldest financial institutions in the United States of America. For over 200 years JP Morgan Chase has been a leading global financial service firm with assets of $2.4 trillion. This firm also operates in more than 100 countries and has over 235,000 employees. Dating back to 1799, JP Morgan Chase was first established in New York City and was built on the foundation of more than 1200 predecessor institutions. J.P. Morgan, Chase Manhattan, Chemical, Manufacturers Hanover (in New York City) and Bank One, First Chicago, and National Bank of Detroit (in the Midwest) were all tied closely together in creating JP Morgan Chase Bank. Therefore, helping the firm to become a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management.

In 2015, JP Morgan Chase reported net income growth of 26% due to recent growth in consumer loans, mortgage loans, and excluding credit cards. JP Morgan Chase increased their lending by 23% with lower interest rates resulting in a larger revenue. JP Morgan Chase had an accounts receivable turnover ratio of 44% which measures the liquidity of receivables (how quickly they may be converted into cash) compared to Wells Fargo of 11.727%. Since JP Morgan Chases’ accounts receivable turnover ratio is slightly higher, it means that the firm is effective in extending credit and collecting debts on that credit. Due to an efficient use of assets JP Morgan Chase Bank can make better preparations for other activities.

Also, JP Morgan Chase Bank had a return on assets ratio of 1.04%, which helps measure the overall profitability of a firm’s assets. Compared to Wells Fargo’s return on assets ratio of 1.28%, JP Morgan Chase Bank did not generate as much earnings from invested capital assets. Since these assets are a combination of debt and equity, both are used to fund operations of the firm.

The debts to assets ratio is used for both companies to measure the portion of total assets provided by creditors. JP Morgan Chase Bank as well as Wells Fargo reported the same debt to assets ratio of 89% for the year 2015. Debt servicing payments must be paid regardless of circumstance or else the firm breaches creditor’s contracts as well as being forced into bankruptcy by creditors. After an extensive analysis of both Wells Fargo and JP Morgan Chase the best investment option appears to be Wells Fargo. Wells Fargo has a steady profit margin and assets are continuously being put to the best use to generate sales. Also, Wells Fargo has a far better ability to pay interest payments as they come due compared to JP Morgan Chase Bank.

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