RBC Analysis Essay

Executive Summary In todays motiveing foodstuff place, it is essential to know how to make advantageously investments. The following is an in depth qualitative and quantitative analysis of the Royal Bank of Canada. First, erythrocyte and its subsidiaries will be introduced including information about its history and on-line(prenominal) situation. The qualitative analysis will consist of RBCs general information, history, business segments, and corporate social duty. Secondly, ratios and new(prenominal) quantitative information pertaining to RBCs investment situation will be analyzed.Fin solelyy, with respect to the qualitative and quantitative data, an investment recommendation will be made Investment Criteria A phoners ethics and proper management argon just as classical for their success as their financial data. In order to decide whether or not to invest in a company one must research the company inside and out starting with where the company has come from all the way to their current situation. A companys history is of the utmost importance because it reveals management trends and past ethical decision making that could reoccur.Another important aspect of a companys history is their international expansion and the companies they have done past business with. The industries companies choose to merge with are a good indicator of where they will invest their money in the future. More specific to the banking industry, sustainability has become one of the most important criteria for investment. Especially after the financial collapse of 2008, banks with strong sustainability stood out and gained ground on the high-risk high reward banks.From a quantitative perspective, data trends outhouse help predict if a company is on a small skid or headed toward future collapse. Ratios can help determine how quickly a company can wage back their liabilities as well as how efficient they are being with their divideholders money. A companys stock may feeler or fa ll depending on their current situation and how the market is fairing overall. The amount of assets and acquisitions a company makes can lead a potential investor to believe they are expanding. Usually good financial data investment criteria are a current ratio 21 and an ROA 5%.Company Introduction The Royal Bank of Canada is Canadas largest bank by assets and market capitalization. The bank has offices in Canada, United States and 49 other countries. Currently, there are 80,000 full and part time employees at RBC with close to 15 million clients worldwide. The company has a good balance between retail and wholesale banking with over two-thirds of their revenue coming from Canada. The other main(prenominal) geographical markets admit U. S. (16%), while all other revenue is distributed internationally (17%). (See Appendix A) Qualitative AnalysisHistory The history of a company, industry it is chip in in, and prior success are some of the main factors when considering investing in a company. RBC has been a leading Canadian bank since June 22, 1864 when it was incorporated as the Merchants Bank of Halifax. Its name was changed to The Royal Bank of Canada in 1901. Twenty-four year later it merged with the Union Bank of Canada on the basis of 1 share of Royal Bank stock for two shares of Union Bank stock. Since then, RBC has taken advantage of many international joint ventures and foreign acquisitions.Most notably in Cuba, Britain, and West Germany. Post-1980, the bank created joint ventures in China with China worldwide Trust & Investment Corp. and began acquiring financial companies in North America. every(prenominal) of the sudden, RBC found themselves competing with large new international banks. During this time, the bank also made a larger commitment to their corporate social responsibility as their charitable donations reached 25. 5 million in 1999. Most recently, RBC has been striving to become a more broad-based financial services group rather than a traditional commercial bank.Although RBC wanted to keep with its main goal of being the 1 banker in Canada, they also wanted to build a stronger overall North American identity. Technology based products took the lead in the banks new American market strategy. In going along with this strategy, RBC acquired the worlds first Internet bank in order to take advantage of e-banking services. Finally, the bank has developed a new globose brand strategy in response to their growing North American presence, which requires the RBC financial group banner to each business platform and run subsidiary. Business SegmentsThe Royal Bank of Canada has quint main business segments. The largest of these segments is their personal and commercial banking segment, which makes up 56% of their earnings. RBC was named the largest and most profitable retail banking in Canada as well as the 2nd largest bank by assets in English Caribbean (Corporate Profile). The bank provides cross-border banking for Canad ian clients and U. S. wealth management clients. Their molybdenum largest business segment is their capital markets sector. Their capital markets department deals with corporate and investment banking, equity and debt distribution as well as trading.This segment is recognized as the 10th largest global investment bank by net revenue and was also named the best investment bank in Canada across equity, debt, and M&A five days in a row (Corporate Profile). The third business segment of RBC, which makes up 11% of their earnings, is their wealth management division. Investment, trust, credit, and other wealth management and asset management solutions are all included in wealth management. The division was named top six global wealth mangers by assets as well as ranked 1 in Canada in both retail and asset management (Corporate Profile).Finally, their insurance and investor & exchequer services make up the subsist 11% of the banks total earnings. The insurance segment deals with life, h ealth, home, auto, travel, and wealth accumulation solutions. Achievements of the insurance segment include receiving high marks for Likelihood to Recommend and Ease of Doing Business (Corporate Profile). Their investor & treasury services provide global custody, fund administration, and asset operate to institutional investors. (See Appendix B) SWOT Analysis Strengths Leading Market PositionRBC is Canadas largest bank measured by assets and market capitalization. Leading market position in Canada enables the bank to gain economic economies of scale. Significant Presence in the US and UK RBC is the sixth largest full-service brokerage firm in the US and operates in a network of 42 states. In the UK, RBC is considered a Gilt-edged market maker and actively trades in either conventional or index-linked gilts (Welcome to ALADIN). Strong Balance Sheet RBC has a strong capital ratio and common ratio that are much greater than those inevitable under Canadian standards.Also, the banks op erating leverage declined between the years 2008 and 2010 showing potential from raising new capital (Welcome to ALADIN). Weaknesses summation Quality Deterioration RBCs asset quality has been deteriorating since 2007. More specifically their gross impaired loans to total loans and acceptances ratio has grown between the years 2008 to 2010. Growth and profitability concerns at US operations Although RBC realized an overall growth in revenue in 2009, they also experienced a loss of net income. The US is RBCs second largest market and can deeply impact the companies overall growth as a whole.Opportunities International Expansion RBC has a rich history of international acquisitions over the past 30 years. Continuing with this aggressive strategy paves the way potential increases in revenue and profit expansion. Canadas Promising Economic Prospects Canadian GDP has shown positive growth within the past two years. Attributing to this growth has been an increasing demand for commodities and improving global financial market conditions. Threats Increasing Interest Rates As Canadian interest rates rise, so does the potential for a minify in demand for financial services.High Taxation Banks in Canada are taxed at a much higher rate than other countries. In auxiliary to Canadas high taxation, the bank also faces high tax rates in the US its second largest market (Welcome to ALADIN). Corporate societal Responsibility RBC has a clearly defined familiarity and sustainability mission as they have been contributing to building a better future since 1864. fury is put mainly on investing in the future by delivering quality products, protecting the environment, and sustaining a productive workplace.In respect to the community, RBC invests millions of dollars in health, sports, and the arts. More specifically they created RBC Play Hockey, which provides hockey gear to under privileged children. RBC believes that the game of hockey can bring a community together and provide a fun, competitive atmosphere among kids. Twenty grants, each of which was $25,000, will be awarded across North America (Corporate Profile). In respect to the environment, climate change, biodiversity, and irrigate are weighed heavily upon. The RBC BlueWater Project helps educate people about the importance of preserving clean water in order to have enough fresh water for the future. The main component of the program is a ten-year, $50 million donations program, which supports not-for-profit organizations that protect watersheds and ensure approach shot to clean drinking water (Corporate Profile). In RBCs workplace is built upon the notion of shared values, and a sense of responsibility toward others. They look to provide a safe and flexible working environment with career growth opportunities.Also, the bank provides short and long term savings and wealth accumulation programs for their employees. Quantitative Analysis (See Appendix C) Balance Sheet RBC has realized a 14% increa se in assets over the last tierce years. This growth in assets is an indicator for an increase in stock returns. However, many times a growth in assets leads to sluggish returns as too many assets weigh down the bank (Welcome to ALADIN). Basic accounting procedures require all financial information on the balance sheet to even out. thereof since RBCs assets grew by 14%, so did they liabilities and shareholders equity.This increase in the banks liabilities can be attributed to inventory being purchased, issuing bonds collectable at a discount, retirement costs for current employees etc. Paid-in capital, the years net profits, or a new share offering can increase shareholders equity. Shareholders equity is especially important for banks such as RBC because of the amount of capital they are apt(p) to invest. Cash Flow Net investments cash ply represents the gain or loss in cash flow from investments made in the financial market and operating subsidiaries.In 2009, RBC had a positiv e cash flow indicating they were not investing heavily at the time. However, in the next two years, extensive investments were made which made their net investments cash flow to go far below zero. Having a negative overall cash flow is not necessarily a bad thing, but instead may be a result of heavy investments. Nevertheless, RBC has maintained sustainability and kept their overall cash flow positive despite their large investments. Income Statement/Retained Earnings RBCs total revenue has decreased by 5% over the last collar years.However looking deeper will reveal a huge increase in the companys revenue over the past five years. In 2007 and 2008 the total revenue was $22,462 and $21,582 respectively (Welcome to ALADIN). This data revels an overall increase in revenue of 22% between 2007 and 2011, which any company would be proud of. In addition, RBC shows their continued effort toward sustainability as their retained earnings increased by almost 20% in the past three years (We lcome to ALADIN). In effect, this increase shows that a healthy profit exists even after dividends are given out to the shareholders.