Bank analysis paper-Economics Essay Example | Topics and Well Written Essays - 1250 words

Bank analysis paper-Economics - Essay Example The second part is done in order to get an idea about the safety and soundness of Citibank Las Vegas branch from a depositor’s perspective. There are a number of ways to examine the profitability of a bank; for example, for measuring the after-tax rates of return, ROA (the return on assets) and ROC (the return on capital), are extensively utilized for testing the performance of banks. The analysts and regulators of the bank use these measures in order to assess the performance of other players in the industry as well as to forecast trends in market structure. This helps them to gather data to predict bank failures and mergers, and also to come up with a strategy that serves the interests of their bank well. Return on assets (ROA) of a firm is an indicator of how profitable the firm is relative to its total assets, and is calculated by dividing the net income of the firm by its total assets. ROA gives us an idea about how efficient the management of the firm is at generating earnings by using its assets. A higher ROA percentage is considered better as this means that the same level of investment is yielding more earnings for the firm. Citibank’s net income in the year 2009 was $107,923,000,000, and its total assets were worth $1,161,361,000,000. This results in a ROA of 9.3% for the year 2009 which is considerably higher than the ROA recorded in 2008 (74,767Mn/1,227,040Mn = 6.1%). This suggests that there has been a rise in Citibank’s ability to earn with lesser amounts of input i.e. the profitability of Citibank has increased. Return on Capital (ROC), on the other hand, is a measure of how efficiently a firm uses the money that has being invested in its processes. It is being measured by the division of net income and the total capital. ROC should always be greater than the rate at which the firm borrows money. This is to ensure that an