Financial Analysis: American Express Company
Being a global service provider, American Express Company has been in the minds of many financial analysts and investors due to its ability to provide world class service and thereby sustain growth over long periods despite the continuous financial turbulence that has forced many companies to either shut their operations or cut the employment. With the principal business product services of credit payments as well as charge, the company has forged it operations to sustainable levels thereby giving back sufficient dividends to its investors (American Company Express, 2010, pg 79). The focus of this paper will be to establish the operational excellence within the company and the supporting financial capability behind the success of American Express. In this regard, the paper will employ the use of ratio analysis; liquidity ratios, leverage ratios, profitability ratios and efficiency ratios together with stock beta analysis of the company’s stock to provide an affirmative indication of the prevailing financial stability within American Express (Libby, Libby & Short, 2005, pg 143).
Company based financial analysis has been a predominant topic in the contemporary financial markets. Every investor is quick to evaluate and thereby clearly understand the fair and true standing of any company in which he/she intends to invest.
The financial markets as well as the global and technological developments have made it easier for individual investors to access financial information of any entity in the market. Therefore, every company is increasingly becoming articulate in providing financial information to all its stakeholders in order to remain relevant and of financial standing in the face of its clients as well as other outside stakeholders. As much as the management of any company requires financial information to forge their decision-making, the other stakeholders have increasingly become wary of the significance role of the financial information in ensuring the safety of their investments (Dobbs, Huyett, & Koller, 2009, pg 43). In this regard, the paper seeks to compute and evaluate the financial position of American Express. As such, the paper will utilize appropriate ratios, industry wide analysis and the analysis of the performance of the company’s stocks through the use of beta computations. Moreover, the paper will provide an indication of the whether the company is operationally capable of sustaining the reported financial profits as well as the company’s liquidity. Analysis American Express’s liquidity Liquidity 2010 2009 2008 2007 2006 Current Ratio 17.00 3.12 3.17 3.25 3.23 Quick Ratio 12.70 1.93 1.96 2.01 2.01 Interval Measure (Days) 1214 618 501 570 594 The current ratio of American Express was 17.00:1, 3.12:1, 3.17:1, 3.25:1 and 3.23 for the years 2010, 2009, 2008, 2007 and 2006 respectively. The significant movement of the company’s current ratio in the year 2010 from the low of 3.12:1 in the previous year to a high of 17.00:1 clearly indicates the sufficiency in terms of liquidity in the company. This is because current ratio implies that the company operates over a higher margin of safety as is the conventional expectation. According to Pandey (2008, pg 179), for a company to have a satisfactory current ratio, it must attain a two to one (2:1) current ratio. In this regard, the American Express with a current ratio of 17.00:1 presents a higher level of current assets to current liabilities and this indicates the sufficiency of the company’s ability to meet its current obligations. There is no likelihood of liquidity problem in the company if the