The gross profit of Citi group in 2008 was USD 121,429 M. while in 2009, USD 106,655 M. The decrease in gross revenue was attributed to the economic recession that was experienced during the last three years.
Citi group is a financial institution company, deals in intangible assets. Therefore, they manage their inventories by trying to manage the inventory shortages against those of the inventory holding in its inventory goals. In order to achieve these goals, the company has instituted internal control systems in all its company branches around the world. These ICS include proper scrutiny of the creditworthiness of loan applicants. Thus, the risks and costs of loan applicants shall have to balance against the profitability of the business provided by the customer. In addition, new customers to the bank are usually advised to have references that vouch for the creditworthiness of the new customers. Also, the company has implemented inventory software that manages the records of inventory which cannot be manipulated. In addition, the bank has also a credit rating policy that it uses to rate all its corporate and individual clients. Over the years, the company has introduced a new credit limit system which was fixed at low levels and increased as the customer’s credit rating increased and the customers’ record payments called for it (Clark and Buffet 875)
The company uses the pool-pricing inventory costing method. This method is very applicable to the bank since it factors in its internal costs, known as bank inventory cost. All the costs related to the pool are not calculated as individual costs but as related costs to the costs of running the bank. This cost includes administrative and interests costs which are got from the costs of servicing and maintaining the bank. The cost pricing method is also very beneficial to the bank since it uses an ongoing basis approach thereby, it can provide the latest inventory costs to the bank as compared to other costing methods (Plewa 56).
Over the last three years, the inventory costs have been increasing tremendously which has resulted in a decrease in profits and a loss in 2009. In 2008, the company had a profit of $ 3,617 M but in 2009 it was a loss of $ 27,684 M. clearly depicting the increase in inventory costs over the years.
The banks’ cash and cash equivalents decreased significantly from 2008 to 2009. Thereby in 2009, there was a loss in the company. In addition, the company provides sufficient information in its financial statements whereby one can easily determine the proportion of cash to cash equivalents. The cash flow statement shows the cash equivalents that are included in the cash and due from the banks which are, $ (2,948) M.
The company provides for accounts receivable and allowance for doubtful accounts since it is a financial company and there are risks involved such as defaulted loans and thus such occurrences have to be factored in the financial statements. Since the company extends credit facilities to its customers, the accounts receivables account records future payment of goods bought on credit that the company expects from its debtors. The allowance for doubtful accounts records a provision for accounts that the company expects the debtors to default.
Since the company extends credit to its customers, it calculates the receivables turnover ratio for the period to measure the likely hood of debtors’ will to pay their debts such as loans and mortgages that they owe to the bank within a certain period allowed by the bank (Mortimer 146). It shows what the company expects from its debtors within a period. A high ratio is favorable to the company while a low rate is not preferable as it shows that the debtors are likely to default on the amounts owed by the company.
The bank uses the straight-line method to depreciate its assets. A straight-line method is calculated by subtracting the scrap value of the asset from the book value of the asset divided by the number of years the asset is expected to be in use. According to the company’s financial statements, the depreciation figures are equal for the periods 2006 to 2008, and also according to the calculations, it is evident that it depreciates its assets by a given amount over the years.
Total depreciation for the year. $ 2,466 M.
Total assets. $ 123,845 M.
2,466/123,845 *100 = 1.9 %. A percentage of 1.9 shows that the company’s assets have been depreciated over a short period. It implies that the company has acquired new assets or its kind of assets does not have a high depreciation percentage like assets for its other industries. Also, another factor is that majority of its assets are in monetary form and are expected to appreciate in value rather than depreciate.
The company’s intangible assets include core deposit intangibles, the present value of future profits, purchased credit card relationships, other customer relationships, and other intangible assets, but excluding MSRs—are amortized over their expected useful lifetimes. Intangible assets ascertained to have an indistinct useful lifetime, primarily such as an asset management contract and trade name, are not amortized and are subject to an annual impairment test. An impairment asset is present if its present value is an indefinitely-lived intangible asset that is more than the asset’s fair value. For other Intangible assets subject to amortization, impairment is recognized if the carrying amount is not recoverable and exceeds the fair value of the Intangible asset.
Another intangible asset is goodwill. Goodwill is allocated to the reporting units at the date the goodwill is first reported. Once goodwill has been allocated to the reporting units, it generally no longer retains its identification with a particular acquisition, but rather it is recognised with the reporting unit wholly. Thus, all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit.
Reference list
Clark, David, and Buffet, Mary. Search for the Company with a Durable Competitive. New York, NY: Simon & Schuster, 2008. Print.
Mortimer, Battey. Corporation financial statements: Dimensions of Accounting Theory and Practice Series. New York, NY: Ayer Publishing,1980. Print.
Plewa, James. Financial and Business Statements. Hauppauge, NY: Barron Educational Series, 2006. Print.