Edward Jones Investments Industry Report

Transcription

1 2010 Edward Jones Investments Industry Report Carson Kuehne, Jessica Olson, Craig Stratton Accounting 180 3/23/2010

2 Edward Jones Investments Industry Report Carson Kuehne Jessica Olson Craig Stratton

3 Table of Contents The Team Page One 2009 Analysis Page Two Our Choice Page One Edward Jones Background Page One 2008 Analysis Page Two 2007 Analysis Page Three Trenda Analysis Page Three Weathering the Recession Page Five Looking Forward Page Five Financial Statements Appendix Conclusion Page Six

4 P a g e O n e P a g e O n e The Team We are the bits and pieces leftover after all the other teams were assembled. While all other teams have a fairly coherent central career or major focus, our team comes from all different backgrounds. From uncertainty, to an English Major, and finishing with one who already has a job in the financial world upon graduation. While we are the smallest team, we manage to get by and do well in the end. Our Choice Since our team doesn't have a central focus, there is no one obvious company for us to study. However, since Craig will soon be working for Edward Jones, it seemed like Edward Jones was a natural choice. Further, Craig already had many materials that would prove useful to the preparing of this industry report. Edward Jones Background While Edward Jones has been around as an investment company since 1922, it is only since 1995 that it has carried its abridged name "Edward Jones". Edward Jones is headquarted out of Missouri, but has branched out to over 12,000 locations, mainly serving individual investors and small business owners in the United States and Canada. J.D. Power and Associates has designated Edward Jones with "Highest in Investor Satisfaction" in 2002, 2005, 2006, 2007, and Fortune magazine has named Edward Jones as one of the "Best Companies to Work for in America" eleven years straight; this year taking 2nd place overall, and 1st among large companies.

5 P a g e T w o Analysis for 2009 We will start by looking at the most recent financial statement we were able to get our hands on, the June 2009 statement. The use of different ratio's will help us determine the company's health. All numbers on the financial statements are in thousands. When doing calculation we left numbers in their abridged form, as it wouldn't have an effect on any ratio. The Acid Test: Edward Jones is a heavily regulated company, and therefore there are some things going on in their financial statements that in class study has not familiarized us to, such as cash segregated under federal regulations. Therefore, we will provide two separate numbers in this test, one with those assets that may or may not be fast assets, and then those assets that are solely labeled as cash and cash equivalents. We get back a debt to asset ratio of.6 when we leave out those assets that have been separated under government regulation. For some industries, this might be an acceptable number, but for a company whose product being moved around is money or stocks, this we suspect would be a fairly low number. If we however take in those assets that have been set apart, the number doubles to 1.2. This is a much more believable number, when we realize that a company like this should probably have a lot of cash on hand, and very little debt. Information for the year 2009 remains very limited, but we will cover 2009 in greater depth as we look at trends in our horizontal analysis later in this report. Analysis For 2008 Financial reports on the year 2008 seem to be most readily available. We will be looking at statements ending in December The Acid Test: Again, we will produce two separate numbers here, as this will be useful for comparing to our 2009 numbers. Again, numbers when calculated were left in their condensed form. What we end up with is.51, and 1.2. While Edward Jones' assets remained nearly the same from 2008 to 2009, liabilities shot up. That would explain the lower ratio of.51, but more

6 P a g e T h r e e interestingly is that the latter 1.2 is nearly identical to that found in This tells us that in 2008, more of Edward Jones's assets were segregated under federal and other regulations. When added in, the company actually had greater assets in This, however, could be explained with how Edward Jones moves around money during their year. It would be ideal to have a 2009 statement ending in December, or a 2008 statement ending in June, to see if that may be the cause for the different positioning of the their assets, but none were found. Analysis For 2007 Unfortunately, after making a good faith attempt, we were unable to find any financial statement from the year With most companies, even without a financial statement for a given year, we could at the least look at what their stock was doing to get a fair indication of the health of the company, but since Edward Jones is not a publicly traded company, we can't even do that. We will, however, get some indication of what was going on in 2007 as we look at trends over several years in the next section. Trend Analysis (Horizontal) Most of the information in this section will focus on years 2008 and earlier. However, we were able to find a Statement of Changes in Net Assets from 2008, to 2009 which is of interest to look at. It is interesting to see the change in Net Assets here. At the start of 2008, or the end of 2007, Edward Jones was sitting at 16+ billion in assets. During a time that was incredibly rough on stocks, the company was able to increase their assets by around 5 billion, but did slide back a half step of 3 billion by the end of the 2009 period.

7 P a g e F o u r Next it is of interest to look at long term trends. While the following two graphs spanning 17 years do not give great detail, they do show interesting trends in key areas of Edward Jones' financial statements. From 92' through 04' there was a steady increase in Assets and liabilities. Liabilities closely shadowed Assets. While capital slowly grew, it was a near insignificant number when compared to total assets and liabilities. In 05' there was drop for the first time in both Assets and Liabilities after the peak in 04', but capital actually continued to increase, slightly as it may have been. Then in 06' the well established trends were just turned upside down nearly. Suddenly, liabilities make up only a small piece of the pie, and now capital took the place of Liabilities in shadowing closely Assets. We are unsure as to what caused this change in trend. Since this is an investment company, there are several plausible explanations. The company seems to have shrunk as a whole, perhaps selling off or closing many branches (unlikely due to a statement in the next section). If they were able to do that without losing customers, then that would allow them to reduce both liabilities and assets while keeping capital up. Perhaps, more likely, nothing physically changed, but rather how they hold assets, and liabilities changed. While how this would be possible

8 P a g e F i v e extends beyond our learning, if possible at all, since Edward Jones does not have factories, materials, and other assets and liabilities that most traditional companies have, it is not beyond reason to entertain that such a change in practice alone could have this drastic effect. Weathering the Recession Edward Jones has proven its self through the years to be a very reliable company to have one's money with. They, for example, were able to fair very well with their stocks during the.com bust by entirely avoiding that investment opportunity. While Edward Jones is not immune to the slow economy, they are in an interesting, and in a way, safe position. Their product is the handling of people's money and investing it in stocks. As long as there are enough customers wanting their money invested in stocks, and Edward Jones keeps making good choices on where to invest that money, then they will exist as a company. The danger is that in a bear market it is harder to pick the winning stocks, and investment becomes more risky. While the more risky stocks may have the biggest payoff, Edward Jones historically has avoided such stocks. If Edward Jones is unable to consistently provided a satisfying return on people s money, then customers may look to take their investment money elsewhere. So Edward Jones is in an interesting position, but is well positioned to weather the bad economy. Thus far, according to Fortune, The investment adviser weathered the recession without closing one of its 12,615 offices or laying off a single employee. Salaries were frozen, but profit sharing continued. During a recession where many, if not most, of the largest employers in America had to lay off large numbers, and close down many locations, this statement is an impressive indicator of a company s ability to weather a recession. A company has to be in a good position to be able to accomplish what Edward Jones has managed to do. Looking Forward Really the best way of looking forward is looking to the past. When we look at a company that is successful now and is likely to be successful in the future, we look at what we are hearing about the company in the news, what the company is known for, and how competent the people are who are running the company. This all shoots back to the snippets of praise

9 P a g e S i x referenced earlier when covering some background on Edward Jones. All the information we have places Edward Jones in the top for employee satisfaction, and customer(investor) satisfaction. Happy employees are vital to the success of a company, and for many years straight, Edward Jones has really nailed that area down. As for customers, if they are happy, it is likely due to them being pleased with the service (which means Edward Jones is making them money), and if the customers are making money, then that is a good indication that Edward Jones is making money. Therefore, there is no reason to believe that Edward Jones will be anything short of a successful company for the foreseeable future, provided they continue in the trends they've set. Conclusion Looking back on this Industry Report, we see that perhaps our choice of company was less than ideal, considering how it is not a conventional company in the sense that we have been studying in class. However, it was interesting explore how Edward Jones' financial statements might compare to a more traditional company. The inability to find information we sought was a little frustrating, and very surprising. This perhaps can be accredited to the fact that Edward Jones is not a publicly traded company, and as a result, has less financial information available on it. Most information published on the internet was actually directly from Edward Jones, little was found elsewhere. That all aside, the information we did find and were able to compare did show some fascinating trends that are worth studying further and learning more on what may have caused some of the trends.

10 A p p e n d i x Financial Statements The next several pages are the financial statements we collected and analyzed in the preparation of this report.