CIBC Ratio Analysis

CIBC (Canadian Imperial Bank of Commerce) is a leading financial institution in Canada that provides a wide range of banking and financial services to individuals, businesses, and corporations (CIBC, 2022). Established in 1867, CIBC has over 1,000 branches and over 4,000 ATMs across Canada (CIBC, 2022). The bank offers various products and services, such as personal and business banking, mortgages, loans, credit cards, investment solutions, insurance, and wealth management. CIBC is also recognized as a global financial institution with a presence in the United States, Asia, and Europe (CIBC, 2022). The bank strongly focuses on digital innovation and has invested heavily in technology to enhance the customer experience. In recent years, CIBC has been recognized for its commitment to corporate responsibility, sustainability, diversity, and inclusion (CIBC, 2022). The project entails calculating and analyzing ratios for each ratio category to identify the company’s strengths, weaknesses, opportunities, and threats.

Ratio Analysis

Ratio analysis is a financial analysis technique that involves comparing different financial ratios to evaluate a company’s performance and financial health (Graybeal, Cooper & Franklin, 2019). The ratios can be used to assess a company’s liquidity, profitability, efficiency, and overall financial health.

Debt Utilization Ratios

Debt utilization ratios are financial metrics that measure a company’s use of debt relative to their available credit or income (Graybeal, Cooper & Franklin, 2019). They provide a comprehensive picture of the company’s long-term financial health or solvency. CIBC’s debt ratio remained stable at 0.95, which is significantly high, meaning CIBC uses more debt to finance its operations. The ratio means that for every dollar in assets, CIBC has $0.95 in debts in the two years, meaning almost all of its assets are financed by liabilities. The debt/equity ratio decreased slightly from 17.62 in 2020 to 17.28 in 2021. The debt-to-equity ratio is significantly high, meaning CIBC uses significantly more debt in its operations (Weygandt & Kimmel, 2021). Therefore, CIBC is highly leveraged and hence faces more business risks. CIBC uses more debt, which does not guarantee long-term sustainability.

Profitability Ratios

Profitability ratios are financial metrics used to evaluate a company’s ability to generate profits in relation to its sales, assets, and equity (Kimmel et al., 2020). The net profit margin shows an upward trend from 20.23% in 2020 to 32.21% in 2021, which means a rise in revenue generation efficiency. Return on assets measures an entity’s profitability in relation to its total assets (Warren, Reeve & Duchac, 2018). The company’s ROA improved from 0.49% in 2020 to 0.80% in 2021. However, the ratio is significantly low, which shows that CIBC is less effective in using assets to generate a net profit (Weygandt & Kimmel, 2021). Return on equity measures an entity’s profitability in relation to its total shareholders’ equity. The company’s ROE improved from 9.17% in 2020 to 14.79% in 2021. The ratio is relatively high, showing that CIBC is more effective in using equity to generate a net profit.

Net Interest Margin (NIM) is a financial metric used to measure the profitability of a bank or financial institution’s lending activities (Graybeal, Cooper & Franklin, 2019). The NIM decreased from 1.44% in 2020 to 1.37% in 2021. The NIM is low, which indicates that the institution. However, it is positive, which means CIBC is earning more interest income on its assets than it is paying out on its liabilities, which is generally considered a positive indicator of its profitability (Warren, Reeve & Duchac, 2018). NIM is an important metric for banks and other financial institutions because it measures the spread between the interest rates they charge on loans and the interest rates they pay on deposits (Kimmel et al., 2020). The low spread indicates that CIBC is making a relatively low profit on its lending activities and has few funds available to cover its operating expenses and generate earnings for shareholders.

Asset Management Ratios

Asset management ratios are financial ratios that assess a company’s ability to effectively manage its assets to generate revenue and profit (Scott, 2018). They provide insight into how efficiently a company uses its resources to generate sales and profits. Total asset turnover measures how efficiently an organization can use its assets to generate sales (Warren, Reeve & Duchac, 2018). According to the ratio calculations of CIBC, the total asset turnover remained the same at 0.024. The ratio is significantly low, which means the entity’s efficiency in using its assets to generate sales is low across the period. The low ratio means CIBC generated just $0.024 in revenue in 2020 and 2021 for every dollar in assets.

Market Value Ratios

Market value ratios are financial ratios used to evaluate a company’s stock price relative to its earnings, sales, assets, and other financial metrics (Kimmel et al., 2020). These ratios are important for investors and analysts to determine a company’s valuation and its potential for future growth. The P/E ratio compares a company’s stock price to its earnings per share. The ratio is used to determine whether a stock is undervalued or overvalued. A high P/E ratio suggests that the stock is overvalued, while a low P/E ratio indicates that the stock may be undervalued (Warren, Reeve & Duchac, 2018). The company’s P/E ratio slightly decreased from 11.00 in 2020 to 10.27 in 2021. However, the high ratio means CIBC is overvalued relative to its peers or the broader market. The P/E ratio is relatively high, meaning investors have high expectations for a company’s growth prospects. EPS shows the company’s financial performance (Weygandt & Kimmel, 2021). The ratio increased from $8.23 in 2020 to $13.97 in 2022, which implies a rise in the company’s profitability. The market-to-book (P/B) ratio compares a company’s stock price to its book value per share (Weygandt & Kimmel, 2021). The ratio determines a company’s value based on its assets. The company’s M/B ratio slightly increased from 2.24 in 2020 to 3.32 in 2021. The ratio is relatively high, suggesting that the stock may be overvalued.

Strengths and Weaknesses

According to CIBC’s financial ratio analysis, the company has weaknesses, opportunities, threats, and strengths. CIBC has a significantly low asset management ratio meaning it cannot effectively manage its liabilities and use the assets to generate more revenues. However, CIBC is profitable in its operations. For instance, its profitability ratios are relatively high, meaning it generates revenues from its operations. Moreover, the long-term solvency ratios of CIBC remained relatively consistent, meaning the company faces significant business risks in its operations. The market value ratios are positive, meaning that the company has a good past and future performance per the market expectations. The P/E ratio is relatively high, meaning investors have high expectations for a company’s growth prospects.

CIBC is highly leveraged and hence faces more business risks as it uses more debts, which does not guarantee long-term sustainability. The profitability ratios are relatively high, showing that CIBC is more effective in using assets and equity to generate a net profit. However, the spread in NIM is low, indicating that CIBC is making a relatively low profit on its lending activities and has few funds available to cover its operating expenses and generate earnings for shareholders. The asset turnover ratio is significantly low, which means the entity’s efficiency in using its assets to generate sales is low across the period.

References

CIBC. (2022). CIBC 2021 Annual Report. https://www.cibc.com/content/dam/about_cibc/investor_relations/pdfs/quarterly_results/2021/ar-21-en.pdf

Graybeal, M., Cooper, P., & Franklin, D. (2019). Principles of accounting volume 1 – financial accounting. 12TH MEDIA SERVICES.

Kimmel P. D. Weygandt J. J. Kieso D. E. Trenholm B. Irvine W. & Burnley C. D. (2020). Financial accounting: Tools for business decision-making (Eighth Canadian). Toronto, ON, Canada: John Wiley & Sons Canada.

Scott P. (2018). Introduction to financial accounting. Oxford: Oxford University Press.

Warren, C. S, Reeve, J. M., & Duchac, J. E. (2018). Financial and managerial accounting. Boston, MA: Cengage Learning.

Weygandt, J. J., & Kimmel, P. D. (2021). Financial & managerial accounting. Hoboken, NJ: Wiley.