Free Essay Sample - Capital One Bank Analysis

Capital One Bank is one of the largest financial institutions in the US today. The institution has continuously been hailed as being one of the best organizations to work with in terms of its policies. It also has assets spreads all over the country, with automated branches in easily accessible locations, making it easier for the customers to access their services at all times. The company was founded less than three decades ago in 1994 and has maintained a constant growth pattern in the time it has been in service to be ranked by financial magazines such as The Financial Times as being the fastest growing bank in the last decade. In addition to the hold on the US market, Capital One bank has acquired assets in other countries including Canada and the United Kingdom. Its financial tentacles have spread and continue to grow after that and increase their revenue to as much as US$28 Billion in the last year alone ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017).

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Capital One Bank's origins are in Richmond in the state of Virginia, where it was started as a brainchild of current CEO, Richard Fairbank and Nigel Morris in 1988. The project had been a cooperation between Signet and Oakstone Financial Corp, which later spun off and was renamed Capital One in 1994. Starting as a monoline credit card issuing company, Capital One saw rapid success in the industry, which saw it transform to a full banking institution in 1996. Following its success in Virginia, the company later expanded its operations to other states within the US including New York, Texas, Maryland, and Columbia among others. To expand their services even further, the company later set up camp in the United Kingdom and Canada as well ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017).

Type of business

The Capital One Financial Corporation is a commercial entity specializing in the banking business. The corporation offers services including credit card, auto loans and other standard saving product services through its branches. Banking services are also provided by the institution, which has a network of over two hundred automated branches in the states it serves to ease the issuing of services to its loyal customers ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017).

The bank offers domestic consumer and business card lending for small enterprises through its Domestic Card business ("How Does Capital One Differentiate Itself In The Card Industry?", 2019). Among the retail banking services provided through its network of branches are deposits and lending for consumers and small businesses. These are done through their Retail Banking plan that is available for customers all over the states. Automobile financing services are offered through both direct and indirect channels. Loans are also extended to homebuyers through the bank's Home Loans plan, except for a mortgage and home equity. Additionally, commercial real estate and industrial customers are catered for through the Commercial Lending plan ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017). This plan targets companies with annual revenues within the range of 10 million and 1 billion, with services ranging from lending, gathering of deposits and management of treasury services.

The principal services offered by the bank are organized in three segments, which are defined by the nature and type of customer served. These are Credit Card, Consumer Banking and the commercial Banking segments ("How Does Capital One Differentiate Itself In The Card Industry?", 2019). Through this approach, it becomes easier to file and manage reports and store records for assessment by the relevant authorities and other interested parties.

Business Strategies

Going by its track record, it is hard to deny that the Capital One Financial Corporation had achieved fairly impressive success in the market since its inception two and a half decades ago. The banking institution, for instance, was recently ranked number eight among the ten largest banks in the United States based on the volume of assets and deposits made annually. Additionally, Fortune 500 magazine placed Capital One group at number 17 in the 2019 list of the top 100 best companies to work with ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017). These achievements are an excellent fit for a company that is barely three decades old, given the high competition level in the financial markets. They are a clear indication that their business strategies are excellent and working well towards the goals of the company. So, what are these business strategies that the Capital One group employs to be such a successful market player?

The answer to this question lies in the company's quest to attain a real change in the banking sector. First of all, the company relies on state of the art Information Technology to allow them to understand the changing financial markets and the ever-evolving customer needs. As such, it employed the best IT experts in the market to enable the company to attain its strategic market goals ("From Analytics First to AI First at Capital One", 2019). The introduction of digital banking by the institution, for instance, was a direct product of this strategy. Secondly, the company has relied on acquisitions throughout its lifetime to broaden its market reach. An example is the acquisition of ING Direct in 2011, which pushed the company's market prospects up in the digital banking sector. Other notable acquisitions include Bankons, Bundle and Sail, all of which were innovative companies with significant successes in their own digital space ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017).

Also, prior to the digital banking age, the company was already well known for its information-based strategy that saw it emerge top among other more established financial organizations in the market. Data and analytics were the main driving forces in the company's goals and strategic plans for the market ("From Analytics First to AI First at Capital One", 2019). As such, the company constituted a dedicated team of officials within its ranks tasked with the responsibility of handling analytics to enable the company to better understand consumer spending trends across the markets it operates. This data-driven approach was a financial innovation that put the company among the best within a short period of existence.

Additionally, Capital One periodically reinvents its operations as a strategy to maintain relevance and operational success in the financial sector. This reinvention includes the modernization of its various institutions and organization culture to meet the changing market demands of the 21st century ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017). Having been among the first companies to embrace digital banking in the turn of the decade, for instance, the company currently has its eyes focused on the Artificial Intelligence(AI) technology to enable expansion in the future of their credit card business. Through staying up to date with the technological advances as they occur, the company continues to outcompete other financial organizations in the market as it gives it an edge on customer information ("How Does Capital One Differentiate Itself In The Card Industry?", 2019).

Product Delivery Systems

Capital One Bank, as a company employs different methods to deliver services to their customers. The most recent focus by the bank, however, is the digital space, where it has put in place extensive service delivery systems for its customers, making it even easier to work with the company ("How Does Capital One Differentiate Itself In The Card Industry?", 2019). In 2013 for instance, the company introduced digital card enrollment and activation for its customers. The move allowed the customers to sort their credit needs and handle their businesses online through their mobile phones without having to visit the bank in physical form. As such, a digital migration was started, at which point customers henceforth could rely on mobile applications to enjoy the bank's services ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017). Through the Capital One mobile application, customers can enjoy virtually all the services offered by the bank including making deposits and withdrawals at their convenience. Mobile payments are also enabled through the app as well as peer to peer transfers which are done through its ClearXchange platform.

In addition to the existing regular branches and Automated Teller Machines, Capital One has increased its foray into the financial markets in recent years through their new cafe styled branches. These branches are instrumental in coordinating online and offline service offering and delivery to their customers through its Capital One 360 online bank ("Doing Business The Digital Way: How Capital One Fundamentally Disrupted the Financial Services Industry", 2017). These cafe-styled branches have been praised for their high level of security and financial intimacy with its customers, providing access to digital tools as well as personalized financial information. Training is also offered in these cafes on matters saving and strategic investment. Such services are rare to find in the financial market and are among the numerous factors that have helped Capital One attain and maintain success in the industry to date ("How Does Capital One Differentiate Itself In The Card Industry?", 2019).

Financial Statement Analysis

Profitability ratios,

Capital One bank, like any other financial corporation, has experienced periods of high and low profitability during its journey in the financial markets. Analysis of the company's profitability ratios reveals that it has grown to 17.51% over the past five years on average against a market average of 19.8%. The Trailing Twelve Months profit margin, however, was 17.51% against an industry average of 19.8% ("Capital One Financial Financial Ratios for Analysis 2005-2019 | COF", 2019).

Debt ratios,

The Capital One Bank company Total debt to equity ratio for the most recent quarter, according to Investing.com, was billed to be 86.11% against an industry average of 190.76%. The long term debt to equity ratio, however, was lower at 85.32% against an industry five year average of 105.04% ("Capital One Financial Financial Ratios for Analysis 2005-2019 | COF", 2019).

Liquidity ratios,

Liquidity ratios for the Capital One bank for the past five years averaged 1.64. This indicates that the company can sufficiently handle its debts and that it is on the right path regarding investment opportunities ("Capital One Financial Financial Ratios for Analysis 2005-2019 | COF", 2019).

Asset turnover ratios,

The asset turnover for the company ranges from 0.05 to 0.06, as seen from the analysis of the past five year records. An exception, however, was the year 2011 when the ratio shot up to almost 0.07 ("Capital One Financial Financial Ratios for Analysis 2005-2019 | COF", 2019).