Caja Espana Essay
a) Use the adjustment rates in Exhibit 6 to calculate the profit of the Gradefes and Madrid-Barrio de Salamanca branches, according to the procedure described in the profitability analysis section of the case.
INCOME SHEET Amount Rate Financial Acc.
Interest Revenue 270,000
Interest Charged to Treasury on Checking Account 10,000,000 4.01% 401,000
Interest Charged to Treasury on Term Deposits 15,000,000 2.11% 316,500
Interest Charged on Mortgages to Customers 6,000,000 4.06% 243,600
Interest Charged on Credit Lines to Customers 1,000,000 2.64% 26,400
Total Interest Revenue 987,500 270,000
Interest …show more content…
Another aspect of these differences is the number of clients each branch has, with 1621 clients at the Gradefes branch earned 17,000 in fees in comparison with 513 clients at Madrid-Barrio with 54,000 of revenue from fees.
What can you tell from your response to question 1a? Which one is a better measure of value creation for Caja España? Why?
Clearly, by using the adjustment rate method and using the treasury as a bank for the branch, we can have a better measurement of performance and value creation. As the bank’s operations include not just lending money and selling mortgages and providing lines of credit, also opening checking accounts and term deposits. Each of these operations should be rewarded and valued as part of the value creation component. By using the traditional accounting to measure the performance for each branch in terms of interests revenue and interest expenses paid to customer, our