- asset quality - collateral of lending and sectors lent to
- credit policies - are these good?
- corporate governance - are the BOD people who may pose a problem or embezzle etc?
- market risk - what are the risks inherent in the banks/insurance shareholdings/bonds and maturity risks
- liquidity risks - is the funding base broad based, concentrations in deposits aren't good or few credit lines - since removal of one can affect the entity
- geographic concentrations - good or bad?
- performance - last years performance may not repeat so check what analysts have to say about sustainable side of the business
- what's the market share?
that should be plenty to watch out for.
Valuing is mainly done either by:
1-net present cash flow of expected business going forward - but this has many many estimates and assumptions - especially terminal values and discounting rates
2-using EPS and P/E ratio to calculate a value
3-using CAPM to calculate the value and using efficient frontier to work out whether the share is over prices or underpriced if actively traded
4-fair market value of business after due diligence - often only available to strategic investors.
When valuing financial companies such as banks and insurance companies, it is important to look at price / book ratio in addition to the more commonly used price / earnings ratio.
April 29th, 2008 at 7:27 am
You need to look at several things:
- asset quality - collateral of lending and sectors lent to
- credit policies - are these good?
- corporate governance - are the BOD people who may pose a problem or embezzle etc?
- market risk - what are the risks inherent in the banks/insurance shareholdings/bonds and maturity risks
- liquidity risks - is the funding base broad based, concentrations in deposits aren't good or few credit lines - since removal of one can affect the entity
- geographic concentrations - good or bad?
- performance - last years performance may not repeat so check what analysts have to say about sustainable side of the business
- what's the market share?
that should be plenty to watch out for.
Valuing is mainly done either by:
1-net present cash flow of expected business going forward - but this has many many estimates and assumptions - especially terminal values and discounting rates
2-using EPS and P/E ratio to calculate a value
3-using CAPM to calculate the value and using efficient frontier to work out whether the share is over prices or underpriced if actively traded
4-fair market value of business after due diligence - often only available to strategic investors.
April 29th, 2008 at 7:27 am
When valuing financial companies such as banks and insurance companies, it is important to look at price / book ratio in addition to the more commonly used price / earnings ratio.
April 29th, 2008 at 7:27 am
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