Bank Stock Equity Valuation

CFA Level II Equities
#1

Hello All I have two questions

Using CFA level 2 knowledge, I tried to calculate bank stock intrinsic value.

First, There three kinds of incomes (Net Income, Comprehensive Income, Net Income from continuing operation) on income statement. Does anybody know which income should I take in order to calcualte the intrinsic value?

Second, I think beta can be different depend on calculation periods, market situation (bullish, bearish).

Am I right? If so how can I calculate the correct beta?

Some internet sites shows different betas for same stock.

Thank you

JY

#2

Bank stocks are tricky since most of the assets AND liabilites are financial instruments. There’s really no tangible asset besides PP&E. I don’t touch individual bank stocks so maybe someone else can help you there.

As far as beta, it’s just a correlation of returns between the stock and an index. The reason you see different betas are probably based on what constitutes the market and the time period used. I don’t see how market situation plays into this.

#3

Be careful to proforma “core income” (interest income) from nonrecurring or fee income.

#4

Thank you for the answer.

When we valuate an equity which Net Income do we use among Net Income, Comprehensive Income, and Net Income from continuing operation?

Best Regards

JY

#5

A lot of people actually use Free Cash Flow instead of accounting profit measures. Your question is awfully broad.

#6

to calculate free cash flow we have to use net income.

and in case we valuate bank stock we also have to use Net Income.

so my question is which one should I take among Net Income, Comprehensive Income, and Net Income from continuing operation.

#7

Well, the curriculum tells us to start with the traditional net income figure. Is there any reason why you think the other 2 measures would provide an advantage?