Quick survey - how would you value a bank? I know of someone who wants to value by getting the NPV of the bank’s net income. (Which is totally different from the methodology I know - Justified P/B or Gordon Growth).
Thanks!
Quick survey - how would you value a bank? I know of someone who wants to value by getting the NPV of the bank’s net income. (Which is totally different from the methodology I know - Justified P/B or Gordon Growth).
Thanks!
^ thanks for sharing that. Very useful reading.
The someone you know has the right approach (or at least better than justified P/B and GG). How else are you going to do it (assuming that asset writedowns/windfalls get reflected in bank net income, and that net income is not hopelessly distorted by accounting tricks)?
But figuring out bank net income years into the future is difficult. Justified P/B and Gordon Growth are simply shortcuts to NPV of net income using some not-always-valid assumptions.
The Damodaran article is - as usual - great for getting at the extra details to consider, and which numbers are cleanest to use.
Damodaran is the man!
I don’t know the “correct” answer but a few tings to look at:
These are just things I would look at off the top of my head. I do a lot of bank accounting, so am less comfortable with bank valuation than technical bank accounting.