Financial stocks

CFA Level II
#1

Why?

thanks

An analyst focusing mostly on financial stocks is likely to prefer valuing stocks via the:

A) price/sales ratio. B) price/book ratio. C) dividend yield.

Your answer: B was correct!

The price/book ratio is a preferred tool for valuing financial stocks.

#2

because financial companies (asset management, insurance, etc) can be valued at a net asset value basis

#3

Still confused . P/BV is good for company with more fixed assets or less ? is it good for company with more intangialbe assets? why?

thanks

#4

Well for financial companies (banks) most of their Book stuff are at market value. Basically most of the stuff on their balance sheet is like held to maturity securities, available for sales and available for trading. The changes in value to these items are usually reflected on the balance sheet and also these assets are the financial industry’s main revenue drivers. There isn’t that much intanigable assets for these banks. The only thing I can think of its brand name and customer list.

#5

So the P/BV is good for the company with market value assets or historical value assets( fixed assets)? why?

thanks

#6

good qn passforcfa… I have seen elsewhere that P/B is a good measure for >>FA or >>PP&E

Now, may be banks have this unique thing so an exception…?

#7

Well book value is historic cost, so it’s usually bad. However since bank usually only have liquid asset most of the stuff on the book are market value. Historical cost is bad since its doesn’t reflect the actual cost of asset, while market value does.

#8

spot on, kys916