Hi all Can anyone in the Financial Analyst role recommend a good book that details how to value companies by analyzing its financial statements, in very practical terms? I am actually valuing a small bank and would appreciate some tips. Thanks WL
I had a similar problem one month ago. There are tons of sources on valuation. You can check Damodaran. Before buying his books you can visit his site(damodaran.com). There you will find the webcasts of a whole semester of an MBA class on valuation and tons of articles. Financial modeling course providers might be of help as well. However, everything boils down to your knowledge of the specific industry, in this case banking. Personally, as I have meager knowledge of banking, sources on valuation was not enough. I used some example IOCs for a few banks as well.
Most introductory texts will bypass subtleties of modeling financial institutions whose asset values and income streams, not just liabilities, vary with interest rates. For your purposes you might need to e.g. model the behavior of depositors undery varying IR assumptions, or the bank’s policy of changing deposit and lending rates as the yield curve moves around. (Hint: one usually adjusts slower than the other. ) I don’t know of a good text intro to financial institution valuation, would love it if someone could post a good reference.
In general you might find Google Scholar to be your friend for more-than-introductory valuation questions. Here’s something you might find useful: http://www.actuaries.org.uk/files/pdf/sessional/sm20060123.pdf (“The Cost of Capital for Financial Firms”). Starts with a great quote: "Charlie [Munger] and I have not the faintest idea what our cost of capital is and we think the whole concept is fairly crazy, frankly " Warren Buffett, May 2003