You've discovered a title that's missing from our library. Can you help donate a copy? When you buy books using these links the Internet Archive may earn a small commission.
Open Library is a project of the Internet Archive , a c 3 non-profit. See more about this book on Archive. This edition doesn't have a description yet.
Can you add one? Previews available in: English. Add another edition? Includes bibliographical references and index. Copy and paste this code into your Wikipedia page. Both valuation models are based on discounting either future cash flows ECF or the periodic residual income RI.
Also, information about the Risk Weighted Assets RWA and Basel Tier 1 capital equity and other capital that provides the most cushion for depositors and creditors are used in order to incorporate some estimates of capital adequacy into the analysis. Then, forecasted financial statements are formed, based on specific assumptions. Thereafter, the future cash flows attributable to shareholders along with the terminal value of the bank are calculated.
In the same manner, the residual income, created each year for shareholders along with the terminal value of the bank, is estimated. Then, through the use of the Capital Asset Pricing Model CAPM for the derivation of cost of equity, the cash flows and the terminal value are discounted and subsequently the equity value for the bank is derived. Also, the residual income and the terminal value are discounted and the sum of these components derives the equity value for the bank.
The main contribution of this tutorial paper is that presents analytically through an example a framework to bank valuation using the ECF and RI model. In addition, the paper explains the concept behind ECF and RI model as the appropriate valuation tools in banking and verifies the equivalence of both models. Moreover, the paper highlights in the conclusion section some important shareholder value determinants.
The paper is structured as follows: Section 2 presents the procedure for the preparation of primary financial statements for valuing purposes along with the assumptions that study hypotheses. Section 3 derives the equity value through the use of the discounted ECF model. Section 4 explains the discounted RI model and the final section concludes the paper.
The below financial accounting statement templates Table 1 : Balance Sheet, Table 2 : Profit and Loss Statement are utilized for the valuation purposes of this paper. Table 1.
Balance sheet template for bank valuation. Table 2. Profit and loss statement template for bank valuation. The projection of the accounting data included in the financial statements, which form the future annual cash flow and the residual income, is a critical task in a bank valuation process Gross, [3]. This is because the bank performance is affected by macroeconomic factors such as interest rate changes, capital markets volatility etc. Brealey and Myers, [4].
This means that apart from the key financial figures, the evolution of these factors should be estimated, thus making even more difficult the quality of the projection. Generally, difficulties in projecting accounting data are presented in the valuation of any business. But especially in the case of banks, the process is more complicated, because banks are affected by macroeconomic factors.
The total forecasted period is divided into two phases: In the first phase the accounting data included on the financial statements are estimated, while in the second phase the terminal value of the bank is calculated. The first phase typically covers a five to ten-year period for industrial companies Rappaport, [5] ; Copeland, Koller and Murrin, [6]. In the case of banks, the average period is five years Damodaran, [7] ; MSDW, [8] ; Dermine, [2] , while there are studies in the literature that utilize a ten-year period Rezaee, [9] ; Koller, Goedhart and Wessels, [1].
Generally, the duration of the observing period must be such in order to incorporate a business cycle and also structural change effects. In this paper the analytical period is eight years and then the terminal value of the bank is estimated.
As it is explained in the introduction, the priority is not to focus on the provision of balance sheet accounts. Applied Mathematics Vol. Francis T. Ngouafong, Roland T. Tchegnitegni, Beaudelaire K. Teponno, Jean P. Advances in Biological Chemistry Vol. Methods Citations.
Results Citations. Citation Type. Has PDF. Publication Type. More Filters. In current financial practice, a variety of both absolute and relative profitability measures are being used which implicitly involve a great contradiction on their very definition: they apply market … Expand.
View 1 excerpt, cites background. Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision … Expand.
Modern institutes of the market form new factors of the global economy. Stock exchanges, other institutes of the investment market, financial Internet communications create the integrated pace of … Expand. It ensures that both buyers acquirers and sellers achieve value for their … Expand.
0コメント