Valuation of Banking Sector

This chapter examines in particular the valuation of banks which can be classified into five parts. It introduces several valuation approaches to find out whether there is a superior method. This chapter starts with a description of bank regulations and their impact on bank valuations and continues with an overview of valuation approaches. The second part applies the banking sector decision Models. The third section shows banking sector valuation models. The fourth part presents the input factors that are needed to value a company. In the last part, financial statements have been used to analyze the main ratios of the Bank of America, and the calculated values were then compared over time (2014-2018) to assess the explanatory power of the bank.

Valuation Challenges in Stranded Asset Scenarios

This chapter investigates the challenges faced by sell-side analysts in engaging with companies with material stranded assets through the lens of Becksian risk society theory. The research unravels the usefulness of sustainability reports in deriving the intrinsic value of energy companies in the UK, and whether they take Environmental Social and Governance (ESG) factors into consideration in doing so. Qualitative data were collected via dual methods comprising longitudinal participant observation at IR meetings and interview of sell-side analysts and institutional shareholder. Findings indicate dissatisfaction with the existing risk reporting system is a key factor in divestment decisions and asset stranding. The growing Responsible Investment (RI) awareness notwithstanding, the inadequate risk reporting system continues to represent a major source of agitation amongst shareholders and analysts, making the overhaul of the current financial reporting system inevitable.

Capital and Liquidity Regulations, Resilience, and Bank Value

In the business arena, particularly in the field of corporate finance, the scope of valuation is highly significant. There are several value drivers for a firm. However, due to its nature of business, a bank's valuation is affected by several unique drivers including earnings diversification, risk capabilities, assets mix, and a lot of intangible factors. Since banking is a highly regulated sector, this chapter is designed to address the missing links between Basel capital and liquidity regulations, banking system resilience, and bank valuation.

Estimating the CAPM Beta for Public and Private Firms

This chapter presents solutions to some challenges when calculating CAPM Beta. Three methods for calculating traditional beta are presented and illustrated through the case of Facebook. Different choices of market index, data frequency, and sample size result in different values of beta; however, in all cases beta was greater than one. The chapter explores ordinal beta as an alternative measure to treat outliers in both developed and thin markets. Using a sample of 84 US stocks, there was no statistical difference between median traditional and ordinal betas. This was not the case for a sample of 47 Colombian stocks, which questions the usefulness of traditional beta in thin markets. In contrast with median traditional beta, median ordinal beta did not change significantly as a result of irregular data series. The contrary occurred when the observation (sampling) period was reduced; this leaves open the question of subjectivity when defining such period. Finally, the process of valuing a private company was illustrated through the case of Palmoil Ltd., a Colombian company.

Valuation of Logistics Hubs

Logistics structures playing significant roles in the economic development of countries are irreversible investments. The exact valuation of them could be difficult due to various uncertainties and problems. This chapter illustrates a methodological way to be able to make an investment decision about the creation of a logistics hub in Of-Iyidere region. Under given assumptions, the study findings indicate that (1) the investment has a positive net present value under three different cost of capital rates, which are 7.5%, 10%, and 15%; (2) the internal rate of return is 18.5%; (3) the payback period is 7 years 8 months; and (4) the discounted payback periods are calculated as 10 years 1 month, 11 years 3 months, and 14 years 11 months according to the aforementioned cost of capital rates. Moreover, the chapter discusses basic project valuation challenges and presents solutions to improve the practice of logistics hub appraisal. So, the paper exhibits an essential guidance and policy support tool to highlight the potential of logistics hub infrastructures in Turkey.

Challenges of Stock Prediction

The challenge of the stock price forecast is the most crucial component for companies and equity traders to predict future revenues. A successful and accurate prediction to the future stock prices ultimately results in profit maximisation. This chapter proposes the use of autoregressive integrated moving average (ARIMA) and the artificial neural networks (ANNs) models to predict the future prices of the stock. Using Walmart's stock index, the results show that both ARIMA and the ANNs models provide accurate forecasting performance. However, for short-term forecasting, the performance of ANNs outperformed ARIMA models.

Valuation of Negative Earning Firms

This book mostly concentrates on firms with positive earnings, but this chapter focuses on the negative earnings firms or firms with very low earnings. It is easier to value a positive earning firm than a company with negative earnings. Analyzing negative earning firms has always created problems for researchers and analysts. In case of a negative earning firm, growth rates cannot be predicted or used in the valuation of firms. When current income of the firms is negative, growth rate will make it more negative. Tax computation becomes more complicated and the Going Concern Assumption does not apply properly. Authors start with complications in valuing negative earning firms, discuss the causes of negative earnings, and whether the problem is short-term, long-term, or cyclical in nature. Finally, authors provide the appropriate valuation technique for each case.

The Valuation of a Firm With Alternative Projects

The value of a firm is equal to the value of all projects in its assets. Investment decision is taken based on expected costs, knowledge of techniques, and risk perception; all of which are parameters of firm valuation. The research in this chapter is based on a real company in the household appliance industry. The company has a factory storage in Istanbul, Turkey. Two alterative heating projects (infrared and natural gas) are developed for the storage space according to project characteristics and heating requirements. The initial investments and operating costs are determined by market prices. According to the results, electric infrared heating is most of the time more favorable when the ceiling is high. An investment decision specifically for the factory storage is made. A discussion section on results is also available. Heating and cooling is a strategic industry for European Commission. The research can guide academicians and practitioners in this field.

“Designing Optimal Valuation Model of Bank Stocks”

The growth and diversification of investment and management property have development requirements, so achieving first place economically requires transfer of share of ownership from government to private sector. One of the major requirements of these operations is pricing of shares through stock exchange. The accurate and transparent assessment in assignment of stock value has great importance. So, it has been tried to design optimal model and then determine the bank stock value in public offerings. In this regard, the review of conventional models of stock valuation has been analyzed and the effect of functional variables and balance sheet on the value of bank stocks is investigated. In the statistical stage, the relevant tests have been accepted for 16 banks in Tehran Stock Exchange and Iranian OTC market on a three-year timeframe. The results of research lead to design and specify the optimal model for evaluating of Bank stock.

Startup Valuation

This chapter analyzes startups and methods for valuing them. Startup means a process for activating a job or action. Startup as a young innovative company has a dominant and key role in modern economies. Startups are newborn or young companies struggling to achieve their potential and growth. One of the most challenging issues in corporate finance is to decide on firm valuation. It is even more difficult to evaluate companies that do not generate income. Deciding the value of a Startup is similar to valuing a specific table. The valuation at this stage is very important. Since startup is a company, it is necessary to look at the methods developed specifically for Startups. Nasser (2016) determines 9 different valuation methods to determine Pre-Money Valuation; Berkus Method, Risk Factor Summation Method, Scorecard Valuation Method, Comparable Transactions Method, Book Value Method, Liquidation Value Method, Discounted Cash Flow Method, First Chicago Method, and Venture Capital Method. Traditional valuation methods are also applicable in valuation.