Use of Price to book ratio for banks

optiix

anyone know why this ratio is used for banks?

pogo

Yeah, Varundarji, you got it 100% right!

btcapital

Ok so why is this a better measure than looking at earnings ratios i.e. EBITDA or P/CFLO?

ftwcfa

Most assets and liabilities of banks are constantly valued at MARKET VALUES....so they can be easily valued....so the banks book value is very close to its actual value....

Hope this helps

dmar

varundarji, I'm not sure I agree, I don't think all the assets on a banks balance sheet are going to be liquid.

pacmandefense

Price to book multiple is a prefered valuation metric for banks. This is because a bank needs to keep on raising fresh capital for future growth. There is a dilution effect from this. Hence one cannot project a banks earnings to perpetuity (and therfore not give a PE multiple).

Apart from PBV also look at RoE for banks.

~Hopethishelps

~Rajat



Edited 1 time(s). Last edit at Monday, September 7, 2009 at 07:25AM by PropTrader.