Bank Valuation

The Finance of Selling your Institution
By Tom Parliment
July-August 1993

This article runs the math of financial institution valuation calculations.

Forecasting earnings
Forecasting market value
Stockholder alternative return analysis

The Power of Leverage – For Managing Earnings

Tom Parliment
March-April 1994

Tom Parliment looks at the effect of leveraging capital on an institution's ROA and ROE. In times of declining ROAs his thesis advocates the use of leverage to hold up the ROE for Tom's bank and your own institution.

Relationship between ROE, ROA, and Leverage.
Effect of leverage on a case institution's financial performance.

Over-Capitalized? Struggling With A Low ROE?

By Tom Parliment
May-June 1994

Tom Parliment extends his leverage discussion. He advocates using leverage to gradually increase earnings per share, resulting in a growth of an institution's stock price.

Tradeoffs in improving ROE
- Raising ROA
- Focus on gradual increases in EPS.
- Focus on retail leverage.
- Supplement with wholesale leverage.

The Math of Calculating Stockholder ROI

By Tom Farin
July-August 1994

This article extends on the Fort Knox case article by explaining the math used in calculating stockholder ROI.

Calculating EPS
Calculating price from EPS
Calculating TRR from stock price appreciation and dividends.

Reconciling Financial Goals - The Goal Tree

By Tom Farin
September-October 1994

This is the third of a three part series written by Tom Farin that uses a tree diagram to explain key ratios that drive an institution's financial performance. This article looks at the relationship between growth rate, earnings, dividends, and the capital/asset ratio.

Setting capital goals.
Setting growth goals.
Setting profitability goals.
Establishing dividend targets.
Reconciling financial goals.
Determining external capital financing needs (ECFN).
- Dealing with positive ECFNs
- Dealing with negative ECFNs.

Managing The Value of Your Bank

By Tom Parliment
January-February 1996

In this article, Tom Parliment lays out the math for determining whether stockholders should retain bank stock (Hold) or sell bank stock (fold). Both valuation theory and assessing issues that will affect future values are discussed.

Keys to valuing a bank
- Project earnings.
- Reviewing generic market valuation data.
- Estimating trading value.
- Estimating acquisition value.
- Calculating alternative rates of return.
- Deciding whether to 'hold' or 'fold'.