Reading matter: Banks valuation, EBITDA multiple and F&O

1) I am currently on a quest to know more about valuing banks (also NBFCs and Housing Finance companies which are almost in a similar line). I have worked for a Bank earlier, and am currently into Banking consulting. But working for a Bank (or in the Banking industry) and valuing a Bank are two different things (although, it does help you in the ‘circle of competence’ part). I will share my learnings as and when I make significant progress. Here are some links that I found quite enlightening –

a) The wonderful Rohit Chauhan has already written quite a lot on valuing Banks. Here are the links from past to present.

Link 1

Link 2

Link 3

Link 4

Link 5

Link 6

Link 7

b) I have found a report on how CARE rates Banks/HFCs/NBFCs, which gives us very good pointers on how to look at valuing these firms. Here are the reports – Report 1 and Report 2.

2) I have been reading a few analyst reports on some companies and it got my gut that some of these analysts quote EBITDA multiples for valuing a company. I would refrain anybody from quoting EBITDA multiples for almost anything. In the words of Warren Buffett, ‘EBITDA multiple? Who do you think will pay for capex? The toothfairy?’ and in words of Charlie Munger (the more straightforward guy of the two), ‘EBITDA earnings are bullshit earnings’. What I usually do, depending on the industry, is take the D&A part and assume it to be maintenance capex. Although not too accurate, it gives a rough picture on how much the company needs to spend to be where it is currently in the marketplace, without spending anything for growth (and I subsequently have a MOS% after valuation, so I hope I am covering my back for the most part after this assumption). Anyway, long story short, if you want to know why EBITDA earnings are bullshit earnings :), it would help immensely if you can go through this writeup.

3) I have this basic idea on Futures and Options, and how they help people get rich/get destroyed. I have never used any of it, but was curious if it could help in my investing strategy. I have a long way to go before I develop certain confidence to add F&O to my investing arsenal. However, I did start reading up on this and no better guide than Deepak Shenoy’s lucid introduction on F&O here.


, , , , , , , , , , , ,

  1. Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: