14. Mark to Market: Financial Services Companies
Banks, insurance companies, and other financial services firms pose special challenges for an analyst attempting to value them—for three reasons. The first is that the nature of their businesses makes it difficult to define both debt and reinvestment, making the estimation of cash flows much more difficult. The second reason is that these firms tend to be heavily regulated, and changes in regulatory requirements can have a significant effect on value. The third reason is that the accounting rules that govern bank accounting have historically been very different from the accounting rules for other firms. Assets are marked to market more frequently for financial services firms.
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