The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, Second Edition

Conclusion

The basic principles of valuation apply just as much for financial services firms as they do for other firms. However, a few aspects of financial services firms can affect how they are valued. The first is that debt, for a financial services firm, is difficult to define and measure, making it difficult to estimate firm value or costs of capital. Consequently, it is far easier to value the equity directly in a financial services firm by discounting cash flows to equity at the cost of equity. The second aspect is that capital expenditures and working capital, which are required inputs to estimating cash flows, are often not easily estimated at financial services firms. In fact, much of the reinvestment that occurs at these firms is ...