Interview Question - Levered DCF to value bank??
Hey guys,
Ok so i know the best way to value a bank is to use the multiples P/E and P/BV as they are capital structure specific and include interest. As interest is main revenue generator for a bank this needs to be included.
Now I know you are not supposed to use an unlevered DCF as unlevered free cash flows are calculated pre-interest and are capital structure neutral.
How about a levered DCF though? Are you able to value a bank this way? A levered DCF would mean that interest has been taken into account and it is capital structure specific.
Why would you not use a levered DCF then to value a bank? Could someone please let me know.. thanks guys
Banks use debt for more things than just financing. The debt is used to generate cashflows which makes it more complicated.
That's all I (think) I know about this. Sorry.
to be honest, not really sure about the levered free cash flows...the DCF I built used dividends as the cash flows for the projection period, and Price/Tangible Book Value and Price/Forward Earnings to calculate the terminal value using the exit multiple way. I did an internship at a boutique focusing on FIG/Banks btw.
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