Public Bank Valuation

Abstract

Through delving into the efficient market hypothesis, it is evident that the practice of corporate valuation is practicable in determining the fundamental intrinsic value of an investment. Focusing on the analysis of a publicly traded banking institution, it is clear that both Relative valuation and Discounted Cash Flow valuation models are the most applicable. These valuation techniques are first discussed with regard to the public banking sector as a whole and then applied to a specific publicly traded bank holding company: Sterling Financial Corporation. The use of valuation models provides investors with the ability to make informed investment decisions grounded in the fundamentals of the company. In addition, the practice of valuation allows investors to potentially earn excess returns and maximize their return on investment. Due to the role of banks and financial institutions in the financial crisis that began in late-2007, an examination of these entities is both timely and relevant.