8 Components of Bank Valuation [INFOGRAPHIC]

Banks are establishments that represent value and worth. Everyone interacts with a bank at some point or another and typically on a frequent basis. While banking is defined as the business of accepting and protecting money owned by individuals and entities in order to lend these funds, earn a profit, and mitigate operating expenses, there are many factors at play that determine how a bank earns, grows, and maintains its value as a business. A bank’s valuation determines its ability to not only meet its obligations as a financial institution but its ability to perform at the highest level.

Some critical aspects that play vital roles in how a bank measures its value range from the quantifiable to the perceived.  Some examples of quantifiable metrics included earnings, asset quality, and capital.  However, other dynamics at play can greatly influence banks that don’t necessarily fit in a spreadsheet.  Some of these include the bank’s image in the community, the corporate culture for employees, and the ability to possess and evolve dominant strategies.  The infographic below, based on GSBSLU class “Managing Bank Performance” taught by Professor Paul Allen, outlines what should be considered when measuring and assessing the valuation of a bank.