Why Would You Not Use A Dcf For A Bank Or Other Financial Institution

1.	Why Would You Not Use A Dcf For A Bank Or Other Financial Institution?
Answer» Banks use debt DIFFERENTLY than other companies and do not re-invest it in the business -they use it to create PRODUCTS instead. Also, INTEREST is a critical part of banks' business models and working capital takes up a huge part of their Balance Sheets - so a DCF for a financial INSTITUTION would not make much sense. For financial institutions, it's more common to use a dividend discount model for valuation purposes. Banks use debt differently than other companies and do not re-invest it in the business -they use it to create products instead. Also, interest is a critical part of banks' business models and working capital takes up a huge part of their Balance Sheets - so a DCF for a financial institution would not make much sense. For financial institutions, it's more common to use a dividend discount model for valuation purposes.

Why Would You Not Use A Dcf For A Bank Or Other Financial Institution?

Answer»

Banks use debt DIFFERENTLY than other companies and do not re-invest it in the business -they use it to create PRODUCTS instead. Also, INTEREST is a critical part of banks' business models and working capital takes up a huge part of their Balance Sheets - so a DCF for a financial INSTITUTION would not make much sense. For financial institutions, it's more common to use a dividend discount model for valuation purposes.

Banks use debt differently than other companies and do not re-invest it in the business -they use it to create products instead. Also, interest is a critical part of banks' business models and working capital takes up a huge part of their Balance Sheets - so a DCF for a financial institution would not make much sense. For financial institutions, it's more common to use a dividend discount model for valuation purposes.

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