How to find a stock's right price?

4.2.2. Valuation for a bank

In case of banks, interest incomes and interest costs are more or less similar across all banks.

As we know bank's business is different than other businesses because all the assets and liabilities are financial in nature. It makes its book value more important than its earnings for its assessment.

For a Bank


Hence the key to estimate the MRP and Discount Price of a bank is to find out its Future Book Value per Share and Future Price to Book Value ratio and 'Future Dividends' - This is the Dividend income during the holding period of a stock.

(1) Future BVPS can be estimated from the current BVPS using the compounding formula i.e.



Here, it is important to estimate the expected BVPS growth rate for the bank. At MoneyWorks4me, a team of experts analyze the bank past performance & future plan, market share, government policy, industry outlook etc. In the end, after a thorough analysis they come up with an expected BVPS growth rate.

(2) Let us understand the relation between MRP and Future Value of a stock in terms of the compounding formula-



(3) So, MRP of a bank can be calculated by the following formula



Where, Future Value = Future BVPS*Future P/B.V

Once again, a thorough study of the historical trends of P/B.V ratios as well as dividends is involved.

So to summarize, to calculate the MRP of a share we need

1. Current BVPS (which is known)
2. Expected BVPS Growth rate (which is calculated by the team of experts at MoneyWorks4Me)
3. Expected Rate of return (what you want, MoneyWorks4me Default - 15%)
4. Future P/B.V Ratio (which is calculated by the team of experts at MoneyWorks4Me)
5. Future Dividend per share (which is calculated by the team of experts at MoneyWorks4me)

MoneyWorks4me has a team of experts who exhaustively research each and every stock before providing MRP and discount of each stock.

1. The research includes a thorough quantitative as well as qualitative analysis.
2. The quantitative analysis includes scanning through the past 10 years data of each bank. This is followed by a study of the future prospects of the bank.
3. .The two combined together with our model based on Expected BVPS growth rate, Future P/B.V ratio & discounting helps derive an MRP & Discount Price for each stock.