Income Valuation of the Commercial Banks

This article is about commercial bank valuation as a business unit. The most important approach to the valuation of commercial bank as business enterprise is the income approach. It is based on the net present value of future incomes measured by available cash flow generated by the bank. This future income has two components: * Actual cash available to owners each year after meeting all expenses, reserves, and capital requirements necessary to sustain and grow the bank * The residual value of the bank at the end of a specified projection period The most important application problem is to identify the available cash flow for the owners, which involve the projection of some items of bank's income and the analysis of the banking market.