The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, Second Edition

Characteristics of Financial Services Firms

Financial services firms differ from other firms in the market in many ways. This section focuses on four key differences and looks at why these differences can create estimation issues in valuation. The first is that many categories (albeit not all) of financial services firms operate under strict regulatory constraints on how they run their businesses and how much capital they need to set aside to keep operating. The second is that accounting rules for recording earnings and asset value at financial services firms are at variance with accounting rules for the rest of the market. The third is that debt for a financial services firm is more akin to raw material than to a source of capital. The notion ...