Equity Model Adjustments for Financial vs. Non-Financial Companies

This report explains why certain calculations in our company valuation models are different for financial companies. These differences are necessary to produce apple-to-apples results for ROIC and Economic Earnings across all companies. This report focuses on the following calculations for financial companies:

  1. EBIT/EBITDA
  2. Total Debt
  3. NOPAT, Invested Capital, ROIC, Free Cash Flow (FCF) and Economic Earnings

The difference in models for financial vs non-financial companies arises from the treatment of cash, debt, and related interest expense/income.

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This paper compares our analysis on a mega cap company to other major providers.

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