Bank Stock Intrinsic Value Calculator

Calculate the intrinsic value of a bank stock using the Residual Income Model (RIM)

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Calculate Bank Stock Intrinsic Value

Enter details to calculate the intrinsic value using the Residual Income Model (RIM), suitable for banks with irregular dividends. All monetary values should be in the stock’s reporting currency (e.g., GHS for Ghanaian stocks).

Valuation Formula

RIM: IV = BV + Σ(RIt / (1+r)t) + TV / (1+r)n

Where RIt is Residual Income, BV is Book Value, r is cost of equity, TV is terminal value, n is number of periods

Select 3-5 years based on the reliability of your forecasts.

Cost of Equity (CAPM)

Discount rate (r) = Risk-Free Rate + Beta × (Market Return - Risk-Free Rate).

Yield on 10-year government bonds (e.g., Ghana T-Bill ~24% from Bank of Ghana, U.S. Treasury ~4%).
Expected return of the market (e.g., GSE ~10–15%, S&P 500 ~8–10%).
Stock volatility relative to the market (e.g., from Yahoo Finance or afx.kwayisi.org/gse/, ~1.1 for GCB Bank).

Residual Income Inputs (RIM)

From the bank’s latest balance sheet (e.g., annualreportsghana.com, gse.com.gh, Yahoo Finance). Calculate as Total Equity ÷ Shares Outstanding. Ensure it’s positive and realistic.
Historical EPS from annualreportsghana.com, gse.com.gh, or afx.kwayisi.org/gse/. E.g., if EPS was GHS 0.80 in 2024, use GHS 0.80 × 1.05 = GHS 0.84 with 5% growth. Ensure EPS is sufficient (e.g., EPS > Cost of Equity × Book Value).
Estimate year 2 EPS, e.g., GHS 0.84 × 1.05 = GHS 0.882 with 5% growth. Ensure EPS is sufficient (e.g., EPS > Cost of Equity × Book Value).
Estimate year 3 EPS, e.g., GHS 0.882 × 1.05 = GHS 0.926 with 5% growth. Ensure EPS is sufficient (e.g., EPS > Cost of Equity × Book Value).
Long-term growth rate, e.g., GDP growth of the stock's country (~8% for Ghana, 2–3% for U.S., check World Bank or Bank of Ghana). Must be less than cost of equity.
Enter the stock's current price (e.g., from Yahoo Finance or afx.kwayisi.org/gse/ for GSE stocks).

Understanding Bank Stock Valuation

Intrinsic value represents a bank stock's true worth based on its residual income (RIM). Here's how to interpret and use it in your investment decisions.

Undervalued

Market Price < Intrinsic Value

The stock may be a buying opportunity as it trades below its estimated true worth.

Fairly Valued

Market Price ≈ Intrinsic Value

The stock is priced close to its estimated true worth, indicating fair valuation.

Overvalued

Market Price > Intrinsic Value

The stock may be overpriced, suggesting caution or potential selling.

How to Use the Bank Stock Intrinsic Value Calculator

  1. Select Forecast Period

    Choose 3–5 years based on the reliability of your forecasts.

  2. Enter CAPM Inputs

    Provide the risk-free rate (e.g., Ghana T-Bill yield ~24%), market return (e.g., GSE ~10–15%), and beta (e.g., ~1.1 for GCB Bank from Yahoo Finance or afx.kwayisi.org/gse/).

  3. Enter RIM Inputs

    Input current book value per share and forecasted EPS for each year (e.g., GHS 0.84 for year 1). Find data on Yahoo Finance, annualreportsghana.com, gse.com.gh, or afx.kwayisi.org/gse/. Ensure EPS is sufficient (e.g., EPS > Cost of Equity × Book Value).

  4. Enter Terminal Growth Rate

    Provide the long-term growth rate (e.g., ~8% for Ghana GDP growth from World Bank or Bank of Ghana).

  5. Enter Current Market Price (Optional)

    Provide the stock’s current price (e.g., from Yahoo Finance or afx.kwayisi.org/gse/) to compare with the intrinsic value.

  6. Calculate and Review

    Click “Calculate” to compute the intrinsic value. Review the results to assess if the stock is overvalued or undervalued.

Key Applications of Intrinsic Value

  • Identifying undervalued or overvalued bank stocks
  • Making informed buy or sell decisions
  • Assessing long-term investment potential
  • Comparing banks within the same market
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