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I found out that a large bank is reporting an EV/FCF of around 0.8, this seems ludicrously undervalued to me.

What factors am i not taking into account?

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Banks and insurance companies need to be analyzed differently:

  • EBITDA is no longer meaningful because interest is a critical component of both revenue and expenses.

  • Separating operating and financing activities is nearly impossible because interest, investments, and debt (a funding source) are related to the company’s core operations. So concepts like “working capital” and “free cash flow” are no longer applicable.

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