Which valuation methods are primarily used for banks and financial institutions?

The choice highlighting P/E (Price-to-Earnings) and P/BV (Price-to-Book Value) ratios is particularly relevant for valuing banks and financial institutions due to the unique characteristics of their operations and financial statements.

P/E ratios are useful because they measure the price investors are willing to pay for a bank's earnings, which is central to evaluating profitability. For banks, stable earnings are a crucial aspect of their valuation since they often rely on interest income and fees. The P/BV ratio is especially significant for financial institutions because it compares a bank's market price to its book value. This measure is vital in assessing the value of a bank relative to its net assets, which can fluctuate based on economic conditions and regulatory changes. Since banks hold a significant amount of financial assets on their balance sheets, the book value is an essential metric for assessing their stability and value to shareholders.

The other valuation methods mentioned are generally less applicable to banks. For instance, EV/EBITDA is more commonly used for companies in industries where earnings before interest, taxes, depreciation, and amortization provide a clearer picture of operational performance, which is not as direct in banking due to their distinct financial structure. Similarly, asset-based valuation methods can be relevant but