What type of multiples would you use for a company in FIG (Financial Institutions Group)?

We don’t use EBITDA here since interest expense is often part of the core business. For FIG companies, interest expense is often the cost of the capital which they will invest, almost like a cost of goods sold. They will try to achieve a higher return than their cost of capital, similar to how a company will sell a product at a higher price than its original cost to make a margin. So net income is more relevant than EBITDA as it will have interest expense already deducted.

The folllowing multiples are commonly used in FIG (Financial Institutions Group):

  • P / E
  • P / Book
  • P / Tangible Book Value
    • Tangible book value does not include intangible assets like
      goodwill, brand, IP, etc.
  • P / Assets under Management