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Financial Analysis The Report Provides The Comparative Research Paper

¶ … Financial Analysis The report provides the comparative analysis of Sun Trust Banks Inc. (STI) vs. U.S. Bancorp. (USB) using the following valuation tools:

Price/Book Value,

Price/Earnings per Share

Price/EBITDA per Share.

The paper also compares these ratios to industry average.

Price/Book Value

A Price/Book Value is a valuation ratio used to measure the market value of a company after all the liabilities has been deducted from the company assets. In other words, Price/Book Value is a valuation ratio generally used by investors to compare a stock's per-share price (market value) of a company to its book value (shareholders' equity). Typically, it reveals the estimation of value of a company after it has been liquidated showing remaining net assets entitled to shareholders after a company is liquidated.

There are two methods to calculate the Price-to Book Value of a company. First, we can divide the company market capitalization by company's total equity. Alternatively, we can divide the current share price by the book value per share. Generally, low price book value reveals that the company stock is undervalued.

The report uses the first technique to calculate the Price-to-Book Value for the Sun Trust Banks Inc. (STI) and U.S. Bancorp. (USB)

Formula:

Price-to Book Value= Market Capitalization / Total Equity

Sun Trust Banks Inc.

Price-to Book Value= 14.80/20.06

Price-to Book Value=0.74

US Bancorp. (USB)

Price-to Book Value= 63.80/38.99

Price-to Book Value=1.63

Comparative analysis of the Price-to-Book value of the Sun Trust Bank and U.S. Bancorp reveals that U.S. Bancorp has higher Price-to Book Value than the Sun Trust Bank. The data reveals that Sun Trust bank is presently undervalued since its Price-to-Book value is 0.74,...

On the other hand, U.S. Bancorp Price-to Book Value is 1.63 revealing that the company market value is better than the market value of Sun Trust Bank. The market capitalization of U.S. Bancorp ($63.8 Billion) is even larger than the Sun Trust's market capitalization ($14.5 Billion) revealing that U.S. Bancorp is larger than the Sun Trust Bank. (Yahoo Finance, 2013).
Price/Earnings per Share

Price / Earning per Share is a valuation ratio used to measure the current share price of a company compared to its per-share earnings. Typically, the P/E ratio is the price an investor is ready to pay for the stocks relatively to their underlying earnings.

Formula used to calculate Price/Earnings per Share is as follows:

US Bancorp

Price/Earnings per Share = Stock Price / EPS

Price/Earnings per Share = 34.03 / 2.85

Price/Earnings per Share =11.94

Sun Trust Bank

Price/Earnings per Share =27.2/2.94

Price/Earnings per Share =9.25

Comparative analysis of the P/E ratio of the two companies reveals that investors will be willing to invest in the U.S. Bancorp than the Sun Trust Bank because the P/E ratio of U.S. Bancorp Bank (11.94) is higher than the P/E ratio of the Sun Trust Bank (9.25). Thus, investors will be generally earning more from every dollar invested in the U.S. Bancorp than the Sun Trust Bank. However, Price/Earnings per Share of both companies are still underperforming than the industry average (13.8) indicating that they are less attractive to investors. (Yahoo Finance, 2013). Typically, a sophisticated investor will be willing to invest in other industry than the banking industry.

Price/EBITDA per Share

Price/EBITDA per Share is the method to calculate the company stock price to its share "Earning before Interest, Taxes and Depreciation and Amortization."

The…

Sources used in this document:
References

Yahoo Finance. (2013). Sun Trust Bank. (STI). Yahoo Finance Inc.

Yahoo Finance. (2013). U.S. Bancorp (USB) -NYSE. Yahoo Finance Inc.
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