Certain industries by virtue of their unique characteristics have proven to be stumbling blocks for investors, who are used to reading the financial statements of a typical goods and/or service business. This is one of many in a series of articles where I reveal the nuts and bolts of investing in unique industries like banks etc.
The key costs
on a bank's income statement include:
- Interest paid on deposits and other borrowings.Provision for loan losses
- Estimate of the quality of a bank's loan portfolios in terms of the quantum and likelihood of loan repayment on a timely basis. It works in a similar fashion to provision for doubtful debts for trade receivables. Selling, General & Other Administrative Expenses and Other Operating Expenses
- Include staff expenses (wages, bonuses and other benefits), rental expense (occupancy of head office and branch offices) occupancy and depreciation on PCs and other IT systems.
About the author:
Mark LinMark is a private value investor and runs the Cheapskate Investing website which borrows from the wisdom of value investing giants, using a systematic quantitative screening approach to filter the global stock markets for cheap cigar-butts and wide-moat compounders. He is also a regular contributor to various value investing communities.
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