Module 8 of 8 in Fundamental analysis
Analysing different kinds of business
Why banks, insurers, asset-light businesses, commodity producers and real estate companies need their own measures and valuation methods.
5 lessons in this module. Progress is saved in your browser as you go.
The measures in this path work best for ordinary operating companies. Some businesses are built differently: a bank's raw material is money, an insurer collects premiums long before paying claims, and a commodity producer cannot set its own price. This module covers the measures and pitfalls specific to the main types.
By the end of this module you should be able to
- Explain the key measures for banks, lenders and insurers and why standard ratios do not fit them.
- Identify the measures and risks specific to asset-light, commodity and real estate businesses.
Lessons in order
Module test
10 questions, chosen at random from a bank of 31 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- Return on assets: ROA is the central profitability measure for lenders, as that lesson explains.
- The P/B ratio: Banks are usually valued on price-to-book, read together with ROE.
- Return on capital employed (ROCE): High returns on capital are the defining feature of asset-light businesses.
- Competitive advantages and their limits: Asset-light businesses depend on intangible advantages, which that lesson explains how to test.
- Cyclical and capital-intensive businesses: Commodity businesses are among the most cyclical and capital-intensive, as that lesson explains.
- When valuation ratios mislead: Peak and trough earnings make standard ratios especially misleading for commodity producers.
- Debt-to-equity and net debt: Both sectors rely heavily on debt, measured as explained there.
- Free cash flow and cash conversion: Cash flows from projects matter more than reported profit in these sectors.
Key terms in this module
- Net interest margin
- Non-performing asset
- Capital adequacy
- Return on assets
- Price-to-book ratio
- Combined ratio
- Embedded value
- Insurance float
- Asset-light business
- Return on capital employed
- Recurring revenue
- Economic moat
- Cost curve
- Cyclical business
- Normalised earnings
- Capital intensity
- Pre-sales
- Concession
- Net debt
- Free cash flow