How to Analyze a Financial Services Company, Including Banks and Insurance

Banks, and, insurance, companies, don't, follow, the, usual, analysis, rules., For, them,, the, balance, sheet, isn't, just, a, support, document., It's, the, business, itself., For, banks,, net, interest, margin, (NIM), matters., This, is, the, difference, between, what, they, earn, on, loans, and, investments, and, what, they, pay, out, on, deposits,, relative, to, their, earning, assets., This, metric, is, key, to, profitability., Other, important, factors, include, loan, quality, (are, borrowers, paying, back, what, they, owe?), and, capital, ratios, (does, the, bank, have, enough, reserves, to, cover, losses?)., Book, value, and, price-to-book, ratio, are, popular, valuation, tools, for, banks., This, is, because, a, bank's, assets, and, liabilities, are, mostly, financial, instruments, valued, close, to, their, real, economic, worth., This, is, quite, different, from, a, company, whose, actual, value, relies, heavily, on, off-balance-sheet, assets,, like, brand, strength.

Insurance, companies, have, their, own, unique, perspective., Underwriting, profit, (or, loss), shows, whether, premiums, collected, exceed, claims, paid, plus, expenses,, before, considering, investment, income., This, reflects, core, pricing, discipline, in, insurance., Then, there's, "float"., This, is, the, pool, of, premium, money, an, insurer, holds, and, can, invest, before, paying, out, claims., It's, a, key, feature, of, the, insurance, business, model., Warren, Buffett, has, famously, used, Berkshire, Hathaway's, insurance, operations, as, a, low-cost, source, of, investment, capital, for, years.