- 24 -
P/E Ratio, P/Eqt Ratio
For the P/E ratio and P/Eqt ratio methods, Mr. Hitt’s
approach was to compare the P/E and P/Eqt ratios of FNBW with
those of comparable entities. Using the average ratios of the
comparable companies and the earnings and equity of FNBW, Mr.
Hitt sought to calculate the price (i.e., market value) of FNBW.
In selecting comparable companies, Mr. Hitt did not feel
there were enough publicly traded companies from which he could
derive comparable transactions, i.e., transactions involving
banks of similar size and geographic market, so he did not
compare FNBW to public companies. Instead, he examined
acquisitions of banks located in Indiana or Ohio with less than
$300 million in assets, resulting in a list of seven banks that
were sold within 18 months of the valuation date. Six of the
seven were in Indiana; one was in Ohio. He reduced this list
from seven to two, choosing banks with particular characteristics
that were comparable to FNBW.14 The two banks satisfied each of
the following three criteria (the respective figure for FNBW,
according to Mr. Hitt’s calculations, is in parentheses): Growth
rate between 0 and 8 percent (6.2 percent), return on assets
(ROA) between 1.0 and 1.4 percent (1.41 percent), and capital to
asset ratio between 8.5 and 12.5 percent (10.83 percent).
14 According to Mr. Hitt, FNBW was “in the top of its peer
group” with respect to return on assets, and therefore he found
just two banks that he considered to be comparable to FNBW.
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011