Comerica Incorporated: The Valuation Dilemma Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Comerica Incorporated: The Valuation Dilemma Case Solution

Diluted Earnings per-share (Diluted EPS): The diluted EPS is the earnings per share over a year. This is determined through the net income divided by the number of shares outstanding. The earnings per share of the company have been dropping in 2007, which have further plummeted in the quarterly Earnings per Share (EPS) in March and June 2008. This is a critical sign in the market which defends the reduction in the company’s share price.

Dividend per Share (DPS): The dividend per share is the sum of dividends issued to one share; the DPS in 2006 was $2.36 for the year. The dividend every quarter for 2007 was $0.62. The company had increased the dividend payment in the 2 quarters of 2008. While the earnings per share had decreased.

Non-interest income:Earnings from sources other than interest raised in the previous quarter of 2008 is a bad signal for the bank as it is diverse from the core activity and indicates that the interest income had dropped.

The return on assets calculates the profitability as evaluated to the total assets owned. The return on the asset has dropped in 2007. Reflecting the quarterly basis return on an asset in March 2008, the return on assets has increased to 0.66%. This suggests profitability as the effectiveness has also increased in March 2008. The ROA has decreased significantly in June 2008.

The return on equity calculates the profitability as evaluated to equity. The return on equity has decreased in 2007.Though, in March 2008, the return on equity had increased significantly (8.37% in a quarter). In June 2008, the return on equity almost split, indicating towards a fall in the revenue.

Credit loss provision: The credit loss provision is an evaluation in which the banks observe that they will incur a loss. The reduction in the economic environment has directed towards the increase in the credit provision.In 2007, it was expected to be 17.4% of the earnings after-tax, and in the previous two-quarter of 2008; it had further increased, which indicates that the country's economy is moving towards recession.

Question 3

Go on the short position because the stock is overvalued according to our estimation, the intrinsic value is less than the current price of the stock. You can check the details in the Appendix. The calculation of evaluation is given below:

Question 4

On the short position; the financial crisis of 2008 has also disturbed the banking sector by affecting the banks to drop money on mortgage defaults, inter bank lending to restriction and credit to consumers and businesses to come to an end.There were various reasons for banking crises having unmaintainable macroeconomic policies (containing high current account shortages and unmaintainable debt of public), unnecessary credit explosions, high capital inflows, & financial position instabilities, joint with policy analysis due to the diversity of political and economic view. If a bank is going down in a financial crisis, its value is also destined to be plummeted.The bank can go forward on the financial crisis because if the investor invests money in the bank and the bank utilizes this invested amount and generates profit from it, then the bank can survive the financial downfall. If the investors do not invest money in a bank; the bank can never generate profit.

Recommendations

The bank can generate new money when it grants loan. Banks can generate money through the accounting they utilize when they grant loans. The quantities that you look at after you examine your account balance are fair accounting entries in the banks' computers. These amounts are a 'liability from your financial intermediaries to you........................

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Comerica Incorporated: The Valuation Dilemma Harvard Case Solution & Analysis