The Importance of Intrinsic Value in Banking Companies

Oct 13, 2025 by recoveryshake.com 126 views

Exploring the Secret Intrinsic Value of Banking Companies: The Role of Profitability and Other Important Factors

Every investor certainly hopes to get the maximum profit from the investment made. To achieve this, understanding the intrinsic value of a company is very important. Intrinsic value is the true value of a company or stock, which reflects the real value and potential growth. The intrinsic value of a company is a crucial factor in determining its stock price and ultimately, the return on investment for shareholders. In the context of the banking sector, understanding the intrinsic value of banking companies is essential for investors, regulators, and policymakers to make informed decisions.

The Importance of Intrinsic Value in Banking Companies

The intrinsic value of a banking company is influenced by various factors, including its financial performance, risk management, and growth opportunities. A banking company with a high intrinsic value is likely to have a strong financial position, efficient operations, and a solid risk management framework. On the other hand, a banking company with a low intrinsic value may be struggling with financial difficulties, poor risk management, and limited growth opportunities.

The Factors Influencing the Intrinsic Value of Banking Companies

This research focuses on the banking sector, with the aim of revealing the effect of various factors on the intrinsic value of banking companies in Indonesia. The factors studied include:

Capital Adequacy Ratio (CAR)

The Capital Adequacy Ratio (CAR) is a key indicator of a bank's ability to fulfill its financial obligations. It measures the bank's capital adequacy in relation to its risk-weighted assets. A higher CAR indicates a stronger financial position and a lower risk of default. In this study, the CAR is found to have a positive but not significant effect on profitability. This indicates that although the CAR plays a role in maintaining bank financial stability, its effect on the ability to produce profits is not too strong.

Non-Performing Loan (NPL)

The Non-Performing Loan (NPL) ratio is a key indicator of a bank's credit risk. It measures the proportion of loans that are jammed or risky. A higher NPL ratio indicates a higher credit risk and a lower profitability. In this study, the NPL is found to have a negative and significant influence on profitability. The higher the NPL, the lower the profitability, shows that the quality of poor assets can erode the company's profits.

Growth Opportunity

The growth opportunity is an indicator of a company's potential for asset growth and income in the future. It measures the company's ability to generate new business opportunities and expand its operations. In this study, the growth opportunity is found to have a positive but not significant effect on profitability. This indicates that the potential for asset growth is not necessarily directly proportional to the increase in profitability.

Capital Structure

The capital structure is a key indicator of a company's financing strategy. It measures the proportion of company financing from debt and equity. A higher debt-to-equity ratio indicates a higher risk of default and a lower profitability. In this study, the capital structure is found to have a negative and insignificant effect on profitability. This shows that the use of debt in financing does not always have a negative impact on profitability.

Profitability

Profitability is a key indicator of a company's ability to generate profits from its assets. It measures the company's return on assets (ROA) and return on equity (ROE). A higher profitability indicates a stronger financial position and a higher intrinsic value. In this study, profitability is found to have a positive and significant effect on intrinsic values. These results confirm that profitability is a key factor in determining the intrinsic value of a company.

The Role of Profitability as an Intervening Variable

This study found an important role in profitability as an intervening variable. That is, profitability becomes a bridge connecting between other factors (CAR, NPL, Growth Opportunity) with intrinsic values. Profitability is able to mediate the effects of CAR, NPLs, and Growth Opportunity on intrinsic values. However, profitability is unable to mediate the effect of capital structure on intrinsic value.

Conclusion

In conclusion, this study shows that profitability is a key factor in determining the intrinsic value of banking companies. Other factors such as CAR, NPLs, Growth Opportunity, and Capital Structure have an influence on profitability, which in turn has an impact on intrinsic values. To increase intrinsic value, banking companies need to focus on increasing profitability by managing assets efficiently, minimizing credit risk, and utilizing growth opportunities wisely.

Implications for Investors and Regulators

This information is important for investors to understand how fundamental factors can affect the intrinsic value of banking companies. By understanding this, investors can make more appropriate investment decisions and optimize their investment returns. Regulators and policymakers can also use this information to develop policies that promote the stability and growth of the banking sector.

Limitations and Future Research Directions

This study has some limitations, including the use of a single dataset and the focus on a specific country. Future research can expand on this study by using multiple datasets and exploring the effects of other factors on the intrinsic value of banking companies. Additionally, future research can investigate the impact of regulatory policies on the intrinsic value of banking companies.

Conclusion

In conclusion, this study provides new insights into the factors that influence the intrinsic value of banking companies. The results of this study have important implications for investors, regulators, and policymakers. By understanding the intrinsic value of banking companies, investors can make more informed investment decisions, and regulators can develop policies that promote the stability and growth of the banking sector.

Q: What is the intrinsic value of a banking company?

A: The intrinsic value of a banking company is the true value of the company, which reflects its real value and potential growth. It is a crucial factor in determining the stock price and return on investment for shareholders.

Q: What are the factors that influence the intrinsic value of a banking company?

A: The factors that influence the intrinsic value of a banking company include:

Capital Adequacy Ratio (CAR)
Non-Performing Loan (NPL)
Growth Opportunity
Capital Structure
Profitability

Q: What is the role of profitability in determining the intrinsic value of a banking company?

A: Profitability is a key factor in determining the intrinsic value of a banking company. It measures the company's ability to generate profits from its assets and has a positive and significant effect on intrinsic values.

Q: How does the Capital Adequacy Ratio (CAR) affect the intrinsic value of a banking company?

A: The CAR has a positive but not significant effect on profitability. This indicates that although the CAR plays a role in maintaining bank financial stability, its effect on the ability to produce profits is not too strong.

Q: How does the Non-Performing Loan (NPL) ratio affect the intrinsic value of a banking company?

A: The NPL ratio has a negative and significant influence on profitability. The higher the NPL, the lower the profitability, shows that the quality of poor assets can erode the company's profits.

Q: How does the growth opportunity affect the intrinsic value of a banking company?

A: The growth opportunity has a positive but not significant effect on profitability. This indicates that the potential for asset growth is not necessarily directly proportional to the increase in profitability.

Q: How does the capital structure affect the intrinsic value of a banking company?

A: The capital structure has a negative and insignificant effect on profitability. This shows that the use of debt in financing does not always have a negative impact on profitability.

Q: What is the implication of this study for investors and regulators?

A: This study provides new insights into the factors that influence the intrinsic value of banking companies. The results of this study have important implications for investors, regulators, and policymakers. By understanding the intrinsic value of banking companies, investors can make more informed investment decisions, and regulators can develop policies that promote the stability and growth of the banking sector.

Q: What are the limitations of this study?

A: This study has some limitations, including the use of a single dataset and the focus on a specific country. Future research can expand on this study by using multiple datasets and exploring the effects of other factors on the intrinsic value of banking companies.

Q: What are the future research directions?

A: Future research can investigate the impact of regulatory policies on the intrinsic value of banking companies. Additionally, future research can explore the effects of other factors on the intrinsic value of banking companies, such as the impact of technology on the banking sector.

Q: What are the practical implications of this study for banking companies?

A: This study provides practical implications for banking companies to increase their intrinsic value. Banking companies need to focus on increasing profitability by managing assets efficiently, minimizing credit risk, and utilizing growth opportunities wisely.

Q: What are the implications of this study for the banking sector as a whole?

A: This study provides implications for the banking sector as a whole. The results of this study can inform regulatory policies and industry practices that promote the stability and growth of the banking sector.

Q: What are the implications of this study for the economy as a whole?

A: This study provides implications for the economy as a whole. The stability and growth of the banking sector are crucial for the overall health of the economy. By promoting the stability and growth of the banking sector, this study can contribute to the overall economic well-being of a country.