As of December 2009, it had about not less than 2,200 retail branches in the United Kingdom through its subsidiaries, not less than 220 branches and network of business banking offices in Northern Ireland and Republic of Ireland and not less than 1500 retail banking offices in the United States (Reuters.com, 2009a).
This paper seeks to evaluate RBS using relevant valuation models based on the company’s annual reports and other external information. This paper will analyze first the historical performance of the RBS for the past five years. This will be followed by a forecast of the short-term performance of RBS by constructing different scenarios for various competitive positions taking into consideration the current industry and company’s strategic position. This will then value cash flows beyond the forecast horizon using a continuing value by discounting cash flows to their present value using an estimated cost of capital by CAPM model. Calculation and interpretation of the results will come afterward within the strategic changes (Pearce II, Jr. and Robinson, 2004) envisioned for the firm and the required decisions that need to be taken to maximize the value of the company.
Analysis of historical performance of RBS is accomplished by studying its revenue growth for the past five years or from 2005 to 2009 by understanding its profitability and efficiency, connecting the results with its liquidity and financial and financial advantage (Helfert, 2001). The same information need to be related further to other external information including that of its competitors from the financial services industry and other macroeconomic variables. The summary of the historical performance of RBS can be found in Appendix A.
RBS revenues, in the form of interest income because of its nature business, showed an average annual growth of 13% for the past five years