2 tools to value the Commonwealth Bank of Australia (ASX: CBA) share price

Core Insights - Commonwealth Bank of Australia (CBA) is Australia's largest bank with significant market shares in mortgages (20%+), credit cards (25%+), and personal loans, serving over 15 million customers primarily in Australia [1] Group 1: Financial Performance - CBA's net interest margin (NIM) is 1.99%, outperforming the ASX major bank average of 1.78%, indicating better profitability from lending activities [5] - The bank earned 85% of its total income from lending last year, highlighting the importance of lending in its revenue generation [6] - CBA's return on equity (ROE) stands at 13.1%, exceeding the sector average of 9.35%, which reflects strong profitability relative to shareholder equity [7] Group 2: Capital and Risk Management - CBA's common equity tier one (CET1) ratio is 12.3%, which is above the sector average, indicating a solid capital buffer to protect against financial instability [8] Group 3: Dividend Valuation - The total dividend for CBA last year was $4.65, with projected growth rates between 2% and 4%, leading to various share price valuations based on a dividend discount model (DDM) [10][11] - The average valuation of CBA shares using a simple DDM model is estimated at $98.33, while an adjusted valuation based on expected future dividends is $100.66, compared to the current share price of $168.54 [11][12] - A valuation based on gross dividend payments, including franking credits, suggests a 'fair value' forecast of $143.80 [12]