Core Viewpoint - The Commonwealth Bank of Australia (CBA) share price is under scrutiny as ASX investors attempt to establish a rough valuation of the company [1][2] Valuation Methods - The price-to-earnings (PE) ratio is a common method for valuing bank shares, comparing the share price to earnings per share [3] - A comparative analysis of CBA's PE ratio against peers or sector averages can provide insights into its valuation [4] - CBA's current share price is $170.74, with an earnings per share of $5.63, resulting in a PE ratio of 30.3x, compared to the banking sector average of 20x [5] Dividend Valuation - The Dividend Discount Model (DDM) is a robust method for valuing banks, using recent or forecasted dividends and a risk rate [6][7] - The formula for DDM is Share price = full-year dividend / (risk rate – dividend growth rate) [8] - Using a blended growth rate and risk rate between 6% and 11%, the average valuation of CBA shares is $98.33, with an adjusted dividend leading to a valuation of $100.66 [10] Gross Dividend Valuation - Considering fully franked dividends, the valuation based on a gross dividend payment of $6.80 results in a share price valuation of $143.80 [11] Growth and Risk Rate Analysis - Different growth and risk rate scenarios yield various valuations for CBA shares, with a 2% growth rate and a 6% risk rate resulting in a valuation of $119.00, while an 11% risk rate leads to a valuation of $52.89 [12] Additional Considerations - Investors should consider whether investing in a low-cost, dividend-paying ETF may be more beneficial than directly investing in CBA [12] - Key questions include the sustainability of net interest margins and the management of regulatory challenges in pursuing non-interest income [13] - Company culture is also a significant factor in long-term investment decisions, with CBA's culture not rated as perfect [13]