Explain what sets financial institutions apart from other companies

Banks and insurers differ from industrial companies in ways that change the analysis. They are systemically important, so failure can spread through the economy, which is why they are heavily regulated and sometimes backed by governments. Their assets are mostly financial, such as loans and securities, often measured at fair value, rather than plant and inventory. They are highly leveraged, funding themselves largely with deposits or policyholder liabilities, so small asset losses can wipe out equity. Revenue is mainly interest margin, fees and investment income. Cash flow analysis and working capital ratios matter less; capital, credit quality, liquidity and interest rate sensitivity matter more. The trap is applying industrial ratios such as a current ratio to a bank.