Playbook: Your First Canadian Bank Analysis

Canadian banks are the first individual stocks many Canadians look at — and the place where generic stock advice (“look at the P/E”, “check free cash flow”) works worst. This playbook is a step-by-step worksheet: which document to open, which table to find, which number to write down, and which post explains it.

Educational only — not financial advice, and no bank is recommended here. Example numbers are hypothetical. The concepts are explained elsewhere; this page only tells you where to find each number and what to do with it.

Before you start: read the parents

Read first	Why
How Canadian banks make money	The business model in plain English
Bank operating metrics to track	The metric list this worksheet fills in
Canadian Schedule I banking primer	Regulation, capital stack and why CET1 matters
How Royal Bank (RY) makes money	A worked company example with segments

The workflow

Step 1 — Collect four documents

Document	Where to get it	What it’s for
Annual report (financial statements + MD&A)	Bank’s investor relations site or SEDAR+	Full-year segments, risk discussion, accounting notes
Latest quarterly report to shareholders	Same	Current-quarter results and trends
Supplementary financial information package (name varies by bank)	Investor relations site	Multi-quarter tables: segments, credit, loans by sector
Pillar 3 / supplementary regulatory capital disclosure	Investor relations site	Capital ratios and risk-weighted assets detail

The Big Six banks have an October 31 fiscal year-end, so “Q1” covers November to January. Keep that in mind when comparing to calendar-year companies.

Step 2–5 — The worksheet

#	Number to find	Document → section	Formula / note	Explainer	Your bank	Peer
2	Net income by segment	Annual report MD&A → segment results	Each segment ÷ total	RBC primer
3a	Net interest income	Income statement	Interest earned − interest paid	How banks make money
3b	Net interest margin	MD&A or supplementary package	NII ÷ average earning assets	What is NIM?
3c	Non-interest income mix	Income statement / segment tables	Fees, wealth, markets as % of revenue	Operating metrics
3d	Efficiency ratio	MD&A (often reported directly)	Non-interest expense ÷ revenue (lower is better)	Operating metrics
4a	PCL ratio	Supplementary package → credit quality	Provision for credit losses ÷ average loans (bps)	Operating metrics
4b	Gross impaired loans	Supplementary package → credit quality	Trend matters more than level	—
4c	CET1 ratio	MD&A capital section / Pillar 3	Compare to OSFI’s expectation, not to zero	Schedule I primer
4d	Liquidity coverage ratio	MD&A liquidity section	Regulatory minimum is 100%	—
5a	ROE	MD&A highlights	Net income to common ÷ average common equity	What is ROE?
5b	P/B and P/E	Your broker or data source + book value per share	Price ÷ book value per share	Valuing banks: P/B and ROE
5c	Dividend payout ratio	MD&A highlights	Dividends ÷ net income to common	Payout ratio explained

Copy the table into a spreadsheet, fill one bank, then a second. The peer column is where learning happens.

Step 6 — Compare, don’t score in isolation

If you see…	Ask…
ROE above peers	Is it from a better mix (wealth, fees) or more risk (thinner capital)?
CET1 well above OSFI’s expectation	Room for buybacks and dividend growth — or a cautious buffer for a reason?
Rising PCL ratio	Which loan book? Check the sector breakdown in the supplementary package
Low P/B vs peers	Is ROE lower too? A cheap P/B with low ROE may be fair, not cheap
Efficiency ratio worsening	Is revenue falling, or are costs (tech, compliance) rising?

Step 7 — Write the decision card

Finish with a bull / bear / watch decision card: three bulls, three bears, dated Watch items (next quarter’s PCLs, CET1, NIM), and act / wait / pass. Then compare your view with the dated TD brief and the living banks sector deep dive — see how to use briefs as learning objects.

Common mistakes

Mistake	Fix
Judging a bank on P/E alone	Pair P/B with ROE — see valuing Canadian banks
Looking for “free cash flow”	Bank cash flow statements don’t work like an industrial’s; use earnings, capital and credit metrics
Comparing to calendar-year companies	Remember the October year-end
Owning five banks and calling it diversified	They share the same economy — see concentration risk

Sources

• Office of the Superintendent of Financial Institutions (OSFI), Capital Adequacy Requirements (CAR) Guideline (CET1 ratio), Liquidity Adequacy Requirements (LAR) Guideline (liquidity coverage ratio, 100% minimum) and Pillar 3 Disclosure Requirements guideline.
• IFRS Foundation, IFRS 9 Financial Instruments (expected credit loss model behind provisions for credit losses).
• Bank Act (S.C. 1991, c. 46) — Justice Laws.

Media credits

• Hero: “Royal Bank of Canada branch, Essex, Ontario, 2025-08-30 01.jpg” by Chris Woodrich, CC BY-SA 4.0, via Wikimedia Commons. Cropped and resized to 1280×720. Real photograph, not AI-generated.

By Andrew · stocksummarizer.com