New Semester
Started
Get
50% OFF
Study Help!
--h --m --s
Claim Now
Question Answers
Textbooks
Find textbooks, questions and answers
Oops, something went wrong!
Change your search query and then try again
S
Books
FREE
Study Help
Expert Questions
Accounting
General Management
Mathematics
Finance
Organizational Behaviour
Law
Physics
Operating System
Management Leadership
Sociology
Programming
Marketing
Database
Computer Network
Economics
Textbooks Solutions
Accounting
Managerial Accounting
Management Leadership
Cost Accounting
Statistics
Business Law
Corporate Finance
Finance
Economics
Auditing
Tutors
Online Tutors
Find a Tutor
Hire a Tutor
Become a Tutor
AI Tutor
AI Study Planner
NEW
Sell Books
Search
Search
Sign In
Register
study help
business
financial reporting financial statement analysis and valuation
Financial Statement Analysis And Valuation 6th Edition Peter D. Easton, Mary Lea Mcanally, Gregory A. Sommers - Solutions
M12-25. Estimating Company Value Using DDM with Increasing Perpetuity L06 Assume that a company's dividends per share are projected to grow at 2% each year, its next year's dividend •per share is $ 1.20, and its cost of equity capital is 5%. Estimate the company's per share stock price. :
M12-26. Estimating Company Value Using DDM with Increasing Perpetuity L06 Assume that a company paid $ 1.20 dividend per common share this year, its dividend per share is expected to grow at a constant rate of 2%, and its cost of equity capital is 5%. Estimate the company's per share stock price.
Q13-1.Explain how information contained in financial statements is useful in pricing securities. Are there some components of earnings that are more useful than others in this regard? What nonfinancial information might also be useful?
Q13-2.In general, what role do expectations play in pricing equity securities? What is the relation between security prices and expected returns (the discount rate, or WACC, in this case)?
Q13-3.What are free cash flows to the firm (FCFF) and how are they used in the pricing of equity securities?
Q13-4.Define the weighted average cost of capital (WACC).
Q13-S.Define net operating profit after tax (NOPAT).
Q13-6.Define net operating assets (NOA).
Q14-1. In general , what role do expectations play in pricing equity securities? What is the relation between security prices and expected returns (the discount rate, or WACC, in this case)?
Q14-2. Define the weighted average cost of capital (WACC).
Q14-3. Define net operating profit after tax (NOPAT).
Q14-4. Define net operating assets (NOA).
Q14-S. Define the concept of residual operating income (ROPI). How is residual operating income used in pricing equity securities?
Q14-6. What insight does disaggregation of RNOA into net operating profit margin and net operating asset turnover provide for managing a company?
Q14-7. Explain what is meant by the phrase "steady state" when applied to equity valuation models.
Q14-8. What is one way to refine equity valuation models for companies that have not achieved steady state?
Q15-1. Identify the advantages of valuation using market multiples compared to valuation using discounted cash flows or discounted residual operating income.
Q15-2. Identify the disadvantages of valuation using market multiples compared to valuation using discounted cash flows or discounted residual operating income.
Q15-3. This module referred to the residual operating income model described in Module 14. Explain what a company-value-to-net-operating-assets ratio equal to 1 implies about future residual operating income.
Q15-4. Describe the factors that should be considered in choosing comparable companies for computation of the market multiples company-value-to-net-operating-assets and the price-to-book-value.
Q15-5. The "E" in the PE ratio can be determined in several ways. Identify at least three different variations in measuring earnings for the PE ratio.
Q15-6. Referring to residual income, PE can be expressed in terms of cost of equity capital, the present value of expected changes in residual income, dividends, and earnings. Explain what a PE ratio of l I implies about market growth expectations for a company with a cost of equi ty capital equal
QlS-7. Barron's Online posted the following headline in early October 2007: Cisco: Goldman Ups Target On'Stronger Multiple Outlook'. Explain what this headline means .
Q3-1. Explain in general terms the concept of return on investment. Why is this concept important in the analysis of financial performance?
Q3-4. When might a reduction in operating expenses as a percentage of sales denote a short-term gain at the cost of long-term performance?
Q3-5. Describe the concept of asset turnover. What does the concept mean and why is it so important to understanding and interpreting financial performance?
Q3-6. Explain what it means when a company's ROE exceeds its RNOA. What about when the reverse occurs?
Q3-7.Discontinued operations are typically viewed as a nonoperating activity in the analysis of the balance sheet and the income statement. What is the rationale for this treatment?
Q3-8. Describe what is meant by the "tax shield."
Q3-9. What is meant by the term "net" in net operating assets (NOA)?
Q3-10. Why is it important to disaggregate RNOA into net operating profit margin (NOPM) and net operating assets turnover (NOAT)?
Q3-11. What insights do we gain from the graphical relation between profit margin and asset turnover?
Q3-12. What analysis challenge arises when a company's equity is negative? What can be done to meet the challenge?
Q3-13. Identify at least two factors that limit the usefulness of ratio analysis.
Q3-14. Define (1) net nonoperating obligations and (2) net nonoperating expense.
Q3-15. What is the chief difference between the traditional DuPont disaggregation of ROE and the disaggre- gation based on RNOA?
Q3-16. What is meant by the term "cash conversion cycle"?
Q3-17. What insights can be gained from a common-size (vertical analysis) income statement or balance sheet?
M3-18. Compute ROE Selected balance sheet and income statement information for Facebook Inc. follows. Compute the return on equity for the year ended December 31, 20 18.$millions Dec.31 , 2018 Dec.31,2017 Total assets ................. . .. . .... . .Total liabilities ................•.. •
M3-19. Apply DuPont Disaggregation of ROE Refer to the balance sheet and income statement information for Facebook Inc. from M3-18.a. Compute ROE and disaggregate the ratio into its DuPont components of ROA and financial leverage .b. Disaggregate ROA into profitability and productivity components.
M3-20. Compute Net Oper ating Assets (NOA)Refer to the balance sheet information below for Home Depot. Compute net operating assets for the years ended February 3, 2019, and January 28, 2018 .$millions Feb.3, 2019 Jan. 28, 2018 Operating assets ......... .. .. ...... .. . .Nonoperating assets
M3-21. Compute Net Operating Profit after Tax Refer to the income statement information for Home Depot from M3-20.Assume a statutory tax rate of 22% .a. Compute NO PAT using the formula: NOPAT =Net income+ NNE$40,934 3,595$44,529$16,047 27,028$43,075b. Compute NO PAT using the formula: NOPAT =
M3-22. Compute RNOA with Disaggregation Refer to the balance sheet and income statement information for Home Depot from M3-20.a. Compute return on net operating assets (RNOA) .b. Disaggregate RNOA into components of profitability and productivity and show that the product of the two components
M3-23. Compute RNOA, Net Operating Profit Margin, and NOA Turnover Selected balance sheet and income statement information for Netflix I nc. the world's leading Internet entertainment service, follows .$ thousands Ticker 2018 Revenue Netflix, Inc. . . . . . . . . . . . . . . NFLX $15,794,341a.
M3-2 4. Ide ntif y and Compute Net Operating Assets Foll owin g is th e b alan ce s heet for Lowe ' s Compa nies Inc. Identify and co mpute net o pe rating assets(NOA) as of Fe bruary l , 20 19. Assume th at lo ng-tenn inve stme nt s are no noperating.LOWE'S COM PANIES INC.Cons o lidated Balance
M3-25. Id e ntify a nd C ompute NOPAT Feb. 1, 2019$ 511 218 12,56 1 938 14,228 1 8,432 256 294 303 995$34,508$ 722 1, 11 0 8,279 662 1,299 2,425 14,497 14,39 1 827 1,149 30,864 0401 03,452(209)3,644$34,508 Fo ll owi n g is the income sta te ment for Lowe ' s C ompanies Inc. Co mpute it s ne t ope
M3-26. Compute DuPont Analysis Ratios Selected balance sheet and income statement information for Humana Inc., a health and well-being company, follows .$millions 2018 Ticker Revenue Humana Inc . . . . . . . . . HUM $56,912 2018 Net income$1,683 Compute the following 20 18 ratios for Humana.a.
M3-27. Compute RNOA, Net Operating Profit Ma rgin, and NOA Turnover for Competitors Selected balance sheet and income statement information for the fiscal year ended February 2, 20 19, for Abercrombie & Fitch Co. and TJX Companies Inc., clothing reta ilers in the high-end and valuepriced segments,
M3-28. Compute NOPAT Selected income statement information for 201 8 is presented below for Home Depot Inc. and Lowe's Companies Inc. Assume the statutory tax rate is 22%.Pretax Net Average Net Nonoperating Tax Operating Company ($ millions) Ticker Sales NOPBT Expense Expense Assets Home Depot ...
E3-29.Compute Cash Conversion Cycle for Competing Firms Halliburton and Schlumberger compete in the oil field services sector. Refer to the following 2018 financial data for the two companies to answer the requirements.$ mlllions Total revenue ..... . .............. . .. . ..... . ... . . ... .Cost
E3-30.Compute Measures for DuPont Disaggregation Analysis ANALYST ADJUSTMENTS 3.1 Use the information below for 201 8 for 3M Company to answer the requirements (perform these computations from the perspective of a 3M shareholder).$millions Sales .. . .. . ... . ....... . .. . ........... . • . .
E3-31.Compute ROA and Adjusted ROA ANALYST ADJUSTMENTS 3.1 CSX Corpor ation reported the following in its tax footnote to its 2019 financial statements. Use this information to answer the requirements.$millions 2019 2018 2017 Net income . .. .. .. . ... . .. . ... . .. $ 3,331 $ 3,309 $ 5,471
E3-32.Compute ROA and Adjusted ROA ANALYST ADJUSTMENTS 3.1 The following information was reported by Yum Brands in its form 10-K. Use this information to answer the requirements.$millions Net income ............. .Interest expense, net ... .. .Average total assets ...... .December 31 , 2019$1 ,294
LOS E3-33.Determine Marginal Tax Rate and the Tax on Operating Profit ANALYST ADJUSTMENTS 3.3 Amgen Inc. reported the following in its tax footnote to its 201 8 financial statements. Use this information to answer the requirements .The reconciliations between the federal statutory tax rate applied
L06 E3-34.Compare GAAP and non-GAAP Measures ANALYST ADJUSTMENTS 3.4 FedEx Corporation reported the following in its May 3 1, 2019 annual earnings release.Dollars in millions, except EPS Net Income Diluted EPS GAAP measure .... ..... .. ............. $ 540 $ 2.03 MTM retirement accounting
E3-35. Adjusting for Negative Equity ANALYST ADJUSTMENTS 3.2 Phillip Morris reported the following information in its 2018 Form I 0-K.$millions 31-Dec-18 31-Dec-17 Stockholders' (Deficit) Equity Common stock, no par value (2, 109,316,331 shares issued in 2018 and 2017) .. . $ 0 $ 0 Additional
E3-36.Compare GAAP and non-GAAP Measures ANALYST ADJUSTMENTS 3.4 FMC Corpor ation reports the following non-GAAP information in its 2018 form 10-K. Use this information to answer the requirements.The following chart, which is provided to assist the readers of our financial statements, depicts
E3-37.Compute, Disaggregate, and Interpret RNOA of Competitors Ha llibur ton and Schlumberger compe te in the oil field services sector. Refer to the following 2018 financial data for the two companies to answer the requirements.$millions Total revenue .. .. ......... . .. .. .Pretax net
L01, 2, 3 E3-38.Disaggregate Traditional DuPont ROE Graphical representations of the KLA-Tencor 2018 income statement and average balance sheet numbers(2017-2018) fo llow($ thousands).Average Balance Sheet 2017-2018a. Compute return on equity (ROE).b. Apply the DuPont disaggregation into return on
L01, 6, 7 E3-39.Compute, Disaggregate, and Interpret ROE and RNOA Graphical representations of the Ingersoll Rand 2018 income statement and average balance sheets(2017-2018) follow .a. Compute the 2018 return on equity (ROE) and 2018 return on net operating assets (RNOA).b. Disaggregate RNOA into
E3-40. Compute and Compare ROE, ROA, and RNOA Refer to the balance sheet and income statement infonmation for KLA-Tencor Corpor ation in E3-38.a. Compute return on equity (ROE).b. Compute return on assets (ROA).c. Compute return on net operating assets (RNOA).d. Compare the three return metrics and
E3-41.Directly Compute Nonoperating Return with Noncontrolling Interest Selected balance sheet and income statement information from Abbott Laboratories for 201 8 follows($ millions).Net income . .. .. . ...... .. .. . ......... .. ...... . .Net income attributable to Company shareholders . . ..
E3-42.Directly Compute Nonoperating Return with Negative NNO LOS Selected balance sheet and income statement information from Amgen Inc. for 2018 follows ($ millions).Net income . .. . ...................... .. . .Net operating profit after tax (NOPAT) ..... . . . .Net nonoperating expense (NNE)
E3-43.Compute NOPAT The income statement for TJX Companies follows.TJX COMPANIES$ 8,394 8,954 560 18,015(856)18,871 Consolidated Statement of Income Fiscal Year Ended ($thousands)Net sales . . ........ . .. .. ... . ..... .. .......... . .. • .. •. .Cost of sales, including buying and occupancy
P3-44.L04, 5, 6, 7, 8 Analysis and Interpretation of Profita bility Balance sheets and income statements for 3M Company fo llow.3M COMPANY Consolidated Statements of Income For Years Ended December 31 ($ millions) 2018 Net sales . .......... . .. .. .. . ...... . .. . .. .. • .. . .. ... ..
3 -45. Compute the DuPont Disaggr egation o f R OE Refer to the balance s heets and in come s tatement be low for Facebook Inc.FACEBOOK INC.Consolidated Statement of Income For Year Ended December 31, $ millions Revenue ...... . .. . ........ . ..... • .... . • . ... . ..... .... . . ... .
P3-46.Direct Computation of Nonoperating Return Refer to the financial information of 3M Company in P3-44 to answer the fo llowing requirements. In 20 18, 3M's return on equity (ROE) is 50.09% and its return on net operating assets (RNOA) is 25.89% .Requireda. Compute net nonoperating expense (NNE)
P3-47. A nal ysi s and Interpretatio n o f Profitability Bal ance sheet s and i ncome st atement s for Costco W ho lesal e Corpor atio n follow.COSTCO WHOLESALE CORPORATION Consolldated Statement of Income For Fiscal Years Ended($ millions) September 2, 2018 Total reven ue...... ................. .
P3-48.Direct Computation of Nonoperating Return with Noncontrolling Interest Refer to the financial information of Costco Wholesale Corpor ation in P3-47 to answer the following requirements. In 201 8, Costco's return on equity (ROE) is 26.59% and its return on net operat ing assets(RNOA) is
L01, 4, 5, 6, 7 P3-49.Analysis and Interpretation of Ratios When RNOA Exceeds ROE The balance sheets and income statement for Facebook Inc. are found in P3-45. Use these financial statements to answer the requirements .Requireda. Compute net operating profit after tax (NO PAT) for 2018. Assume that
L01, 8 P3-50 Compute ROE and Nonoperating Return with Negative NNO and No Noncontrolling Inter est Refer to the balance sheets and income s tatement for Facebook Inc. in P3-45. Use these financials to answer the requirements. For the 2018 fiscal year, Facebook had a return on net operating assets
P3-5l.Analysis and Interpretation of ROE and RNOA with No Noncont rolling Interest The 2018 balance sheets and income statement for Netflix Inc. follow. Refer to these financial statements to answer the requirements.NETFLIX INC.Consolidated Statement of Earnings For Year Ended December 31 , $
P3-52.Compute and Analyze Measures for DuPont Disaggregation Analysis Refer to the 201 8 financial data of Netflix Inc. in P3-5 l to answer the following requirements.Requireda. Compute ROE and ROA for 2018.b. Confirm that ROE equa ls ROE computed using the component measures for profit margin,
L07 P3-53.Analysis and Interpretation of Profit Margin, Asset Turnover, and RNOA Net operating profit margin (NOPM) and net operating asset turnover (NOAT) for several selected companies for the most recent year follow.NOPM NOAT NOPM NOAT Abbott Laboratories .. . 9.61% 0.63 Halliburton . ..........
L03 P3-54.Compute Cash Conversion Cycle for Competing Firms Kellogg's Compa ny and General Mills compete in the consumer packaged goods (CPG) sector. Refer to the following 2018 financial data for the two companies to answer the requirements.$ mlllions K GIS Total revenue ......... . .. ....
P3-55.Using Compustat Data and Data Visualization Software to Interpret ROE, RNOA, and ROA Consider the data graphics for Boston Scientific at the start of the Module. Access the Excel file of Compustat data available at the MBC website and use data visualization software such as Power BI or
13-56.Compute, Disaggregate, and Interpret ROE and RNOA Headquartered in Calgary, Alberta, Husky Energy Inc. is a publicly traded, integrated energy company.Selected fiscal year balance sheet and income statement information for Husky Energy follow (Canadian$ millions).C$ millions Revenues, net . .
D3-57. Gross Profit and Strategic Management L03 One way to increase overall profitability is to increase gross profit. This can be accomplished by raising prices and/or by reducing manufacturing costs.Requireda. Will raising prices and/or reducing manufacturing costs unambiguously increase gross
D3-58. Asset Turnover and Strategic Management L03 Increasing net operating asset turnover requires some combination of increasing sales and/or decreasing net operating assets. For the latter, many companies consider ways to reduce their investment in working capital (current assets less current
L03 03-59. Ethics and Governance: Earnings Management Companies are aware that analysts focus on profitability in evaluating financial performance. Managers have historically utilized a number of methods to improve reported profitabil ity that are cosmetic in nature and do not affect " real"
Q2-l.The balance sheet consists of assets, liabilities, and equity. Define each category, and provide two examples of accounts reported within each category.
Q2-3.GAAP is based on the concept of accrual accounting. Define and describe accrual accounting.
Q2-4.Analysts attempt to identify transitory items in an income statement. Define transitory items. What is the purpose of identifying transitory items?
Q2-S.What is the statement of stockholders' equity? What useful information does it contain?
Q2-6.What is the statement of cash flows? What useful information does it contain?
Q2-7.Define and explain the concept of financial statement articulation. What insight comes from understanding articulation?
Q2-9.What are the two essential characteristics of an asset?
Q2-10.What does the concept of liquidity refer to? Explain.
Q2-11.Why do companies "close" their books at the end of each accounting period?
Q2-12.Assets are recorded at historical costs even though current market values might, arguably, be more relevant to financial statement readers. Describe the reasoning behind historical cost usage.
Q2-13.Ide ntify three intangible assets that are likely to be excluded from the balance sheet because they cannot be reliably measured. Identify three intangible assets that are recorded on the balance sheet.
Q2-14.What types of accounts are closed at the end of the accounting year? What are the three major steps in the closing process?
Q2-15.What are accrued liabi lities? Provide an example.
Q2-16.Define net working capital. Explain how increasing the amount of trade credit can reduce the net working capital for a company.
Q2-17.What is the difference between company book value and market value? Explain why these two amounts differ.
Q2-18Describe the linkage between the income statement and the equity section of the balance sheet. Describe the linkage between the statement of cash flows and the equity section of the balance sheet when a company pays dividends.
M2-19. Identify and Classify Financial Statement Items L01, 2 For each of the following items, indicate whether they would be reported in the balance sheet (B) or -1-0"'• .. ., income statement (I). •_a. Net income _b. Retained earnings _c. Depreciation expense _d._ e._f Accumulated
M2-20..Identify and Classify Financial Statement Items For each of the following items, indicate whether they would be reported in the balance sheet (B) or income statement (I)._a. Machinery __e. Common stock /. Taxes expense _b. Supplies expense _f Factory buildings _j. Cost of goods soldc.
M2-21.Collect and Use Information from Form 8-K On February 28, 2019, Kraft Heinz filed a Form 8-K Current Report with the SEC. What important announcement did Kraft make that day? Hint: Use the SEC website (www.sec.gov/edgar/searchedgar/companysearch.html) to find the Form 8-K.
M2-22.Assign Accounts to Sections of the Balance Sheet Identify each of the following accounts as a component of assets (A), liabilities (L), or equity (E).__a. Cash and cash equivalents _e. Long-term debt _b. Wages payable _f Retained earnings c Common stock _ g. Additional paid-in capitald.
Showing 900 - 1000
of 1960
First
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Last
Step by Step Answers
Get 50% OFF
Claim Now
