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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
QS-5. What effect, if any, does a weakening $US have on reported sales and net income for subsidiaries of U.S. companies?
QS-4. The income statement line item "Discontinued operations" typically comprises two distinct components.What are they?
QS-3. Why do companies allow sales returns, and how does this business practice affect reported revenue?
QS-2. Explain how management can shift income from one period into another by using the allowance for uncollectibles account.
QS-1. What is a performance obligation and how is it related to revenue recognition?
D4-40. E thics and Corporate Governance: Meeting Debt Covenants Companies rout inely face debt covenants and occasionally these covenants are binding. That is, the company's fi nancial statements indicate that the covenant has been violated or is close to being violated.Managers have historically
14-39. Compute and Interpret Z-score CANADIAN TIRE CORPORATION LIMITED(CTC-A.TO)Refer to the financial statements for Can adian Tire in I4-38. Use the fo llowing information to answer the requirements.Required 2018 2017 Shares outstanding. . . . . . . . . . . . . . . . . . 59,478,460 63,066,561
14-38.Compute and Interpret Liquidity, Solvency and Coverage Ratios Canadian Tire is a retail company that sells a wide range of automotive, hardware, sports and leisure, and home products. The company's head office is in Toronto, Ontario, and is listed on the Toronto Stock Exchange. Balance
P4-37.Compute and Interpret Z-score Refer to the financial information for Costco in Problem P4-33, to answer the requirements. Costco's stock closed at $294.76 on August 30, 2019 (the last trading day before fiscal year end).Requireda. Compute and interpret the company's Altman Z-scores for
P4-36.Compute and Interpret Z-score Refer to the financial statements for Nike in Problem P4-3 I to answer the requirements. The company's stock closed at $77.14 on May 3 1, 2019, and $71.80 on May 31, 2018.Requireda. Compute and compare the Altman Z-scoresfor both years. What explains the
P4-3S.Compute Z-Scores and Prepare Data Visualization from Data Set Access the Module 4 data set using MyBusinessCourse site to answer the requirements.Requireda. Compute Z-Scores for all S&P retailers for all years in the data set. Retailers have 3-digit NAICS codes from 443 to 454 inclusive.
L03 P4-34. Restating Revenue for Retailer with 53-Week Fiscal Year ANALYST ADJUSTMENTS 4.1 In a press release that accompanied its 2016 annual earnings announcement of Michael Kors Holdings Ltd, its CEO John D. Idol, said, "We are pleased with our financial and operational accomplishments during
P4-33. Assess Credit Risk Financial statement information for Costco follows. Refer to these financial statements to answer the requirements.COSTCO WHOLESALE CORPORATION Consolidated Balance Sheets Amounts in millions, except par value and share data Assets Current assets Cash and cash equivalents
P4-32.Assigning a Long-Term Debt Rating Using Financial Ratios Refer to the Nike 2019 financial statements, from Problem P4-3 l to answer the following requirements.Requireda. Compute the following Moody's metrics for Nike.l. Debt/EBITDA 2. EBITA to interest expense 3. Revenue 4. Retained Cash
P4-31. Compute and Interpret Liquidity, Solvency, and Coverage Ratios NIKE, INC. Information from the balance sheet, income statement, and statement of cash flows for Nike follows.(NKE) Refer to these financial statements to answer the requirements .NIKE, INC.Consolldated Statements of Income Year
L03 E4-30.Adjusting for Off-Balance Sheet Liabilities ANALYST ADJUSTMENTS 4.2 Fitch 's current analytical approach views operating leases as a debt-like form of funding and their analysts adjust core leverage and coverage ratios using a multiple to create a debt-equivalent for a ll companies that
E4-29.Adjusting Financial Information Prior to Credit Analysis ANALYST ADJUSTMENTS 4.2 Target reports the following financial information in its fom1 10-K dated February 2, 2019. Note: Target had not yet adopted the new lease standard .$millions Feb. 2, 2019 Feb. 3,2018 Total liabilities
E4-28. Compute and Interpret Altman's Z-scores Following is selected financial information for Netflix, for 2018 and 20 17.$ thousands, except per share data 2018 Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,694, 135 Current liabilities . . . . . . . . . .
E4-27.Compute and Interpret Z-scores Following is selected financial infonnation for Proct er & Gamble Co. and Kimberly-Clark from their fiscal 2019 financial statements.$millions Procter & Gamble Kimberly-Clark Working capital .. .. .. .. . ... . .. .. .. .. .. . ..... .Retained earnings . .
E4-26. Compute and Interpret Liquidity, Solvency, and Coverage Ratios Selected balance sheet and income statement infonnation for Starbucks for 2018 and 2017 follows.$millions Cash ........................ . .. .. ....• . . • .. . ..Short-term investments .. . .. . .......... .. • .. •
E4-25.Compute and I nterpret Solvency Ratios for Business Segme nts Se lected balance sheet and income statement information from Ford Motor Company and its two principal business segments, Automotive and Financial Services, for 2018 follows.$millions Automotive . . .. .. .. .. ..... .Financial
E4-24. Compute and Interpret Coverage, Liquid ity and Solvency Ratios AMAZON Selected balance sheet and income statement information from Amazon for 2016through2018 follows.$ millions Net operating profit after tax (NOPAT). . . . . . . . . . . . . . . . . . $Net income
E4-23. Compute and Interpret Ratios Selected balance sheet and income statement information from Illinois Tool Works follows.Required$millions Net operating profit after tax (NOPAT) .. . .. .Net income ....................... . .. .Total assets ... . .......... . ... .. .. • .. .Equity . .. .
E4-22. Assigning a Long-Term Debt Rating Using Financial Ratios Refer to the information below from Stryker 's 2018 financial statements. Use the information to answer the requirements($ millions).Revenue ... . .......... . ...... $13,601 Interest expense, gross . . . . . . . . . . . . . . . . . .
M4-21. Bankruptcy Risk and Z -Score Analysis$ 263,194$ 847,785$ 2,788,322 165,862,887 Following are selected ratios for T esla for two recent fiscal years. Compute and interpret A ltman Z-scores for the company for both years. Is the company's bankruptcy risk increasing or decreasing over this
M4-20. Bankruptcy Risk and Z -Score Analysis 2017$20,084 2016$19,681 Following are selected ratios for Logitech International SA for the company's 2019 fiscal year. Compute and interpret the Altman Z-score.$ thousands, except per share Current assets . . . . . . . . . . . . . . . $1 ,350,436 EBIT
L03 M4-19. 53 Week Fiscal Year ANALYST ADJUSTMENTS 4.1 KOHL'S(KSS)LOS LOGITECH INTERNATIONAL SA(LOGI) •LOS TESLA INC.(TSLA) •Kohls reports the following financial information in its form 10-K .Our fiscal year ends on the Saturday closest to January 31st each year. Unless otherwise stated,
M4-18. Risk Analysis Using Profitability, Coverage, Liquidity and Solvency BEST BUY Following are liquidity, solvency and coverage ratios for Best Buy for fiscal years ended February 2019(BBY) and 2012. Compare the company's risk profile across the two years. What can we learn from an internet
M4-17. Risk Analysis Using Liquidity, Solvency and Coverage Ratios 27.6%7.2 9.9%1.1 Following are liquidity, solvency and coverage ratios for Pier 1 Imports for two recent fi scal years. Is the company more or less risky to creditors in 2019 compared to 2014? Use the internet to determine what
M4-16. Analyzing Notes, Yields, Financial Ratios, and Cr edit Ratings Following are selected ratios from Exhibit 4.8 computed for Comcast Corp. from its December 2019 Form 10-K. Comcast is rated "A3'' by Moody's, which is an upper medium grade. Compare Comcast's ratios to the ratio values reported
M4-1S. Calculating and Interpreting Cr edit Risk L02 Consider the following information for three companies($ millions). (a) Determine expected credit loss for each company. (b) Which company has the highest credit risk?Company Chance of default A......... 10%B.. ....... 25%C......... 40%Loss given
Q4-14. Explain in general terms, the Altman bankruptcy prediction model. What do each of the five model variables measure?
Q4-13. What is a credit rating? Why do companies care about their credit ratings?
Q4-12. Why do lenders impose debt covenants on borrowers? Explain the three types of debt covenants.
Q4-11. Why do lenders require collateral? What are some common types of collateral?
Q4-10. What two factors determine a company's level of credit risk? Explain what each factor tries to measure.
Q4-9. Explain the concepts of liquidity and solvency. Why is performance on these two dimensions crucial to company survival? How does coverage analysis differ from measures of liquidity and solvency?
Q4-8. Why are missing or understated liabilities especially critical for credit analysis?
Q4-7. What are the four steps to assess the chance of default for a company?
Q4-6. What is credit risk? What is the main purpose of performing a credit analysis?
Q4-5. Identify and explain at least three means that banks have to extend credit to companies.
Q4-4. Distinguish between a line of credit and a letter of credit. Why do companies obtain lines of credit?
Q4-3. Identify at least three parties that routinely supply credit to companies.
Q4-2. Explain how a company's need of cash for investing activities differs over that company's life cycle. Suggest three reasons a company would borrow cash for financing activities.
Q4-1. Companies often borrow money to fund operating activities. Why do lenders distinguish between cycli- cal cash needs and cash needed to fund operating losses?
How long do you think it will take South Korea to develop a vibrant stock market?What are the impediments? Are the changes contemplated adequate for the development of a vibrant stock market? What other steps would you recommend?AppendixLO1
Is it a good idea for South Korea to rely more on the stock market as a source of corporate finance? Is it a good idea from the perspective of the chaebols?AppendixLO1
To prevent another bad loan problem in the future, what changes should be made in South Korean banks?AppendixLO1
What are the merits and demerits of a stock versus a bank system of financing?AppendixLO1
Four steps for business analysis are discussed in the chapter (strategy analysis, accounting analysis, financial analysis, and prospective analysis). As a financial analyst, explain why each of these steps is a critical part of your job, and how they relate to one another.AppendixLO1
Joe Smith argues that “learning how to do business analysis and valuation using financial statements is not very useful, unless you are interested in becoming a financial analyst.” Comment.AppendixLO1
Accounting statements rarely report financial performance without error. List three types of errors that can arise in financial reporting.AppendixLO1
John, who has just completed his first finance course, is unsure whether he should take a course in business analysis and valuation using financial statements, since he believes that financial analysis adds little value, given the efficiency of capital markets.Explain to John when financial
QI0-1. Under the lease standards effective for 2019, how are leases treated on the balance sheet?
QI0-2. What are the four criteria that distingu ish a finance lease from an operating lease?
QI0-3. Is the expense of a lease over its entire life the same for operating and finance leases? Explain.
QI0-4. What are the economic and accounting differences between a defined contribution plan and a defined benefit plan?
QI0-5.Under what circumstances will a company report a net pension asset? A net pension liability?
QI0-6.What are the components of pension expense that are reported in the income statement?
QI0-7.What effect does the use of expected returns on pension investments and the deferral of unexpected gains and losses on those investments have on income?
QI0-8.What are the two components of income tax expense?
QI0-9.Why do deferred taxes arise?
QI0-10.What is a valuation allowance for deferred tax assets?
QI0-11.Describe the income statement effect if a company reduced a deferred tax asset valuation allowance by $10 million.
QI0-12. What is a tax loss carryforward and how does it create an economic benefit for a company?
QI0-13. How do companies compute income tax expense for financial reporting purposes?
Qll-1.Identify at least two applications that use forecasted financial statements.
Qll-2.In what order do we normally forecast the financial statements? Explain the logic of this order.
Qll-3.Why do we begin the forecasting process by adjusting the financial statements?
Qll-4.What does the concept of financial statement articu lation mean in the forecasting process?
Qll-5.Analysts commonly perform a sensitivity analysis following preparation of financial forecasts. What is meant by sensitivity analysis, and why is it important?
Qll-6.Cash is forecast as the last item on the balance sheet. Why is this the case?
Qll-7.In addition to recent revenues trends, what other types and sources of information can we use to help us forecast revenues?
Qll-8.Why do we refine the forecasted cash balance? How might we deal with a cash balance that is much too low compared with the company's normal cash level?
Qll-9.Identify at least three sources of additional information we could use to refine our forecast assumptions.
Qll-10.Capital expenditures are usually an important cash outflow for a company, and they figure prominently into forecasts of net operating assets. What sources of information about capital expenditures can we draw upon?
QI2-1.Describe how to compute the present value of a debt security such as a bond.
QI2-2.Discuss differences between valuing a bond and valuing the equity of a company.
QI2-3.What is a market beta? Discuss what a beta of 1.0 represents. What does a beta of 0.5 represent?A beta of 2.0?
QI2-4.Discuss the limitations associated with using beta to compute the cost of equity capital.
QI2-S.Discuss the diffe rence between a company's intrinsic value and the company's stock price.
QI2-6.Describe how to compute the after-tax cost of debt capital.
QI2-7.Explain what the market premium represents. Describe how to compute the cost of equity capital using beta, the risk-free rate, and the market premium.
QI2-8.What is a company's cost of capital? Explain.
Ql2-9.What are the three criteria for a series of payments to be considered an annuity?
Ql2-10.What is a pe rpetuity? How is the present value of a perpetuity computed?
Ql2-ll.Describe how to compute the present value of an increasing perpetuity.
QI2-12.Describe the ci rcularity that occurs when beta is used to help estimate an intrinsic value for comparison to market prices.
M12.13. Computing the Present Value of a Debt Security Compute the present value of a five-year bond with a face value of $1,000, a l 0% annual cou pon payment, and an 8% effective rate.
MI2-14. Computing the Present Value of a Debt Security Compute the present value of a three-year bond with a face value of $5,000, an 8% annual coupon payment, and a 9% effective rate.
Ml2-IS. Estimating Cost of Equity Capital Assume that a company's market beta equals 0.8, the risk-free rate is 5%, and the market retu rn equals 8%. Compute the company's cost of equity capital.
MI2-16. Estimating Cost of Equity Capital Assume that the company's market beta equals -0.8, that the risk-free rate is 5%, and the market return equals 8%. Compute the company's cost of equity capital.
Ml2-17. Estimating the Implied Cost of Equity Capital Assume that a company's beginning-of-period price is $ 10 per common share, its dividends are $0.25 per share, and its end-of-period price is$ I 0.50 per common share. What is the company's expected cost of equity capital?
Ml2-18. Estimating the Implied End-of-Year Share Price Assume that a company's beginning-of-period price is $15 per common share, its dividends are$ I per share, and its expected cost of equity capital is l 0%. What is the expected end-of-period price per common share?
MI2-19. Estimating Cost of Debt Capital Assume that the interest rate on a company's debt is 6% and that the company's tax rate is 21 %. Compute the company's cost of debt capital.
Ml2-20. Estimating Cost of Debt Capital Assume that a company's financial statements report that its average outstanding debt totals$ L.6 bi llion, and its total interest expense equals $80 million. If its tax rate is 2 1 %, compute its cost of debt capital.
Ml2-21. Estimating Weighted Average Cost of Capital Assume that a company has $ 1.2 bill ion in debt, its cost of debt is 5%, it has $2 billion in equity, and its cost of equity capital is 7%. Compute the company's WACC.
Ml2-22. Estimating Weighted Average Cost of Capital Assume that a company has $1 bi ll ion in preferred stock and $3 billion in common stock. Also, it pays 6% dividends on preferred stock and its cost of equity capital is 7%. The company has no debt. Compute the company's WACC.
M12-23. Estimating Company Value Using DDM with Constant Perpetuity LOS Assume that a company's dividends per share are projected to remain at $ 1.20 each year, and that its cost ii of equity capital is 5%. Estimate the company's per share stock price. :
M12-24. Applying DDM with Constant Perpetuity LOS Assume that a company's dividends per share are projected to remain at $1.10 in perpetuity, and that its per share stock price is $22. Estimate the company's cost of equity capital.
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