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financial statement analysis

Financial Statement Analysis And Valuation 5th Edition Peter D. Easton, Mary Lea McAnally, Gregory A. Sommers - Solutions

Describe how to compute the after-tax cost of debt capital.
Discuss the difference between a company’s intrinsic value and the company’s stock price.
Discuss the limitations associated with using beta to compute the cost of equity capital.
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?
Discuss differences between valuing a debt security and valuing the equity of a company.
Describe how to compute the present value of a debt security such as a bond.
????????????-???????????? ????orecast ????sing the ????arsimonious ????ethod ????elstra ????orporation ????imited is an Australian telecommunications and media company that builds and provides land-based and mobile telecom services along with Internet and pay television products. The company is
Sensitivity Analysis of Forecasted Income Statement Following is the income statement for First Solar Inc. for the year ended December 31, 2015.Consolidated Statements of Operations$ thousands 12 Months Ended Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2013 Net sales. . . . . . . . . . . . . . . . . . . .
Two-Year-Ahead Forecast of Financial Statements Following are the financial statements of Target Corporation from its FY2015 annual report.???????????????????????? ????????????P????????????????????????????Consolidated Statements of Operations$ millions 12 Months Ended Jan. 30, 2016 Jan. 31, 2015
Forecast the Income Statement, Balance Sheet, and Statement of Cash Flows Following are the financial statements of Home Depot Inc. for fiscal year ended January 31, 2016.???????????????? D????????????T ????????????????Consolidated Income Statement For Fiscal Year Ended ($ millions) Jan. 31, 2016
Forecast the Income Statement, Balance Sheet, and Statement of Cash Flows????ollowing are the financial statements of Nike Inc.???????????????? ????????C????Consolidated Income Statement For Year Ended ($ millions) May 31, 2016 May 31, 2015 Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Forecast the Income Statement, Balance Sheet, and Statement of Cash Flows Following are fiscal year financial statements of Cisco Systems Inc.CISCO SYSTEMS INC.Consolidated Statements of Operations Years Ended (in millions) July 30, 2016 July 25, 2015 Revenue Product . . . . . . . . . . . . . . . .
Projecting NOPAT and NOA Using Parsimonious Forecasting Method Following are 3M Company’s sales, net operating profit after tax (NOPAT), and net operating assets(NOA) for its fiscal year ended 2015 ($ millions).Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projecting NOPAT and NOA Using Parsimonious Forecasting Method Following are Cisco Systems’ sales, net operating profit after tax (NOPAT), and net operating assets(NOA) for its year ended July 31, 2016 ($ millions).Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepare a forecast of its FY2017 statement of cash flows.
Forecast the Statement of Cash Flows Refer to the Whole Foods Market Inc. financial information from
Analyze, Forecast, and Interpret Income Statement and Balance Sheet Following are the income statement and balance sheet of Whole Foods Market Inc.WHOLE FOODS MARKET INC.Consolidated Statements of Operations Fiscal Years Ended (in millions) Sept 25, 2016 Sept 27, 2015 Sales. . . . . . . . . . . . .
Refine Cash Balance and Consider Capital Structure Consider the following actual FY2017 data and a forecast of FY2018 selected balance sheet and income statement numbers.$ millions ???????????????????????? ????????tu????l ???????????????????????? ????st????Net sales. . . . . . . . . . . . . . . . .
Forecast the Statement of Cash Flows Refer to the Medtronic PLC financial information in E11-25.Required Use the information to forecast Medtronic’s FY2017 statement of cash flows.
Forecast Income Statement and Balance Sheet Following are the income statements and balance sheets for Medtronic PLC for the year ended April 29, 2016.Consolidated Statements of Income, 12 Months Ended ($ millions) Apr. 29, 2016 Apr. 24, 2015 Apr. 25, 2014 Net sales. . . . . . . . . . . . . . . . .
Prepare a forecast of its FY2016 statement of cash flows.
Forecast the Statement of Cash Flows Refer to the Amazon.com Inc. financial information from
Analyze, Forecast, and Interpret Both Income Statement and Balance Sheet Following are the income statements and balance sheets of Amazon.com Inc.AMAZON.COM INC.Consolidated Statements Of Operations$ millions Dec. 31, 2015 Dec. 31, 2014 Net product sales . . . . . . . . . . . . . . . . . . . . . .
Prepare a forecast of FY2017 statement of cash flows.
Forecast the Statement of Cash Flows Refer to the AutoZone Inc. financial information in
Analyze, Forecast, and Interpret Income Statement and Balance Sheet Following are the income statements and balance sheets of AutoZone Inc.AUTOZONE INC.Consolidated Statements of Income$ thousands 12 Months Ended Aug. 27, 2016 Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use Segment Information to Refine Sales Forecast To forecast sales growth for FY2018 for a publicly traded company in the retail sector, we begin with the following historical sales information.$ millions 2017 2016 2015 2014 2013 Net sales. . . . . . . . . . . . . . . . . . $46,021 $39,865 $37,536
Refine Assumptions for Dividend and Retained Earnings Forecast Refer to the Medtronic PLC financial information in E11-25 (pertaining to FY2016).Requireda. Use the financial statements along with the additional information below to forecast retained earnings for FY2017.Forecasted net income. . . .
Refine Assumptions for PPE Forecast Refer to the Medtronic PLC financial information in E11-25 (pertaining to FY2016).Requireda. Use the financial statements along with the additional information below to forecast property, plant and equipment, net for FY2017.CAPEX in FY2016. . . . . . . . . . . .
Adjust the Income Statement eBay Inc. reported the following in its 2015 Form 10-K related to its investment in PayPal.Discontinued Operations On June 26, 2015, our Board approved the separation of PayPal. . . .We have classified the results of PayPal as discontinued operations in our consolidated
Forecast the Balance Sheet Following is the balance sheet for Medtronic PLC for the year ended April 29, 2016.Consolidated Balance Sheets ????$ millions???? Apr. 29, 2016 Apr. 2????, 201????Current assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjust the Cash Balance We obtain the following 2018 forecasts of selected financial statement line items for Journey Company.$ millions 2017 Actual 2018 Est.Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $708,554 $740,439 Marketable
Adjust the Cash Balance The forecast of the income statement and balance sheet for Next Generation yields the following.$ millions 2017 Actual 2018 Est.Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,558 $ 6,127 Net sales. . . . . . . . . . . . . . .
Forecast an Income Statement Following is the income statement for Medtronic PLC for the year ended April 29, 2016.Consolidated Statements of Income ($ millions) Apr 29, 2016 Apr 24, 2015 Apr 25, 2014 Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,833 $20,261
Forecast an Income Statement Amazon.com reports the following income statements.Consolidated Statements Of Operations ($ in millions)12 Months Ended December 31 2015 2014 2013 Net product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,268 $70,080 $60,903 Net
Forecast an Income Statement AutoZone Inc. reports the following income statements.Consolidated Statement of Income ($ in Thousands)12 Months Ended Aug. 27, 2016 Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,635,676 Cost of
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?
Identify at least three sources of additional information we could use to refine our forecast assumptions?
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?
Cash is forecast as the last item on the balance sheet. Why is this the case?
Analysts commonly perform a sensitivity analysis following preparation of financial forecasts. What is meant by sensitivity analysis, and why is it important?
What is meant by internal consistency when applied to forecasting assumptions? Give an example of internal inconsistency.
In what order do we normally forecast the financial statements? Explain the logic of this order.
Identify at least two applications that use forecasted financial statements.
Analyzing and Interpreting Income Tax Footnote Telstra Corporation Limited is an Australian telecommunications and media company that builds and provides land-based and mobile telecom services along with internet and pay television products. The company is Australia’s largest enabled mobile
Analyzing and Interpreting Pension Disclosures Potash Corporation of Saskatchewan, the world’s largest potash producer, is a Canadian corporation based in Saskatoon, Saskatchewan. The company produces nitrogen and phosphate used to produce fertilizer. At the end of 2015, the company controlled
Analyzing, Interpreting and Capitalizing Operating Leases LM Ericsson, one of Sweden’s largest companies, is a provider of telecommunication and data communication systems. The company reports total assets of SEK 284,363 and total liabilities of SEK 136,997 for 2015 (in millions). Its annual
Analyzing, Interpreting and Capitalizing Operating Leases Total S.A. is a French multinational oil company and one of the six “supermajor” oil companies in the world. The company is headquartered in Courbevoie, France, and uses IFRS to prepare its financial statements. Total S.A. reports the
Analyzing and Interpreting Income Tax Disclosures Pfizer Inc. reports the following footnote disclosure in its 2015 Form 10-K.$ millions Dec. 31, 2015 Dec. 31, 2014 Deferred tax assets Prepaid/deferred items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,247 $ 1,995
Analyzing and Interpreting Income Tax Footnote Consider the following income tax footnote information for the E. I. du Pont de Nemours and Company.Provision for Income Taxes ($ millions) 2015 2014 Current tax expense on continuing operations U.S. federal . . . . . . . . . . . . . . . . . . . . . .
Reformulation for Deferred Tax Asset Valuation Allowance ADJUSTMENTS 10.3 Use the information provided in P10-47 for Under Armour Inc., along with the information below to answer the requirements.$ thousands 2012 2013 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Analyzing and Interpreting Tax Footnote (Financial Statement Effects Template)Under Armour Inc. reports total tax expense of $154,112 thousand on its income statement for year ended December 31, 2015, and paid cash of $99,708 thousand for taxes. The tax footnote in the company’s 10-K filing,
Analyzing and Interpreting Pension Disclosures Johnson & Johnson provides the following footnote disclosures in its 10-K report relating to its defined benefit pension plans and its other post-retirement benefits.December 31, 2015 ($ millions) Retirement Plans Other Benefit Plans Change in Benefit
Analyzing and Interpreting Pension Disclosures E. I. du Pont de Nemours and Co.’s 10-K report has the following disclosures related to its retirement plans ($ millions).Obligations and Funded Status December 31, 2015 ($ millions)Change in benefit obligation Benefit obligation at beginning of
Reformulation for Multi-Year Capitalization of Operating Leases ADJUSTMENTS 10.1 Use the information provided in Analyst Adjustments 10.1 for Southwest Airlines along with the information below to answer the requirements.$ millions 2013 2014 2015 Net operating assets (NOA) . . . . . . . . . . . . .
Analyzing, Interpreting and Capitalizing Operating Leases FedEx Corp. reports total assets of $46,064 and total liabilities of $32,280 for 2016 ($ millions). Its 10-K report has the following footnote related to leasing activities.A summary of future minimum lease payments under noncancelable
Analyzing, Interpreting and Capitalizing Operating Leases The Best Buy Co. Inc. 10-K report has the following footnote related to leasing activities.The future minimum lease payments under our capital and operating leases by fiscal year (not including contingent rentals) at January 30, 2016, were
Analyzing, Interpreting and Capitalizing Operating Leases Goldman Sachs’ 10-K report contains the following lease footnote. This is the only information it discloses relating to its leasing activity.The firm has contractual obligations under long-term noncancelable lease agreements for office
Determine Income Statement Effect of Capitalized Leases and Use a Calculator to Determine Present Value of Operating Leases Facebook Inc. reports the following in its 2015 Form 10-K.We entered into various capital lease arrangements to obtain property and equipment for our operations.We have also
Using a Calculator and Present Value Table to Impute Interest Rate and Determine Present Value of Operating Leases AutoZone reports the following in its 2015 Form 10-K.The Company leases some of its retail stores, distribution centers, facilities, land and equipment, including vehicles. Other than
Analyzing and Interpreting Income Tax Disclosures Colgate-Palmolive reports the following income tax footnote disclosure in its 10-K report.Deferred Tax Balances at December 31 ($ millions) 2015 2014 Deferred tax liabilities Goodwill and intangible assets. . . . . . . . . . . . . . . . . . . . . .
Analyzing and Interpreting Income Tax Disclosures The income tax footnote to the financial statements of FedEx Corporation follows.The components of the provision for income taxes for the years ended May 31 were as follows:$ millions 2016 2015 2014 Current provision (benefit)Domestic Federal . . .
Analyzing and Interpreting Pension and Health Care Disclosures Verizon Communications Inc. reports the following pension and health care benefits footnote as part of its 10-K report.At December 31, 2015 ($ millions) Pension Healthcare Change in Benefit Obligations Beginning of year . . . . . . . .
Reformulating Financial Statements for Pension Contributions ADJUSTMENTS 10.2 Use the information provided in E10-34 for the Xerox Corporation pension plan, along with the two prior years’ information below, to answer the requirements.$ millions 2013 2014 Cash contributions to pension plan . . .
Analyzing and Interpreting Pension and Health Care Footnote Xerox Corporation reports the following pension and retiree health care (“Other”) footnote as part of its 10-K report.December 31, 2015 ($ millions) Pension Benefits Retiree Health Change in Benefit Obligation Benefit obligation,
Analyzing and Interpreting Pension Disclosures General Mills Inc. reports the following pension footnote in its 10-???? report.Defined Benefit Pension Plans ($ millions) Fiscal Year 2016 Change in Plan Assets Fair value at beginning of year . . . . . . . . . . . . . . . . . . . . $5,758.5 Actual
Analyzing, Interpreting and Capitalizing Operating Leases TJX Companies Inc. reports the following footnote relating to its capital and operating leases in its 10-????report.The following is a schedule of future minimum lease payments for continuing operations as of January 30, 2016:Fiscal Year ($
Analyzing, Interpreting and Capitalizing Operating Leases YUM! Brands Inc. reports the following footnote relating to its capital and operating leases in its 2015 10-K report ($ millions).Future minimum commitments . . . under noncancelable leases are set forth below. At December 26, 2015, the
Analyzing, Interpreting and Capitalizing Operating Leases Staples Inc. reports the following footnote relating to its operating leases in its 10-K report for the 2015 fiscal year ended January 30, 2016 ($ thousands).Future minimum lease commitments due for retail, distribution, fulfillment and
Analyzing and Interpreting Footnote on Operating and Capital Leases Verizon Communications Inc. provides the following footnote relating to leasing activities in its 10-K report.The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2015, are as
Analyzing and Interpreting Leasing Footnote Lowe’s Companies Inc. reports the following footnote relating to its leased facilities in its fiscal 2015 10-K report for the year ended January 29, 2016.The Company leases facilities and land for certain facilities under agreements with original terms
Using Present Value Tables to Determine Present Value of Operating Leases Refer to the information for Coach Inc. in M10-26.Required Assume that the appropriate discount rate for the operating leases is 5%. Use present value tables to determine the present value of the future minimum operating
Using a Financial Calculator to Determine Present Value of Operating Leases Coach Inc. reports the following in its 2015 Form 10-K.The Company leases retail, distribution and office facilities, which expire at various dates through 2036. Future minimum rental payments under non-cancelable operating
Analyzing Tax Expense Crestview Holdings reported the following in its 2015 financial statements.$ millions 2015 2014 Total deferred tax assets . . . . . . . . . . . . . . . . . . . . $ 821 $ 764 Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . 4,089 3,126 Current provision for
Consider the deferred portion of Walmart’s tax provision. Which of the following is plausible? (????int: Consider the tax expense equation in Appendix 10C.)a???? Walmart’s deferred tax assets increased during the year.b???? Walmart’s deferred tax liabilities decreased during the year.c????
Analyzing Tax Expense Refer to the excerpt from Walmart’s 2015 Form 10-K in
Analyzing and Interpreting Income Tax Footnote The following is an excerpt from Walmart’s 2015 Form 10-K.A summary of the provision for income taxes is as follows ($ millions):Current:U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,165
Analyzing and Interpreting Income Tax Disclosures Apple Inc. reports the following footnote disclosure to its 2016 10-K report ($ millions).The provision for income taxes consisted of the following:Fiscal Year Ended September 24, 2016 Federal Current . . . . . . . . . . . . . . . . . . . . . . . .
Analyzing and Interpreting Pension Plan Benefit Footnotes Lockheed Martin Corporation discloses the following funded status for its defined benefit pension plans in its 10-K report.Defined Benefit Pension Plans ($ millions) 2015 Unfunded status of the plans . . . . . . . . . . . . . . . . . . . . .
Analyzing and Interpreting Lease Disclosure Dow Chemical Company provided the following footnote in its 2015 10-K report relating to operating leases.Leased Property The Company routinely leases premises for use as sales and administrative offices, warehouses and tanks for product storage, motor
Analyzing and Interpreting Retirement Benefit Footnote Abercrombie & Fitch Co. discloses the following footnote relating to its retirement plans in its 2015 10-K report.Savings And Retirement Plans The Company maintains the Abercrombie & Fitch Co. Savings &Retirement Plan, a qualified plan. All
Analyzing and Interpreting Pension Disclosures—Plan Assets and Cash Flow YUM! Brands Inc. discloses the following pension footnote in its 10-K report.Pension Plan Assets ($ millions) 2015 Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . $991 Actual return on plan
Analyzing and Interpreting Pension Disclosures—PBO and Funded Status YUM! Brands Inc. discloses the following pension footnote in its 10-K report.Pension Benefit Obligation ($ millions) 2015 Change in benefit obligation Benefit obligation at beginning of year. . . . . . . . . . . . . . . . . . .
Analyzing and Interpreting Pension Disclosures—Expenses and Returns Stanley Black & Decker Inc. discloses the following pension footnote in its 10-K report.$ millions 2015 U.S. Plans Non-U.S. Plans Total Service cost . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.0 $14.4 $ 21.4 Interest
Analyzing and Capitalizing Operating Lease Payments Disclosed in Footnotes Costco Wholesale Corporation discloses the following in footnotes to its 10-K report relating to its leasing activities.At the end of 2016, future minimum payments . . . under noncancelable leases with terms of at least one
Analyzing and Interpreting Lease Footnote Disclosures The GAP Inc. discloses the following schedule to its fiscal 2015 (ended January 30, 2016) 10-K report relating to its leasing activities.The aggregate minimum noncancelable annual lease payments under leases in effect on January 30, 2016, are as
What is a valuation allowance for deferred tax assets? Provide two reasons why the valuation allowance would be reversed.Q10-12.B In general, what effect does deferring and later amortizing deferred gains and losses have on a company’s income statement?Q10-13.CHow do companies compute income tax
Under what circumstances will deferred taxes likely result in a cash outflow?
Why do deferred taxes arise?
What are the two components of income tax expense?
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?
What are the components of pension expense that are reported in the income statement?
Under what circumstances will a company report a net pension asset? A net pension liability?
What are the economic and accounting differences between a defined contribution plan and a defined benefit plan?
Is the expense of a lease over its entire life the same whether or not it is capitalized? Explain.
Are current footnote disclosures sufficient to overcome nonrecognition on the balance sheet of assets and related liabilities for operating leases? Explain.
Under current accounting rules, what are the financial reporting differences between an operating lease and a capital lease? How will this change with the new accounting rules effective in 2019?
D9-57. Ethics and Governance: Equity Carve-Outs Many companies use split-offs as a means to unlock shareholder value. The split-off effectively splits the company into two pieces, each of which can then be valued separately by the stock market. If managers are compensated based on reported profit,
D9-56. Determining the Reporting of an Investment Assume your company acquires 20% of the outstanding common stock of APEX Software as an investment.You also have an option to purchase the remaining 80%. APEX is developing software (its only activity)it hopes to eventually package and sell to
Interpreting Acquisition Transaction with Goodwill In March 2014, Loblaw Companies Limited, Canada’s largest food retailer, acquired Canada’s largest retail pharmacy chain, Shoppers Drug Mart, for $12.3 billion making it the nation’s largest retailer. The following information regarding the

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