You are given an analyst report on Roech AS which has the balance sheet below. Reformulate...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are given an analyst report on Roech AS which has the balance sheet below. Reformulate the above and identify Invested Capital. (4 marks) Assets Operating Cash Cash & Equivalent Equity Investment Accounts Receivable Inventory Property, Plant & Equipment Total Assets £m 77 429 30 3,484 5,872 7,483 17,375 Liabilities and Equity Accounts Payable Accrued Expenses Deferred Tax Liability Deferred Revenue Long Term Debt Preferred Stock Common Equity Liabilities & Equity b) with respect to two performance measures: return on invested capital (ROIC) and return on equity (ROE): i) Discuss the relative superiority between the two as tools to analyse a company's operating performance? ii) Explain any adjustments to the measure you would make to compare two large cap stocks in the same sector, where one has pursued a growth-through-acquisition strategy. (3 marks each) c) What do we observe typically about the trajectory and persistence of excess returns on invested capital? (5 marks) d) Discuss how we incorporate fade in excess returns into a valuation approach? (5 marks) e) Take a company earning a ROIC of 20% with a WACC of 8% and provide a simple numerical example of how a competitive advantage period of 5 years versus a permanent excess return scenario would impact a valuation Use the Credit Suisse fade model where enterprise value is invested capital at the outset of 100, which is assumed to grow at 4%, and one period of economic profit capitalised. £m 3,366 2,223 1,235 1,212 2,911 972 17,375 5,456 You are given an analyst report on Roech AS which has the balance sheet below. Reformulate the above and identify Invested Capital. (4 marks) Assets Operating Cash Cash & Equivalent Equity Investment Accounts Receivable Inventory Property, Plant & Equipment Total Assets £m 77 429 30 3,484 5,872 7,483 17,375 Liabilities and Equity Accounts Payable Accrued Expenses Deferred Tax Liability Deferred Revenue Long Term Debt Preferred Stock Common Equity Liabilities & Equity b) with respect to two performance measures: return on invested capital (ROIC) and return on equity (ROE): i) Discuss the relative superiority between the two as tools to analyse a company's operating performance? ii) Explain any adjustments to the measure you would make to compare two large cap stocks in the same sector, where one has pursued a growth-through-acquisition strategy. (3 marks each) c) What do we observe typically about the trajectory and persistence of excess returns on invested capital? (5 marks) d) Discuss how we incorporate fade in excess returns into a valuation approach? (5 marks) e) Take a company earning a ROIC of 20% with a WACC of 8% and provide a simple numerical example of how a competitive advantage period of 5 years versus a permanent excess return scenario would impact a valuation Use the Credit Suisse fade model where enterprise value is invested capital at the outset of 100, which is assumed to grow at 4%, and one period of economic profit capitalised. £m 3,366 2,223 1,235 1,212 2,911 972 17,375 5,456
Expert Answer:
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these finance questions
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Reformulate the following balance sheet and income statement for a manufacturing concern. Amounts are in millions. The firm bears a 36 percent statutory taxrate. Balance Sheet Assets Operating cash...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Use c program to solve this. Problem B [10 marks] Write a program to calculate age (birth date and current date will be entered by user). Make a structure named Date to store the elements day, month...
-
The electric motor shown in figure has field Calculate the flux per pole passing through the air gap if the axial length of the pole is 20 cm. 106 sin 20 a, A/m
-
The following is a list of business/accounting events. In each case, state the immediate effect (increase, decrease or none) on both profit and cash: 1 Repayment of borrowings 2 Making a profitable...
-
What would be the characteristics of a cumulative redeemable participating convertible preference share?
-
A retailer is looking to evaluate its customer service. Management has determined that if the retailer wants to stay competitive, then it will have to have at least a 90% satisfaction rate among its...
-
Revolution Tractors has the following activities during 2021: 1. Reported net income of $13,000. 2. Paid cash to purchase land to use as a parking lot for $10,000 3. Received dividends of $2,000 on...
-
A storeroom is used to organize items stored in it on N shelves. Shelves are numbered from 0 to N-1. The K-th shelf is dedicated to items of only one type, denoted by a positive integer A[K]....
-
QUESTION 21 On April 1, 2014, Mark and Janet purchased a home for $240,000 with a down payment of $20,000. They obtained a very favourable 25 year mortgage with monthly payments and interest at 3.6%...
-
For Companies Clorox Gladware and Tupperware, please do the following for recent years. Starting from FY22: Discuss ROA (NPM and ATO) and how they have changed over time for Tupperware Attach...
-
What is the name of the company you chose? American Apparel Drowning in Debt. American Apparel's mission is a statement that explains the purpose for the company's existence. Based on the information...
-
Define perception and attention and explain their significance in consumer behavior. Describe the factors that influence perception and attention in consumer behavior. Analyze the various types of...
-
During an intravenous injection of fluid, a container is held at a height h above the arm. If the blood pressure is 20 mmHg and the fluid density is 1025 kg/m^3. What is the minimum value of h for...
-
Suppose you observe your friend (mass 69.1 kg) stand at the very edge of a motionless merry-go-round (modelled as a thin disk with moment of inertia 6.8 kg m 2). At some point, your friend walks...
-
Darla Simpson, Inc., sells two popular brands of cookies: Darla's Delight and Bessie's Bourbon. Darla's Delight goes through the Mixing and Baking departments, and Bessie's Bourbon, a filled cookie,...
-
Chloroplasts are illuminated until the levels of the Calvin cycle intermediates reach a steady state. The light is then turned off. How does the level of RuBP vary after this point?
-
Firms often provide supplemental disclosures that report and discuss income figures that do not necessarily equal bottom-line net income from the income statement. For example, in Twitters initial...
-
Starwood Hotels (Starwood) owns and operates many hotel properties under well-known brand names, including Sheraton, W, Westin, and St. Regis. Starwood focuses on the upper end of the lodging...
-
If the firm competes in a very competitive, mature industry, what effect will competitive conditions have on residual income for the firm and others in the industry? Now suppose the firm holds a...
-
On December 31, 2017, Brown Company issued \(\$ 750,000\) of 20 -year, eight percent bonds payable for \(\$ 621,307\), yielding an effective interest rate of ten percent. Interest is payable...
-
On December 31, 2017, Shade Company issued \(\$ 250,000\) of 20 -year, eight percent bonds payable for \(\$ 276,694\), yielding an effective interest rate of seven percent. Interest is payable...
-
Matt Enterprises issued \(\$ 200,000\) of ten percent, five-year bonds with interest payable semiannually. Determine the issue price if the bonds are priced to yield (a) ten percent, (b) six percent,...
Study smarter with the SolutionInn App