Questions and Answers of Business Analysis And Valuation

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
One of the fastest growing industries in the last 20 years is the memory chip industry, which supplies chips for personal computers and other electronic devices. Yet the average profitability for
Explain why you agree or disagree with each of the following statements:a. It is better to be a differentiator than a cost leader, since you can then charge premium prices.b. It is more profitable to
Many consultants are advising diversified companies in emerging markets such as India, South Korea, Mexico, and Turkey to adopt corporate strategies proven to be of value in advanced economies such
Many firms recognize revenues at the point of shipment. This provides an incentive to accelerate revenues by shipping goods at the end of the quarter. Consider two companies, one of which ships its
a. If management reports truthfully, what economic events are likely to prompt the following accounting changes?• Increase in the estimated life of depreciable assets• Decrease in the
Use the templates shown in Tables 4-1, 4-2, and 4-3 to recast the following financial statements for Nordstrom, Inc. Assets Current assets: Nordstrom, Inc. Consolidated Balance Sheets (in millions)
U.S.-based American International Group, Inc. (AIG) is one of the world’s largest insurance companies, offering property, casualty, life insurance, and retirement services to customers in more than
The cigarette industry is subject to litigation for health hazards posed by its products.The industry has been in an ongoing process of negotiating a settlement of these claims with state and federal
Refer to the Lufthansa example on asset depreciation estimates. What adjustments would be required if Lufthansa’s aircraft depreciation were computed using an average life of 25 years and salvage
In early 2003, Bristol-Myers Squibb announced that it would have to restate its financial statements as a result of stuffing as much as $3.35 billion worth of products into wholesalers’ warehouses
Which of the following types of firms do you expect to have particularly high or low asset turnover? Explain why.• a supermarket• a pharmaceutical company• a jewelry retailer• a steel company
Which of the following types of firms do you expect to have high or low sales margins? Why?• a supermarket• a pharmaceutical company• a jewelry retailer• a software company
ABC Company recognizes revenue at the point of shipment. Management decides to increase sales for the current quarter by filling all customer orders. Explain what impact this decision will have on•
Consider the following two earnings forecasting models:E(EPStþ1) is the expected forecast of earnings per share for year t þ 1, given information available at t. Model 1 is usually called a random
Two years after a successful public offering, the CEO of a biotechnology company is concerned about stock market uncertainty surrounding the potential of new drugs in the development pipeline. In his
Intergalactic Software Company’s stock has a market price of $20 per share and a book value of $12 per share. If its cost of equity capital is 15 percent and its book value is expected to grow at 5
Geoffrey Henley, a professor of finance, states, “The capital market is efficient. I don’t know why anyone would bother devoting time to following individual stocks and doing fundamental
Assume that TJX changes its capital structure so that its market value weight of debt to capital increases to 30 percent, and its after-tax interest rate on debt at this new leverage level is 3.5
How will the abnormal earnings calculations in Table 8-3 change if the cost of equity assumption is changed to 12 percent?
Recalculate the forecasts in Table 8-3, assuming that the ratio of net operating working capital to sales is 3 percent and the ratio of net long-term assets to sales is 33.4 percent for all the years
How will the forecasts in Table 8-2 change if TJX maintains a sales growth rate of 10 percent per year from 2011 to 2020 (and all the other assumptions are kept unchanged)?
What types of companies have• a high PE and a low market-to-book ratio?• a high PE ratio and a high market-to-book ratio?• a low PE and a high market-to-book ratio?• a low PE and a low
Explain why terminal values in accounting-based valuation are significantly less than those for DCF valuation.
Joe Watts, an analyst at EMH Securities, states: “I don’t know why anyone would ever try to value earnings. Obviously, the market knows that earnings can be manipulated and therefore it only
How would the following events (reported this year) affect your forecasts of a firm’s future net income?• an asset write-down• a merger or acquisition• the sale of a major division• the
Which of the following types of businesses do you expect to show a high degree of seasonality in quarterly earnings? Explain why.• a supermarket• a pharmaceutical company• a software company•