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financial statement analysis

Questions and Answers of Financial Statement Analysis

How can market participants eliminate arbitrage opportunities?Discuss the effect of arbitrage on market efficiency.
(Currency forward) The spot exchange rate USD/EUR is 0.7 EUR per one USD. What is the EUR/USD rate? Suppose the oneyear Libor rate on USD-denominated securities is 2.25%, and the one-year Libor on
(Cross currencies) Please sketch cash flow diagrams reflecting a synthetic spot FX transaction of purchasing CHF against CNY.Assume that this transaction is currently prohibited due to capital
Please sketch cash flow diagrams for a synthetic spot FX transaction—buying USD against CNY.Adding these diagrams together vertically produces a spot transaction of selling CNY to purchase USD.
Please sketch cash flow diagrams reflecting a synthetic long bond denominated in GBP. Please use USD as the companion currency in both the currency forward and the spot FX transaction.Suppose Spot
Please sketch cash flow diagrams reflecting a synthetic long bond denominated in USD. How would the cash flow diagrams change if we wanted to synthesize a short USD-denominated bond?
Suppose we have been quoted the following spot and forward rates.Spot Exchange Rate Forward Exchange Rate USD/GBP 0.55 GBP/USD 1.8094 The Libor rates for a single time period are quoted as L 1,USD t0
How can you make gains short-selling assets? Please discuss.
Please discuss the difference between Libor and Euribor.
Suppose r = 2.5%, and there are 36 days left to maturity of an instrument. Please calculate the appropriate discount factor if this instrument isa. Treasury bond;b. money market instrument;c. T-bill.
D15-48. Interpreting Analysts Reports that Use Valuation with Multiples Refer to the following excerpts from an analysts’ report (11 pages total) covering Marriott International Inc. to complete
D15-47. Estimating Equity Value Using Industry-Based Multiples Assume that your superior requests that you apply the following multiple to value the set of companies you are currently assigned to
D15-46. Assessment of Comparables, Multiples, and Observed PB Refer to the information in D15-44 and D15-45.Requireda. Comment on the reasonableness of using Ralph Lauren Corp. and The Gap Inc. as
D15-45. Valuation Using Income Statement Multiples The following table provides summary data for Guess? Inc. and its competitors, Ralph Lauren Corp.and The Gap Inc..(in millions) Guess? Ralph Lauren
D15-44. Valuation Using Balance Sheet Multiples The following table provides summary data for Guess? Inc. and its competitors, Ralph Lauren Corp.and The Gap Inc..(in millions) Guess? Ralph Lauren The
Interpreting Analysts Reports that Use Valuation with Multiples Refer to the following excerpts from an analysts’ report covering The Walt Disney Company to complete the following
Reverse Engineering and Interpreting the PB Ratio The mid-2016 market capitalization for Alphabet Inc., formerly Google Inc. was $532.69 billion, its book value of equity was $127.88 billion, and its
Reverse Engineering with the PB Ratio The following table provides summary data for Darden Restaurants Inc. (in millions). Analysts will often use the observed PB ratio to infer market expectations
Reverse Engineering with the PB Ratio The following table provides summary data for Foot Locker Inc. (in millions). Analysts will often use the observed PB ratio to infer market expectations
Identifying Comparables and Valuation Using PB and PE MarineMax Inc.’s equity book value per share is $9.31 and its forward earnings estimate per share is $0.58. The following information is also
Valuation Using Income Statement Multiples ????????????????????The following table provides summary data for Target Corp. and its competitors, Kohl’s Corp. and Walmart Stores, Inc.(in millions)
Valuation Using Price-to-NOA Multiple and PB Multiple The following table provides summary data for Target Corp. and its competitors, Kohl’s Corp. and Walmart Stores Inc.(in millions) Target
Identifying Comparables and Estimating Equity Value Using PE Assume that your superior requests that you estimate the equity intrinsic value of CGI Group Inc. using PE ratios for comparable
Identifying Comparables and Estimating Equity Value Using PB Assume that your superior requests that you estimate the equity intrinsic value of CGI Group Inc. using PB ratios for comparable
Computing Key Metrics from Financial Data For each of the following company stocks, listed among the Dow Jones Industrials, use the information provided to compute the measures a through d.Company
Linking PB and PE Ratios to ROE The following graphic plots the PE and PB ratio combinations for each of five separate companies A through E. Identify the company with the following description of
Explaining Prices Relative to NOA and RNOA Summary information for RNOA, NOA growth, price per NOA dollar for a sample of 300 companies follows. Can you explain the behavior in companies’ prices
Determining ROE to Yield Projected PB Alphabet Inc., formerly Google Inc. recently had a market cap of $531.40 billion, total equity of$127.88 billion, and 687.27 million shares outstanding. At about
Theoretical PE for Companies with Zero Expected Growth in Residual Income The cost of equity capital follows for each of five companies. For each company the expected growth in residual income is
Identifying Comparables and Valuation Using PB and PE Fossil Group Inc.’s book value of equity is $2,894 million and its forward earnings estimate per share is $7.23, or $399 million in total. The
Identifying Comparables and Valuation Using PB and PE Men’s Wearhouse Inc.’s book value of equity is $1,096 million and its forward earnings estimate per share is $2.47, or $117.2 million in
Identifying Comparables and Estimating Equity Value Using PE Assume that you wish to estimate the equity intrinsic value of Kellogg Company using PE ratios for comparable companies. The following
Identifying Comparables and Estimating Equity Value Using PB Assume that you wish to estimate the equity intrinsic value of McCormick & Company Inc. using PB ratios for comparable companies. The
Valuation Using the PE Multiple Nokia Corp. recently traded at $5.80 per share. At that time, earnings per share estimates for the next 12 months were $0.28. In addition, Motorola Solutions Inc. and
Valuation Using the PE Multiple Refer to information in E15-23 to complete the requirements.Requireda. Compute the price to net income ratio for both KLA Tencor Corporation and Lam Research
Valuation Using Price-to-NOPAT Multiple The following table provides summary data for Applied Materials Inc. and its competitors, KLA Tencor Corporation and Lam Research Corporation.(in
Valuation Using the PB Multiple Refer to information in E15-21 to for both Allscripts Healthcare and McKesson complete the requirements.Requireda. Compute the PB ratio for both Allscripts Healthcare
Valuation Using Price-to-NOA Multiple The following table provides summary data for Cerner Corporation and its competitors, Allscripts Healthcare Solutions Inc. and McKesson Corporation.(in millions)
Which company do you believe the market expects to experience a decline in earnings? Explain.
Determining ROE and Assessing Market Expectations Refer to the information in
Determining ROE and Assessing Market Expectations The PB, trailing PE, and forward PE data follow for four companies. Determine the current ROE for each company. Which company do you believe the
Identifying Comparables and Valuation Using PB and PE Panera Bread Company’s book value per share is $27.18 and its forward earnings estimate per share is $6.68. The following information is also
Identifying Comparables for Valuation Which would be a better comparable to use in valuing Hershey Co. using a PE ratio-based multiple:Synutra International Inc., Hillshire Brands, or Hormel Foods
Identifying Comparables for Valuation Which would be a better comparable to use in valuing Bunge Limited using a PB ratio-based multiple:Fresh Del Monte Produce Inc. or Deere & Company? Explain your
Determining PB Ratio for Companies with Different Capitalization Assume that the present value of expected ROPI follows a perpetuity with growth g (Value ???? Amount/[r ???? g]). Determine the
Determining PB Ratio for Companies with Different Returns and Cost of Capital Assume that the present value of expected ROPI follows a perpetuity with growth g (Value ???? Amount/[r ???? g]).
Determining PB Ratio for Companies with Different Returns and Growth Assume that the present value of expected ROPI follows a perpetuity with growth g (Value ???? Amount/[r ???? g]). Determine the
Determining PB Ratio for Companies with Different Returns Assume that the present value of expected ROPI follows a perpetuity with growth g (Value ???? Amount/[r ???? g]). Determine the theoretically
Valuation Using an Income Statement Multiple Motorola Solutions Inc. was trading at $76.28 per share. Earnings estimates for the next 12 months were $5.04 per share. The industry average forward PE
Valuation Using an Income Statement Multiple JAKKS Pacific Inc., a toy manufacturer, reports net income for the recent twelve months of $14.73 million. JAKKS’ has 20.05 million shares outstanding.
Valuation Using a Balance Sheet Multiple Build-a-Bear Workshop Inc. reports a book value per share of $6.21. The industry average PB ratio for specialty retail is 6.67. Using the industry average PB
Valuation Using a Balance Sheet Multiple McDonald’s Inc. reports total book value of $640 million and common shares outstanding of 853.36 million. The average PB ratio for restaurant companies is
Barron’s Online posted the following headline in early October 2007: Cisco: Goldman Ups Target On‘Stronger Multiple Outlook’. Explain what this headline means.
Referring to residual income, PE can be expressed in terms of cost of equity capital, the present value of expected changes in residual income, dividends, and earnings. Explain what a PE ratio of 11
The “E” in the PE ratio can be determined in several ways. Identify at least three different variations in measuring earnings for the PE ratio.
Describe the factors that should be considered in choosing comparable companies for computation of the market multiples company-value-to-net-operating-assets and the price-to-book-value.
This module referred to the residual operating income model described in Module 14. Explain what a company-value-to-net-operating-assets ratio equal to 1 implies about future residual operating
Identify the disadvantages of valuation using market multiples compared to valuation using discounted cash flows or discounted residual operating income.
Identify the advantages of valuation using market multiples compared to valuation using discounted cash flows or discounted residual operating income.
Estimating Share Value Using the ROPI Model Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2016 through 2019.$ millions Reported 2015 Forecast Horizon 2016 2017 2018
Forecasting with the Parsimonious Method and Estimating Share Value Using the ROPI Model Following are the income statement and balance sheet for Nike Inc.NIKE INC.Consolidated Income Statement For
Estimating Share Value Using the ROPI Model Following are forecasts of Texas Roadhouse’s sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of December 29, 2015.$
Forecasting with Parsimonious Method and Estimating Share Value Using the ROPI Model Following are the income statement and balance sheet for Cisco Systems for the year ended July 30, 2016.CISCO
Reverse Engineering Valuation Model to Determine Assumptions Refer to Home Depot information in E14-22 to answer the requirements.a. Estimate the value of a share of Home Depot’s common stock using
Quantify the Effects of Managerial Actions on ROPI and Components BCS Enterprises reports the following financial data just prior to its fiscal year ended June 30, 2017($ millions).BCS ENTERPRISES
Applying and Interpreting Value Driver Components of RNOA The net operating profit margin and the net operating asset turnover components of return on net operating assets are often termed ????alue
Explaining the Equivalence of Valuation Models and the Relevance of Earnings Module 13 focused on the discounted cash flow (DCF) model and Module 14 focused on the residual operating income (ROPI)
Estimating Share Value Using the ROPI Model Following are forecasts of Home Depot’s sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 31, 2016.$ millions
Identifying and Computing Net Operating Profit after Tax (NOPAT)Following is the income statement for Home Depot Inc. for fiscal year 2015, ended January 31, 2016.????????????E
Identifying and Computing Net Operating Assets (NOA) and Net Nonoperating Obligations(NNO)Following is the balance sheet for Home Depot Inc., for fiscal year 2015, ended January 31,
Estimating Share Value Using the ROPI Model Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA)as of January 31, 2016, for Walmart Stores Inc.$
Estimating Share Value Using the ROPI Model Following are forecasts of Whole Foods’ sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of September 25, 2016.$ millions
Comparing Model Weights for DCF and ROPI Compare the valuation model information for General Mills from Review 14-2 (ROPI) with Review 13-2 (DCF). For each model, compute the relative proportion of
Computing Present Value of Terminal Residual Operating Income Use the following data to compute the present value of the terminal period ROPI for each of the four firms A through D. Assume a forecast
Computing ROPI for Multiple Years Use the following data to compute ROPI for Under Armour Inc. for 2016 through the terminal period.Assume that the company’s weighted average cost of capital is
Computing ROPI for Multiple Years Use the following data to compute ROPI for Intel Corporation for 2016 through the terminal period.Assume that the company’s weighted average cost of capital is
Assess the Effects of Managerial Actions on ROPI and Components In its 2016 10-K report, Kellogg discussed its cost-cutting initiative, ????r????????ect????????.In November 2013, the Company
Estimating Share Value Using the ROPI Model Following are forecasts of Target Corporation’s sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 30, 2016.$
Computing, Analyzing and Interpreting Residual Operating Income (ROPI)In its 2015 fiscal year annual report, Texas Roadhouse reports net operating income after tax (NOPAT)of $102,495 thousand. As of
Computing Residual Operating Income (ROPI)Home Depot reports net operating profit after tax (NOPAT) of $7,483 million in 2016. Its net operating assets at the beginning of 2016 are $24,796 million.
Interpreting Earnings Announcement Effects on Stock Prices On November 2, 2016, Facebook Inc. announced its 2016 third quarter results. Revenues were up nearly 50% from 2015 and earnings were up a
What is one way to refine equity valuation models for companies that have not achieved steady state?
Explain what is meant by the phrase “steady state” when applied to equity valuation models.
D13-23. Management Application: Cash Flow Improvement with Operating Decisions Assume that you are the CEO of a small publicly traded company. The company’s stock price has fallen recently and you
Estimating Share Value Using the DCF Model Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2016 through 2019.$ millions Reported 2015 Forecast Horizon 2016 2017 2018
Forecasting with Parsimonious Method and Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for Nike Inc.NIKE INC.Consolidated Income Statement For Year
Estimating Share Value Using the DCF Model Following are forecasts of Texas Roadhouse’s sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of December 29,
Forecasting with the Parsimonious Method and Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for Cisco Systems for the year ended July 30, 2016.CISCO
Estimating Share Value Using the DCF Model Following are forecasts of Target Corporation’s sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 30, 2016.$
Computing Present Value of Terminal Period FCFF Use the following data to compute the present value of the terminal period free cash flows to the firm for each of the four firms A, B, C, and D. The
Computing Free Cash Flows to the Firm (FCFF)Use the following data to compute free cash flows to the firm for Under Armour Inc. for 2016 through the terminal period.$ thousands Actual 2015 Horizon
Computing Free Cash Flows to the Firm (FCFF)Use the following data to compute free cash flows to the firm for Intel Corporation for 2016 through the terminal period.$ millions Reported 2015 Horizon
Computing Free Cash Flows to the Firm (FCFF)Home Depot reports net operating profit after tax (NOPAT) of $7,483 million in 2016. Its net operating assets at the beginning of 2016 are $24,796 million
Interpreting Earnings Announcement Effects on Stock Prices On November 2, 2016, Facebook Inc. announced its 2016 third quarter results. Revenues were up nearly 50% from 2015 and earnings were up a
D????????-5????. Sensitivity of Cost of Capital and Intrinsic Value Estimates At January 2016 (the end of its fiscal year 2015), analysts estimate Best Buy Co. Inc.’s beta at 1.54. The company is
D????????-4????. Interpreting ????arket Reactions to Accounting Information On December 11, 2007, AT????T Inc. announced that it would increase its dividend per share by 12.7%.At the same time the
D????????-4????. Applying the Gordon Growth DD????Refer to the information regarding AT????T Inc. in D12-46.Requireda. What amount of dividends (per share) did AT&T declare for its common
Assume that UPS is considering implementing certain transactions to hedge against potential fluctuations in gas and fuel costs and in exchange rates. It is estimated that such transactions would
Estimating Cost of Capital and the Effects of Hedging Refer to the information regarding United Parcel Service, Inc. in
Estimating Cost of Preferred Equity Capital and WACC The consolidated balance sheets of Dow Chemical show that the company has 4,000,000 shares of preferred stock outstanding at the end of 2015. That

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