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financial statement analysis

Questions and Answers of Financial Statement Analysis

Estimating Cost of Capital Measures and Applying the DDM Model Procter and Gamble Company has a June fiscal year-end. On June 30, 2006, analysts expected the company to pay $1.41 dividends per share
Estimating WACC and Expected Growth in Dividend Discount Model United Parcel Service, Inc. was trading at $96.23 at December 31, 2015. Its dividend per share was$3.12, its market beta was estimated
Estimating Components of Both WACC and DDM An analyst estimates the cost of debt capital for Abbott Laboratories is ????.0% and that its cost of equity capital is 5.0%. Assume that ABT????s statutory
Estimating Market and Book Values and Cost of Capital Measures The December ????1, 2015, partial balance sheet of 3M Company follows (???? millions, except per share amounts). YCharts.com reported
Estimating Cost of Capital Measures US Steel has $3.16 billion in total debt (which approximates its market value). Interest expense for the year was about $214.0 million. The company’s market
Estimating Market Capitalization from Public Disclosures YCharts.com reported that Procter and Gamble Company’s market capitalization was $217.78 billion and its stock price per share was $80.23 as
Estimating the Market’s Expected Growth Rate in Dividends Mattel, Inc. was trading at a price of $27.17 per common share at December 31, 2015. Using the Gordon growth model, estimate the market’s
Assessing Terminal Dividend Assumptions for Intrinsic Value Estimates At December 31, 2015, Mattel, Inc. was trading at a price per common share of $27.17.Required a???? Explain how the assumption we
Estimating Intrinsic Share Value Using Dividend Discount Model Mattel, Inc. is expected to pay a $1.52 dividend per share annually. Estimate its intrinsic value per common share using the dividend
Sensitivity of Intrinsic Value Estimates Kellogg Company is expected to pay $2.00 in annual dividends to its common shareholders in the future. Our best estimate of the expected cost of equity
Estimating Stock Value Using Dividend Discount Model with Increasing Perpetuity Kellogg pays $2.00 in annual per share dividends to its common stockholders, and its recent stock price was $82.50.
Estimating Stock Value Using Dividend Discount Model with Constant Perpetuity Kellogg pays $2.00 in annual per share dividends to its common stockholders, and its recent stock price was $82.50.
After further research we find that beta estimates for Mattel reported on financial websites range from 0.85 to 1.13.Requireda. Estimate the range of cost of equity capital estimates for Mattel
Sensitivity of Cost of Equity Capital Estimates to Beta Refer to the information about Mattel, Inc. in
Estimating Weighted Average Cost of Capital Mattel, Inc. engages in the design, manufacture, and marketing of various toy products worldwide. At December 31, 2015, Mattel’s market value of equity
Kellogg’s stock closed at $72.27 on December 31, 2015. On that same date, the company had 420,315,589 shares issued, of which 70,291,514 shares were in treasury.Requireda. What is Kellogg’s total
Estimating the Weighted Average Cost of Capital Refer to information about Kellogg Company in E12-27 and
Kellogg has an estimated market beta of 0.50.Assume that the expected risk-free rate is 2.5% and the expected market premium is 5%.Requireda. What does Kellogg’s market beta imply about its stock
Estimating the Cost of Equity Capital Refer to information about Kellogg Company in
Estimating the Cost of Debt Capital Kellogg Company manufactures cereal and other convenience food under its many well-known brands such as Kellogg’s®, Keebler®, and Cheez-It®. The company, with
Estimating Company Value Using DDM with Increasing Perpetuity Assume that a company paid $1.20 dividend per common share, its dividend per share is expected to grow at a constant rate of 2%, and its
Estimating Company Value Using DDM with Increasing Perpetuity Assume that a company’s dividends per share are projected to grow at 2% each year, its next year’s dividends per share is $1.20, and
Applying DDM with Constant Perpetuity 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
Estimating Company Value Using DDM with Constant Perpetuity Assume that a company’s dividends per share are projected to remain at $1.20 each year, and that its cost of equity capital is 5%.
Estimating Weighted Average Cost of Capital Assume that a company has $1 billion in preferred stock and $3 billion in common stock. Also, it pays 6% dividends on preferred stock and its cost of
Estimating Weighted Average Cost of Capital Assume that a company has $1.2 billion in debt, its cost of debt is 5%, it has $2 billion in equity, and its cost of equity capital is 7%. Compute the
Estimating Cost of Debt Capital Assume that a company’s financial statements report that its average outstanding debt totals $1.6 billion, and its total interest expense equals $80 million. If its
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 35%. Compute the company’s cost of debt capital.
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 $1 per share, and its expected cost of equity capital is
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 $10.50 per
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
Estimating Cost of Equity Capital Assume that a company’s market beta equals 0.8, the risk-free rate is 5%, and the market return equals 8%. Compute the company’s cost of equity capital.
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.
Computing the Present Value of a Debt Security Compute the present value of a five-year bond with a face value of $1,000, a 10% annual coupon payment, and an 8% effective rate.
Describe the circularity that occurs when beta is used to help estimate an intrinsic value for comparison to market prices.
Describe how to compute the present value of an increasing perpetuity.
What is a perpetuity? How is the present value of a perpetuity computed?
What are the three criteria for a series of payments to be considered an annuity?
What is a company’s cost of capital? Explain.
Explain what the market premium represents. Describe how to compute the cost of equity capital using beta, the risk-free rate, and the market premium.
Describe how to compute the after-tax cost of debt capital.
Discuss the difference between a company’s intrinsic value and the company’s stock price.
Discuss the limitations associated with using beta to compute the cost of equity capital.
What is a market beta? Discuss what a beta of 1.0 represents. What does a beta of 0.5 represent?A beta of 2.0?
Discuss differences between valuing a debt security and valuing the equity of a company.
Describe how to compute the present value of a debt security such as a bond.
????????????-???????????? ????orecast ????sing the ????arsimonious ????ethod ????elstra ????orporation ????imited is an Australian telecommunications and media company that builds and provides
Sensitivity Analysis of Forecasted Income Statement Following is the income statement for First Solar Inc. for the year ended December 31, 2015.Consolidated Statements of Operations$ thousands 12
Two-Year-Ahead Forecast of Financial Statements Following are the financial statements of Target Corporation from its FY2015 annual report.????????????????????????
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.????????????????
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
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
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
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,
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
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
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
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$
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
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.$
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
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
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
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
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. . . . . . . . . . . . . . . .
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 . . . . . . . . . . .
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,
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 . . .
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. . . . . . . . . . . . . .
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
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
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
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
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
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
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
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.$
Analyzing and Interpreting Tax Footnote (Financial Statement Effects Template)Under Armour Inc. reports total tax expense of $154,112 thousand on its income statement for year ended December 31,
Analyzing and Interpreting Pension Disclosures Johnson & Johnson provides the following footnote disclosures in its 10-K report relating to its defined benefit pension plans and its other
Analyzing and Interpreting Pension Disclosures E. I. du Pont de Nemours and Co.’s 10-K report has the following disclosures related to its retirement plans ($ millions).Obligations and Funded
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
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
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
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
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
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

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