Hello tutor, please help me answer the following questions based on the following case:

Before the 1997 crisis, the Asian financial sector was distorted in many ways. These included

relationship banking, biased credit by state-owned banks and preferential lending rates for

targeted borrowers.1

This has apparently led to a surge in the levels of non-performing loans.

The Economist had pointed out that a mix of factors - weak financial systems, hasty opening of

economies to foreign capital and pegging local currencies to the dollar -led to the crisis. It was

also said that the crisis was different as East Asia had lower inflation levels, balanced budgets

and a growth record of almost 8% over three decades.2

1 "Financial Reforms in Asia since 1997: Lessons and Responses", http://www.gdnet.org/pdf2/gdn_library/annual_conferences/

2 "Gold from the storm", http://economist.com/finance/displaystory.cfm?story_id=9401752

ii

But 10 years after the crisis, the economies are brimming again. For the past three years till 2007,

the Asian economies have been growing at an average of 8%. The IMF bail-outs have helped

restore confidence, backed by reforms, to restructure and strengthen the banking sector. Since

1997, Thailand, Korea and Malaysia have introduced reforms in banking and capital markets, as

part of the IMF-led adjustment programme. The Asian Development Bank and the World Bank

have also helped by way of adjustment loans concentrating on capital markets and the banking

sector respectively. Malaysia, China and India buzzed with their own reform programmes.

1. Is it better to buy shares of a company or its assets?

2. Does the expected value of the sales and of the net income of Spanish companies have

anything to do with sustainable growth?

3. Is PER a good guide to investments?

4. Is there an optimal capital structure? What is it and how can it be calculated?

5. Does financial leverage (debt) have any impact on the Free Cash Flow, on the Cash

Flow to Shareholders, on the growth of the company and on the value of the shares?

6. What is a 3 x 1 Split?

7. A court assigned to me (as an economist and auditor) a valuation of a market

butcher's. The butcher's did not provide any simple income statements or any valuable

information which I could use in my valuation. It is a small business with just two

employees, the owner and an apprentice. This type of tax system exempts them of

IESE Business School-University of Navarra - 5

certain commercial and fiscal informative statements. I think it is very important to

underline that the object of the valuation is not a company, but rather a business, a

work position. Although it has recurrent customers the value of its tangible assets is

solely the value of its tools, as the premises are rented (I think it is impossible to value

the intangible asset that is the work). Obviously, discounting cash flows in not an

appropriate method in this case. Actually, I do not know which profession fits better

the job that the court assigned to me.

8. What repercussions do variations in the price of oil have on the value of a company?

9. How can an auditor spot acts of creative accounting? I mean, for example, the excess

of provisions or the non-elimination of intra group transactions with value added.

10. I heard talk of the Earnings Yield Gap ratio, which is the difference between the

inverse of the PER and the TIR on 10-year-bonds. It is said that if this ratio is positive

then it is more advantageous to invest in equity. How much confidence can an

investor have in such an affirmation?