Custom 315A Financial Statement Analysis (Fort Hays State)

by Easton

ISBN: 978-1-61853-537-5 | Copyright 2023

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Financial Statement Analysis & Valuation, 6e (pg. 1.1-1)
Module 1 Framework for Analysis and Valuation (pg. 1.1-1)
Step 1 Business Environment and Accounting (pg. 1.1-5)
Review 1-1 (pg. 1.1-6)
Financial Statements: Demand and Supply (pg. 1.1-6)
Demand for Information (pg. 1.1-6)
Supply of Information (pg. 1.1-9)
International Accounting Standards (pg. 1.1-10)
Review 1-2 (pg. 1.1-11)
Review of Financial Statements (pg. 1.1-12)
Balance Sheet (pg. 1.1-12)
Income Statement (pg. 1.1-15)
Statement of Stockholders’ Equity (pg. 1.1-17)
Statement of Cash Flows (pg. 1.1-18)
Information Beyond Financial Statements (pg. 1.1-19)
Review 1-3 (pg. 1.1-19)
Analyzing the Business Environment (pg. 1.1-20)
Analyzing the Value-Chain (pg. 1.1-20)
Five-Forces Analysis of Business Environment (pg. 1.1-20)
SWOT Analysis of Business Environment (pg. 1.1-21)
Analyzing Competitive Advantage (pg. 1.1-22)
Review 1-4 (pg. 1.1-23)
Step 2 Adjusting and Analyzing Financial Data (pg. 1.1-24)
Managerial Choices in Financial Reporting (pg. 1.1-24)
Analysis of Return on Assets (pg. 1.1-25)
Components of Return on Assets (pg. 1.1-25)
Analysis of Return on Equity (pg. 1.1-26)
Review 1-5 (pg. 1.1-27)
Step 3 Forecasting Financial Numbers (pg. 1.1-27)
Review 1-6 (pg. 1.1-28)
Step 4 Business Valuation (pg. 1.1-29)
Valuation Models (pg. 1.1-29)
Are Financial Data Relevant? (pg. 1.1-29)
Financial Statement Analysis in an Efficient Capital Market (pg. 1.1-30)
Analyzing Global Reports (pg. 1.1-31)
Review 1-7 (pg. 1.1-32)
Appendix 1A: Financial Statement Data and Analytics (pg. 1.1-32)
SEC Filings (pg. 1.1-32)
Data Analytics (pg. 1.1-35)
Guidance Answer (pg. 1.1-36)
Questions (pg. 1.1-36)
Mini Exercises (pg. 1.1-37)
Exercises (pg. 1.1-39)
Problems (pg. 1.1-41)
IFRS Applications (pg. 1.1-47)
Analysis Decision Points (pg. 1.1-48)
Ongoing Analysis Project (pg. 1.1-48)
Solutions to Reviews (pg. 1.1-49)
Module 2 Review of Business Activities and Financial Statements (pg. 1.2-1)
Interpreting A Balance Sheet (pg. 1.2-3)
Assets (pg. 1.2-3)
Liabilities and Equity (pg. 1.2-5)
Review 2-1 (pg. 1.2-12)
Interpreting An Income Statement (pg. 1.2-12)
Recognizing Revenues and Expenses (pg. 1.2-13)
Reporting of Transitory Items (pg. 1.2-14)
Analyzing the Income Statement (pg. 1.2-16)
Review 2-2 (pg. 1.2-16)
Interpreting A Statement of Stockholders’ Equity (pg. 1.2-17)
Review 2-3 (pg. 1.2-18)
Interpreting A Statement of Cash Flows (pg. 1.2-18)
Statement Format and Data Sources (pg. 1.2-18)
Review 2-4 (pg. 1.2-19)
Articulation of Financial Statements (pg. 1.2-19)
Retained Earnings Reconciliation (pg. 1.2-20)
Financial Statement Linkages (pg. 1.2-20)
Review 2-5 (pg. 1.2-21)
Analyzing Transactions and Adjustments (pg. 1.2-22)
Four-Step Accounting Cycle (pg. 1.2-22)
Financial Statement Effects Template (pg. 1.2-22)
Accounting Cycle Step 1-Analyze Transactions and Prepare Entries (pg. 1.2-24)
Applying the Financial Statement Effects Template (pg. 1.2-24)
Applying the Journal Entry and T-Account (pg. 1.2-24)
Review 2-6 (pg. 1.2-26)
Accounting Cycle Step 2-Prepare Accounting Adjustments (pg. 1.2-27)
Prepaid (Deferred) Expenses (pg. 1.2-28)
Unearned (Deferred) Revenues (pg. 1.2-28)
Accrued Expenses (pg. 1.2-29)
Accrued Revenues (pg. 1.2-29)
Accounting Adjustments for Apple (pg. 1.2-30)
Review 2-7 (pg. 1.2-31)
Accounting Cycle Step 3-Prepare Financial Statements (pg. 1.2-31)
Review 2-8 (pg. 1.2-31)
Accounting Cycle Step 4-Close the Books (pg. 1.2-32)
Review 2-9 (pg. 1.2-32)
Additional Information Sources (pg. 1.2-32)
Form 10-K (pg. 1.2-32)
Form 20-F and Form 40-F (pg. 1.2-34)
Form 8-K (pg. 1.2-35)
Analyst Reports (pg. 1.2-35)
Credit Services (pg. 1.2-36)
Data Services (pg. 1.2-36)
Review 2-10 (pg. 1.2-36)
Analyzing Global Reports (pg. 1.2-36)
Guidance Answers (pg. 1.2-37)
Questions (pg. 1.2-37)
Mini Exercises (pg. 1.2-38)
Exercises (pg. 1.2-40)
Problems (pg. 1.2-46)
IFRS Application (pg. 1.2-51)
Analysis Discussion Points (pg. 1.2-52)
Ongoing Analysis Project (pg. 1.2-53)
Solutions to Reviews (pg. 1.2-53)
Module 3 Profitability Analysis and Interpretation (pg. 1.3-1)
Return on Equity (ROE) (pg. 1.3-3)
Review 3-1 (pg. 1.3-4)
ROE Disaggregation: DuPont Analysis (pg. 1.3-4)
Return on Assets (pg. 1.3-4)
Financial Leverage (FL) (pg. 1.3-5)
Review 3-2 (pg. 1.3-6)
Return on Assets and Its Disaggregation (pg. 1.3-6)
Analysis of Profitability and Productivity (pg. 1.3-7)
Analysis of Profitability (pg. 1.3-8)
Analysis of Productivity (pg. 1.3-9)
Analysis of Financial Leverage (pg. 1.3-12)
Review 3-3 (pg. 1.3-14)
Balance Sheet Analysis with an Operating Focus (pg. 1.3-15)
Return on Net Operating Assets (RNOA) (pg. 1.3-15)
Net Operating Assets (NOA) (pg. 1.3-16)
Net Nonoperating Obligations (NNO) (pg. 1.3-17)
Income Statement Analysis with an Operating Focus (pg. 1.3-19)
Review 3-4 (pg. 1.3-19)
Operating Line Items on the Income Statement (pg. 1.3-20)
Nonoperating Line Items on the Income Statement (pg. 1.3-20)
Net Nonoperating Expense (NNE) (pg. 1.3-23)
Review 3-5 (pg. 1.3-23)
Return on Net Operating Assets (RNOA) (pg. 1.3-24)
RNOA Disaggregation into Margin and Turnover (pg. 1.3-26)
Review 3-6 (pg. 1.3-26)
Net Operating Profit Margin (pg. 1.3-27)
Net Operating Asset Turnover (pg. 1.3-27)
Trade-Off between Margin and Turnover (pg. 1.3-28)
Review 3-7 (pg. 1.3-30)
Analyzing Global Reports (pg. 1.3-30)
Appendix 3A: Operating versus Nonoperating Classification (pg. 1.3-31)
Appendix 3B: Nonoperating Return Component of ROE (pg. 1.3-32)
Nonoperating Return (pg. 1.3-32)
Nonoperating Return- With Substantial Net Nonoperating Assets: Amazon (pg. 1.3-34)
Nonoperating Return- With Noncontrolling Interest: AT&T (pg. 1.3-35)
Review 3-8 (pg. 1.3-36)
Appendix 3C: Vertical and Horizontal Analysis (pg. 1.3-36)
Limitations of Ratio Analysis (pg. 1.3-37)
Review 3-9 (pg. 1.3-39)
Guidance Answer (pg. 1.3-40)
Questions (pg. 1.3-40)
Mini Exercises (pg. 1.3-40)
Exercises (pg. 1.3-44)
Problems (pg. 1.3-49)
IFRS Application (pg. 1.3-56)
Analysis Discussion Points (pg. 1.3-56)
Ongoing Analysis Project (pg. 1.3-57)
Solutions to Reviews (pg. 1.3-58)
Module 4 Credit Risk Analysis and Interpretation (pg. 1.4-1)
Market for Credit (pg. 1.4-3)
Demand for Credit (pg. 1.4-3)
Supply of Credit (pg. 1.4-4)
Review 4-1 (pg. 1.4-7)
Credit Risk Analysis Process (pg. 1.4-8)
Information for Credit Risk Analysis (pg. 1.4-8)
Chance of Default (pg. 1.4-9)
Loss Given Default (pg. 1.4-11)
Review 4-2 (pg. 1.4-13)
Measuring Credit Risk (pg. 1.4-13)
Adjusting Financial Information (pg. 1.4-14)
Profitability Analysis (pg. 1.4-15)
Coverage Analysis (pg. 1.4-17)
Liquidity Analysis (pg. 1.4-20)
Solvency Analysis (pg. 1.4-21)
Review 4-3 (pg. 1.4-24)
Credit Ratings (pg. 1.4-25)
Importance of Credit Ratings (pg. 1.4-27)
How Credit Ratings Are Determined (pg. 1.4-28)
Review 4-4 (pg. 1.4-33)
Predicting Bankruptcy Risk (pg. 1.4-33)
Altman Z-Score (pg. 1.4-33)
Application of Z-Score (pg. 1.4-34)
Bankruptcy Prediction Errors (pg. 1.4-34)
Review 4-5 (pg. 1.4-35)
Guidance Answers (pg. 1.4-35)
Questions (pg. 1.4-35)
Mini Exercises (pg. 1.4-36)
Exercises (pg. 1.4-38)
Problems (pg. 1.4-41)
IFRS Applications (pg. 1.4-46)
Analysis Discussion Point (pg. 1.4-49)
Ongoing Analysis Project (pg. 1.4-49)
Solutions to Reviews (pg. 1.4-50)
Module 5 Revenue Recognition and Operating Income (pg. 1.5-1)
Analyzing Revenue (pg. 1.5-3)
Revenue Recognition Rules (pg. 1.5-4)
Complications of Revenue Recognition (pg. 1.5-6)
Performance Obligations Satisfied Over Time (pg. 1.5-7)
Review 5-1 (pg. 1.5-11)
Analyzing Sales Allowances (pg. 1.5-12)
Accounting for Sales Allowances (pg. 1.5-12)
Reporting Sales Allowances (pg. 1.5-13)
Analysis of Sales Allowances (pg. 1.5-13)
Review 5-2 (pg. 1.5-15)
Analyzing Unearned (Deferred) Revenue (pg. 1.5-16)
Review 5-3 (pg. 1.5-17)
Foreign Currency Effects on Revenue, Expenses, and Cash Flow (pg. 1.5-18)
Foreign Currency and Cash Flows (pg. 1.5-18)
Foreign Currency and Income (pg. 1.5-19)
Foreign Currency and Future Results (pg. 1.5-19)
Review 5-4 (pg. 1.5-20)
Analyzing Accounts Receivable (pg. 1.5-21)
Aging Analysis of Receivables (pg. 1.5-21)
Accounting for Accounts Receivable (pg. 1.5-22)
Analysis of Accounts Receivable-Magnitude (pg. 1.5-23)
Analysis of Accounts Receivable-Quality (pg. 1.5-25)
Review 5-5 (pg. 1.5-27)
Analyzing Expenses and Losses (pg. 1.5-27)
Analyze Deductions from Income (pg. 1.5-27)
Analyze Research and Development Expense (pg. 1.5-28)
Provision (Benefit) for Taxes on Income (pg. 1.5-31)
Analyze Discontinued Operations (pg. 1.5-31)
Review 5-6 (pg. 1.5-33)
Pro Forma Income Reporting (pg. 1.5-34)
Regulation G Reconciliation (pg. 1.5-35)
SEC Warnings about Pro Forma Numbers (pg. 1.5-35)
Disclosures and Market Assessments (pg. 1.5-36)
Review 5-7 (pg. 1.5-38)
Analyzing Global Reports (pg. 1.5-39)
Guidance Answer (pg. 1.5-39)
Questions (pg. 1.5-39)
Mini Exercises (pg. 1.5-40)
Exercises (pg. 1.5-45)
Problems (pg. 1.5-52)
IFRS Applications (pg. 1.5-58)
Analysis Discussion Points (pg. 1.5-59)
Ongoing Analysis Project (pg. 1.5-59)
Solutions to Reviews (pg. 1.5-60)
Module 6 Inventories, Accounts Payable, and Long-Term Assets (pg. 1.6-1)
Analyzing Inventory-Costing Methods (pg. 1.6-3)
First-In, First-Out (FIFO) (pg. 1.6-5)
Last-In, First-Out (LIFO) (pg. 1.6-5)
Average Cost (AC) (pg. 1.6-5)
Financial Statement Effects of Inventory Costing (pg. 1.6-7)
Review 6-1 (pg. 1.6-8)
Analyzing Inventory-Reporting (pg. 1.6-9)
Lower of Cost or Market (LCM) (pg. 1.6-9)
LIFO Reserve Adjustments to Financial Statements (pg. 1.6-10)
LIFO Liquidations (pg. 1.6-11)
Review 6-2 (pg. 1.6-13)
Analyzing Inventory-Tools (pg. 1.6-14)
Gross Profit Analysis (pg. 1.6-14)
Days Inventory Outstanding and Inventory Turnover (pg. 1.6-15)
Days Payable Outstanding (pg. 1.6-17)
Cash Conversion Cycle (pg. 1.6-18)
Review 6-3 (pg. 1.6-19)
Analyzing PPE Assets-Capitalization and Depreciation (pg. 1.6-20)
Plant and Equipment (pg. 1.6-20)
Research and Development Facilities and Equipment (pg. 1.6-22)
Review 6-4 (pg. 1.6-22)
Analyzing PPE Assets-Sales, Impairments, and Restructuring (pg. 1.6-23)
Asset Sales (pg. 1.6-23)
Asset Impairments (pg. 1.6-24)
Restructuring Costs (pg. 1.6-25)
Review 6-5 (pg. 1.6-30)
Analyzing PPE Assets-Tools (pg. 1.6-31)
PPE Turnover (pg. 1.6-31)
PPE Useful Life (pg. 1.6-32)
PPE Percent Used Up (pg. 1.6-33)
Review 6-6 (pg. 1.6-33)
Analyzing Global Reports (pg. 1.6-33)
Guidance Answers (pg. 1.6-34)
Questions (pg. 1.6-35)
Mini Exercises (pg. 1.6-36)
Exercises (pg. 1.6-38)
Problems (pg. 1.6-45)
IFRS Applications (pg. 1.6-48)
Analysis Discussion Points (pg. 1.6-49)
Ongoing Analysis Project (pg. 1.6-50)
Solutions to Reviews (pg. 1.6-50)
Module 7 Liability Recognition and Nonowner Financing (pg. 1.7-1)
Analyzing Accrued Liabilities (pg. 1.7-3)
Accrued Liabilities Defined (pg. 1.7-3)
Accruals for Contractual Liabilities-Wages Payable Example (pg. 1.7-4)
Accruals for Contractual Liabilities-Deferred Revenue Example (pg. 1.7-5)
Accruals for Contingent Liabilities Defined (pg. 1.7-5)
Accruals for Contingent Liabilities-Warranties Example (pg. 1.7-5)
Review 7-1 (pg. 1.7-8)
Analyzing Short-Term Debt (pg. 1.7-9)
Reporting for Short-Term Debt (pg. 1.7-9)
Current Maturities of Long-Term Debt (pg. 1.7-10)
Analyzing Long-Term Debt-Pricing (pg. 1.7-10)
Pricing of Bonds Issued at Par (pg. 1.7-11)
Pricing of Bonds Issued at a Discount (pg. 1.7-12)
Pricing of Bonds Issued at a Premium (pg. 1.7-12)
Effective Cost of Debt (pg. 1.7-13)
Review 7-3 (pg. 1.7-14)
Analyzing Long-Term Debt-Reporting (pg. 1.7-15)
Balance Sheet Reporting (pg. 1.7-15)
Income Statement Reporting (pg. 1.7-16)
Financial Statement Effects of Bond Repurchase (pg. 1.7-16)
Fair Value Disclosures (pg. 1.7-17)
Review 7-4 (pg. 1.7-18)
Analyzing Credit Quality (pg. 1.7-18)
Credit Analysis (pg. 1.7-18)
Credit Ratings (pg. 1.7-19)
Why Credit Ratings Matter (pg. 1.7-20)
Review 7-5 (pg. 1.7-23)
Analyzing Global Reports (pg. 1.7-23)
Appendix 7A: Time Value of Money (pg. 1.7-24)
Present Value Concepts (pg. 1.7-24)
Future Value Concepts (pg. 1.7-29)
Appendix 7B: Amortization of Debt (pg. 1.7-30)
Amortization of Discount (pg. 1.7-30)
Amortization of Premium (pg. 1.7-31)
Guidance Answer (pg. 1.7-31)
Questions (pg. 1.7-32)
Mini Exercises (pg. 1.7-32)
Exercises (pg. 1.7-35)
Problems (pg. 1.7-40)
IFRS Applications (pg. 1.7-45)
Analysis Discussion Points (pg. 1.7-46)
Ongoing Analysis Project (pg. 1.7-46)
Solutions to Reviews (pg. 1.7-47)
Module 8 Equity Recognition and Owner Financing (pg. 1.8-1)
Analyzing Stockholders’ Equity and Classes of Stock (pg. 1.8-3)
Stockholders’ Equity Accounts (pg. 1.8-3)
Statement of Stockholders’ Equity (pg. 1.8-6)
Preferred Stock (pg. 1.8-7)
Common Stock (pg. 1.8-8)
Review 8-1 (pg. 1.8-9)
Analyzing Stock Transactions (pg. 1.8-10)
Stock Issuance (pg. 1.8-10)
Stock Repurchase (Treasury Stock) (pg. 1.8-11)
Review 8-2 (pg. 1.8-14)
Analyzing Stock-Based Compensation (pg. 1.8-14)
Characteristics of Stock-Based Compensation Plans (pg. 1.8-15)
Analysis of Stock-Based Compensation Plans (pg. 1.8-15)
Accounting for Stock-Based Compensation (pg. 1.8-16)
Footnote Disclosures for Stock-Based Compensation (pg. 1.8-17)
Review 8-3 (pg. 1.8-18)
Analyzing Dividends and Stock Splits (pg. 1.8-19)
Cash Dividend Disclosures (pg. 1.8-19)
Dividend Payout and Yield (pg. 1.8-19)
Cash Dividends Financial Effects (pg. 1.8-20)
Stock Split (pg. 1.8-20)
Review 8-4 (pg. 1.8-21)
Analyzing Accumulated Other Comprehensive Income (AOCI) (pg. 1.8-21)
AOCI Components (pg. 1.8-21)
AOCI Disclosures and Interpretation (pg. 1.8-22)
Review 8-5 (pg. 1.8-24)
Analyzing Convertible Securities (pg. 1.8-24)
Review 8-6 (pg. 1.8-25)
Analyzing Earnings per Share (EPS) (pg. 1.8-26)
Review 8-7 (pg. 1.8-27)
Analyzing Global Reports (pg. 1.8-28)
Appendix 8A: Stock-Based Compensation: Reporting and Analyzing (pg. 1.8-29)
Employee Stock Purchase Plans (ESPP) (pg. 1.8-29)
Stock Awards (pg. 1.8-29)
Stock Options (pg. 1.8-29)
Stock Appreciation Rights (SAR) (pg. 1.8-30)
Summary of Share-Based Compensation (pg. 1.8-30)
Analysis Implications (pg. 1.8-31)
Guidance Answer (pg. 1.8-32)
Questions (pg. 1.8-32)
Mini Exercises (pg. 1.8-33)
Exercises (pg. 1.8-36)
Problems (pg. 1.8-42)
IFRS Applications (pg. 1.8-51)
Ongoing Analysis Project (pg. 1.8-53)
Solutions to Reviews (pg. 1.8-53)
Module 9 Intercorporate Investments (pg. 1.9-1)
Analyzing Intercorporate Investments (pg. 1.9-3)
Passive Investments in Equity Securities (pg. 1.9-4)
Investments in Debt Securities (pg. 1.9-8)
Analyzing Equity Investments with Significant Influence (pg. 1.9-12)
Investments with Significant Influence (pg. 1.9-12)
Equity Method Accounting and ROE Effects (pg. 1.9-14)
Review 9-2 (pg. 1.9-19)
Analyzing Equity Investments with Control (pg. 1.9-19)
Investments with Control (pg. 1.9-19)
Review 9-3 (pg. 1.9-30)
Analyzing Global Reports (pg. 1.9-31)
Appendix 9A: Analyzing Derivatives (pg. 1.9-32)
Analysis of Derivatives (pg. 1.9-34)
Review 9-4 (pg. 1.9-34)
Appendix 9B: Analyzing Equity Carve-Outs (pg. 1.9-35)
Analysis of Equity Carve-Outs (pg. 1.9-39)
Guidance Answer (pg. 1.9-40)
Questions (pg. 1.9-40)
Mini Exercises (pg. 1.9-40)
Exercises (pg. 1.9-44)
Problems (pg. 1.9-54)
IFRS Applications (pg. 1.9-57)
Analysis Discussion Point (pg. 1.9-58)
Ongoing Analysis Project (pg. 1.9-59)
Solutions to Reviews (pg. 1.9-60)
Module 10 Analyzing Leases, Pensions, and Taxes (pg. 1.10-1)
Analyzing Leases (pg. 1.10-3)
New Lease Reporting Standard (pg. 1.10-3)
Lessee Reporting Example-Microsoft Corporation (pg. 1.10-4)
Lease Accounting (pg. 1.10-6)
Summary of Lease Accounting and Reporting (pg. 1.10-10)
Analysis Issues Relating to Leases (pg. 1.10-11)
Review 10-1 (pg. 1.10-12)
Analyzing Pensions (pg. 1.10-13)
Defined Benefit Pension Plans on the Balance Sheet (pg. 1.10-13)
Analysis Issue-Sufficiency of Plan Assets to Pay Pension Obligations (pg. 1.10-15)
Defined Benefit Pension Plans on the Income Statement (pg. 1.10-16)
Pension Expense Smoothing (pg. 1.10-17)
Fair Value Accounting for Pensions (pg. 1.10-21)
Footnote Disclosure-Key Assumptions (pg. 1.10-23)
Analysis Implications (pg. 1.10-23)
Other Post-Employment Benefits (OPEB) (pg. 1.10-25)
Review 10-2 (pg. 1.10-26)
Analyzing Income Taxes (pg. 1.10-27)
Timing Differences Create Deferred Tax Assets and Liabilities (pg. 1.10-27)
Disclosures for Income Taxes (pg. 1.10-31)
Analysis of Income Tax Disclosures (pg. 1.10-32)
Expanded Explanation of Deferred Taxes (pg. 1.10-33)
Review 10-3 (pg. 1.10-37)
Analyzing Global Reports (pg. 1.10-38)
Appendix 10A: Lease Accounting Example- Finance and Operating Leases (pg. 1.10-39)
Questions (pg. 1.10-40)
Mini Exercises (pg. 1.10-40)
Exercises (pg. 1.10-45)
Problems (pg. 1.10-54)
IFRS Applications (pg. 1.10-64)
Ongoing Analysis Project (pg. 1.10-65)
Solutions to Reviews (pg. 1.10-66)
Module 11 Financial Statement Forecasting (pg. 1.11-1)
Forecasting Process (pg. 1.11-3)
Company Guidance (pg. 1.11-6)
Review 11-1 (pg. 1.11-7)
Forecasting the Income Statement (pg. 1.11-9)
Review 11-2 (pg. 1.11-12)
Forecasting the Balance Sheet (pg. 1.11-13)
Review 11-3 (pg. 1.11-17)
Building Forecasts from the Bottom Up (pg. 1.11-17)
Segment Data (pg. 1.11-17)
Review 11-4 (pg. 1.11-19)
Appendix 11A: Forecasting the Statement of Cash Flows (pg. 1.11-19)
Review 11-5 (pg. 1.11-21)
Appendix 11B: Multiyear Forecasting with Target Cash and New Debt Financing (pg. 1.11-21)
Review 11-6 (pg. 1.11-23)
Appendix 11C: Parsimonious Method for Forecasting NOPAT and NOA (pg. 1.11-23)
Multiyear Forecasting with Parsimonious Method (pg. 1.11-23)
Review 11-7 (pg. 1.11-24)
Appendix 11D: Morgan Stanley’s Forecast Report on Procter & Gamble (pg. 1.11-24)
Questions (pg. 1.11-32)
Mini Exercises (pg. 1.11-32)
Exercises (pg. 1.11-38)
Problems (pg. 1.11-45)
Ongoing Analysis Project (pg. 1.11-51)
Solutions to Reviews (pg. 1.11-52)
Module 12 Cost of Capital and Valuation Basics (pg. 1.12-1)
Basics of Valuation (pg. 1.12-3)
Payoffs from Equity and Debt Instruments (pg. 1.12-4)
Steps in Stock Valuation (pg. 1.12-4)
Intrinsic Value (pg. 1.12-5)
Review of Time Value of Money (pg. 1.12-6)
Valuation of a Debt Instrument (pg. 1.12-9)
Valuation of an Equity Instrument (pg. 1.12-9)
Estimating Cost of Capital (pg. 1.12-10)
Diversifiable and Non-Diversifiable Risk (pg. 1.12-11)
Review 12-1 (pg. 1.12-11)
Cost of Equity Capital Using the Capital Asset Pricing Model (pg. 1.12-12)
Cost of Equity Capital Using a Multi-Factor Model (pg. 1.12-13)
Review 12-2 (pg. 1.12-14)
Cost of Debt Capital (pg. 1.12-14)
Review 12-3 (pg. 1.12-16)
Weighted Average Cost of Capital (pg. 1.12-16)
Review 12-4 (pg. 1.12-18)
Dividend Discount Model (pg. 1.12-18)
Recursive Process of Valuation (pg. 1.12-18)
Framework of the Dividend Discount Model (pg. 1.12-19)
Dividend Discount Model with Constant Perpetuity (pg. 1.12-19)
Review 12-5 (pg. 1.12-20)
Dividend Discount Model with Increasing Perpetuity (pg. 1.12-20)
Issues in Applying the Dividend Discount Model (pg. 1.12-21)
Review 12-6 (pg. 1.12-23)
Appendix 12A: Estimating Cost of Equity Capital (pg. 1.12-23)
Guidance Answer (pg. 1.12-28)
Questions (pg. 1.12-29)
Mini Exercises (pg. 1.12-29)
Exercises (pg. 1.12-30)
Problems (pg. 1.12-31)
Analysis Discussion Points (pg. 1.12-34)
Ongoing Analysis Project (pg. 1.12-36)
Solutions to Reviews (pg. 1.12-37)
Module 13 Cash-Flow-Based Valuation (pg. 1.13-1)
Equity Valuation Models (pg. 1.13-3)
Dividend Discount Model (pg. 1.13-3)
Discounted Cash Flow Model (pg. 1.13-4)
Residual Operating Income Model (pg. 1.13-4)
Model Equivalency (pg. 1.13-4)
Valuation Model Inputs (pg. 1.13-4)
Review 13-1 (pg. 1.13-6)
Discounted Cash Flow (DCF) Model (pg. 1.13-6)
DCF Model Structure (pg. 1.13-6)
Steps in Applying the DCF Model (pg. 1.13-7)
Illustrating the DCF Model (pg. 1.13-8)
Extending the DCF Model (pg. 1.13-9)
Analyzing Global Reports (pg. 1.13-15)
Review 13-2 (pg. 1.13-15)
Appendix 13A: Financial Statements for Procter & Gamble (pg. 1.13-16)
Appendix 13B: Derivation of Free Cash Flow Formula (pg. 1.13-18)
Appendix 13C: Deutsche Bank Valuation of Procter & Gamble (pg. 1.13-18)
Guidance Answer (pg. 1.13-29)
Questions (pg. 1.13-29)
Mini Exercises (pg. 1.13-29)
Exercises (pg. 1.13-30)
Problems (pg. 1.13-33)
Analysis Discussion Point (pg. 1.13-37)
Ongoing Analysis Project (pg. 1.13-37)
Solutions to Reviews (pg. 1.13-38)
Module 14 Operating-Income-Based Valuation (pg. 1.14-1)
Equity Valuation Models (pg. 1.14-3)
Dividend Discount Model (pg. 1.14-3)
Discounted Cash Flow Model (pg. 1.14-4)
Residual Operating Income Model (pg. 1.14-4)
Model Equivalency (pg. 1.14-4)
Valuation Model Inputs (pg. 1.14-5)
Review 14-1 (pg. 1.14-6)
Residual Operating Income (ROPI) Model (pg. 1.14-6)
ROPI Model Structure (pg. 1.14-6)
Steps in Applying the ROPI Model (pg. 1.14-7)
Illustrating the ROPI Model (pg. 1.14-8)
Extending the ROPI Model (pg. 1.14-10)
Review 14-2 (pg. 1.14-11)
Steady State in Valuation (pg. 1.14-11)
Multi-Year Forecast Precision (pg. 1.14-12)
Achieving Steady State (pg. 1.14-12)
Forecasting Steady State-An Illustration (pg. 1.14-13)
Review 14-3 (pg. 1.14-15)
Managerial Insights from the ROPI Model (pg. 1.14-15)
Management Focus on Improved Efficiency (pg. 1.14-15)
Management Focus on Improved Profitability (pg. 1.14-16)
Assessment of Valuation Models (pg. 1.14-16)
Analyzing Global Reports (pg. 1.14-17)
Review 14-4 (pg. 1.14-18)
Appendix 14A: P&G Financial Statements (pg. 1.14-18)
Guidance Answer (pg. 1.14-20)
Questions (pg. 1.14-21)
Mini Exercises (pg. 1.14-21)
Exercises (pg. 1.14-23)
Problems (pg. 1.14-26)
Analysis Discussion Point (pg. 1.14-30)
Ongoing Analysis Project (pg. 1.14-31)
Solutions to Reviews (pg. 1.14-32)
Module 15 Market-Based Valuation (pg. 1.15-1)
Valuation Model Using Market Multiples (pg. 1.15-3)
Application of the Model Using Market Multiples (pg. 1.15-4)
Valuation Using Balance Sheet Multiples (pg. 1.15-5)
Valuation Using a Net Operating Asset (NOA) Multiple (pg. 1.15-6)
Valuation Using a Book Value (BV) Multiple (pg. 1.15-6)
Review 15-1 (pg. 1.15-8)
Valuation Using Income Statement Multiples (pg. 1.15-8)
Valuation Using a Net Operating Profit After Tax (NOPAT) Multiple (pg. 1.15-9)
Valuation Using a Net Income (NI) Multiple (pg. 1.15-10)
Valuation Using Industry-Based Multiples (pg. 1.15-11)
Combining Estimates from Differing Multiples (pg. 1.15-11)
Review 15-2 (pg. 1.15-12)
Selecting Comparables for Market Multiples (pg. 1.15-12)
Deriving Price-to-Book from Residual Operating Income Model (pg. 1.15-13)
PB Ratios in Relation to Profitability, Growth, and Risk (pg. 1.15-13)
Deriving Price-to-Earnings from Residual Operating Income Model (pg. 1.15-16)
PE Ratios in Relation to Profitability, Growth, and Risk (pg. 1.15-17)
Review 15-3 (pg. 1.15-18)
Interpreting and Reverse Engineering Market Multiples (pg. 1.15-19)
Interpreting and Reverse Engineering the PB Ratio (pg. 1.15-19)
Interpreting and Reverse Engineering the PE Ratio (pg. 1.15-21)
Perspective on Valuation Multiples and Fundamental Analysis (pg. 1.15-21)
Review 15-4 (pg. 1.15-22)
Guidance Answer (pg. 1.15-23)
Questions (pg. 1.15-23)
Mini Exercises (pg. 1.15-24)
Exercises (pg. 1.15-26)
Problems (pg. 1.15-30)
Analysis Discussion Points (pg. 1.15-34)
Ongoing Analysis Project (pg. 1.15-37)
Solutions to Reviews (pg. 1.15-37)
Appendix A Compound Interest Tables (pg. 1.A-1)
Appendix B Computing and Analyzing Cash Flows (pg. 1.B-1)
Framework for Statement of Cash Flows (pg. 1.B-3)
Relation Among Financial Statements (pg. 1.B-3)
Statement of Cash Flows Structure (pg. 1.B-4)
Operating Activities Preview (pg. 1.B-7)
Investing Activities Preview (pg. 1.B-8)
Financing Activities Preview (pg. 1.B-8)
Review B-1 (pg. 1.B-9)
Cash Flow from Operating Activities (pg. 1.B-9)
Steps to Compute Net Cash Flow from Operating Activities (pg. 1.B-10)
Java House Case Illustration (pg. 1.B-12)
Review B-2 (pg. 1.B-15)
Computing Cash Flows from Investing Activities (pg. 1.B-16)
Analyze Remaining Noncash Assets (pg. 1.B-16)
Java House Case Illustration (pg. 1.B-16)
Review B-3 (pg. 1.B-18)
Cash Flows from Financing Activities (pg. 1.B-18)
Analyze Remaining Liabilities and Equity (pg. 1.B-18)
Java House Case Illustration (pg. 1.B-18)
Review B-4 (pg. 1.B-19)
Computing Cash Flows from Balance Sheet Accounts (pg. 1.B-19)
Supplemental Disclosures for Indirect Method (pg. 1.B-20)
Review B-5 (pg. 1.B-21)
Analysis of Cash Flow Information (pg. 1.B-21)
Cash Flow Components (pg. 1.B-21)
Cash Flow Patterns (pg. 1.B-23)
Usefulness of the Statement of Cash Flows (pg. 1.B-25)
Review B-6 (pg. 1.B-27)
Ratio Analyses of Cash Flows (pg. 1.B-27)
Free Cash Flow (pg. 1.B-28)
Review B-7 (pg. 1.B-29)
Appendix BB: Direct Method Reporting for Statement of Cash Flows (pg. 1.B-29)
Cash Flows from Operating Activities (pg. 1.B-29)
Converting Revenues and Expenses to Cash Flows (pg. 1.B-29)
Java House Case Illustration (pg. 1.B-30)
Convert Sales to Cash Received from Customers (pg. 1.B-30)
Convert Cost of Goods Sold to Cash Paid for Merchandise Purchased (pg. 1.B-30)
Convert Wages Expense to Cash Paid to Employees (pg. 1.B-31)
Convert Insurance Expense to Cash Paid for Insurance (pg. 1.B-31)
Eliminate Depreciation Expense and Other Noncash Operating Expenses (pg. 1.B-31)
Convert Income Tax Expense to Cash Paid for Income Taxes (pg. 1.B-31)
Omit Gains and Losses Related to Investing and Financing Activities (pg. 1.B-31)
Cash Flows from Investing and Financing (pg. 1.B-32)
Supplemental Disclosures (pg. 1.B-32)
Review B-8 (pg. 1.B-32)
Guidance Answer (pg. 1.B-32)
Questions (pg. 1.B-33)
Mini Exercises (pg. 1.B-34)
Exercises (pg. 1.B-37)
Problems (pg. 1.B-42)
IFRS Application (pg. 1.B-55)
Solutions to Reviews (pg. 1.B-56)
Appendix C Comprehensive Case (pg. 1.C-1)
Reviewing Financial Statements (pg. 1.C-3)
Business Environment for Financial Reporting (pg. 1.C-3)
Income Statement Reporting and Analysis (pg. 1.C-4)
Balance Sheet Reporting and Analysis (pg. 1.C-9)
Statement of Cash Flows Reporting and Analysis (pg. 1.C-22)
Independent Audit Opinion (pg. 1.C-23)
Assessing Profitability and Creditworthiness (pg. 1.C-24)
ROE Disaggregation-DuPont Analysis (pg. 1.C-24)
ROE Disaggregation-Operating Focus (pg. 1.C-26)
Disaggregation of RNOA-Margin and Turnover (pg. 1.C-26)
Credit Analysis (pg. 1.C-27)
Summarizing Profitability and Creditworthiness (pg. 1.C-28)
Forecasting Financial Statements (pg. 1.C-28)
Valuing Equity Securities (pg. 1.C-31)
Discounted Cash Flow Valuation (pg. 1.C-32)
Residual Operating Income Valuation (pg. 1.C-33)
Assessment of the Valuation Estimate (pg. 1.C-34)
Summary Observations (pg. 1.C-34)
Appendix D Chart of Accounts (with Acronyms) (pg. 1.D-1)
Advanced Accounting, 4e (pg. 2.744)
Chapter 16: The SEC and Financial Reporting (pg. 2.744)
 Establishment of the SEC and Key Securities Legislation (pg. 2.746)
Establishment of the SEC (pg. 2.746)
Securities Legislation and the SEC (pg. 2.746)
Definition of a Security (pg. 2.748)
 Organization and Structure of the SEC (pg. 2.748)
SEC Pronouncements on Accounting and Auditing (pg. 2.750)
Review 1 • Mission and Organization of the SEC (pg. 2.750)
 Registration of New Securities (pg. 2.750)
 Periodic Reporting Requirements (pg. 2.752)
EDGAR (pg. 2.752)
The Annual Report: Form 10-K (pg. 2.752)
Regulation S-X (pg. 2.757)
The Quarterly Report: Form 10-Q (pg. 2.759)
Special Reports: Form 8-K (pg. 2.760)
Review 2 • Registration and Periodic Reporting Requirements (pg. 2.762)
 Corporate Accountability and Governance (pg. 2.762)
Audit Committees (pg. 2.763)
Antifraud Provisions and Insider Trading (pg. 2.763)
Proxy Statements (pg. 2.764)
The Dodd-Frank Act (pg. 2.764)
 The SEC and Accounting Standards (pg. 2.765)
Review 3 • Corporate Accountability and Governance, SEC Intervention in Standard-Setting (pg. 2.766)
Review of Key Concepts (pg. 2.766)
Multiple Choice Questions (pg. 2.767)
Exercises (pg. 2.768)
Problems (pg. 2.773)
Review Solutions (pg. 2.776)
Peter D. Easton

Peter D. Easton

Peter D. Easton is an expert in accounting and valuation and holds the Notre Dame Alumni Chair in Accountancy in the Mendoza College of Business.

Professor Easton’s expertise is widely recognized by the academic research community and by the legal community. Professor Easton frequently serves as a consultant on accounting and valuation issues in federal and state courts.

Professor Easton holds undergraduate degrees from the University of Adelaide and the University of South Australia. He holds a graduate degree from the University of New England and a PhD in Business Administration (majoring in accounting and finance) from the University of California, Berkeley.

Professor Easton’s research on corporate valuation has been published in the Journal of Accounting and Economics, Journal of Accounting Research, The Accounting Review, Contemporary Accounting Research, Review of Accounting Studies, and Journal of Business Finance and Accounting.

Professor Easton has served as an associate editor for 11 leading accounting journals and he is currently an associate editor for the Journal of Accounting Research, Journal of Business Finance and Accounting, and Journal of Accounting, Auditing, and Finance. He is an editor of the Review of Accounting Studies.

Professor Easton has held appointments at the University of Chicago, the University of California at Berkeley, Ohio State University, Macquarie University, the Australian Graduate School of Management, the University of Melbourne, Tilburg University, National University of Singapore, Seoul National University, and Nyenrode University. He is the recipient of numerous awards for excellence in teaching and in research. Professor Easton regularly teaches accounting analysis and security valuation to MBAs. In addition, Professor Easton has taught managerial accounting at the graduate level.


Financial Statement Analysis & Valuation, 6e (Easton, McAnally, Sommers)
Errata
Last Updated: Oct 30 2023

Corrections to identified errors in the first printing of the text.

Appendix C
Last Updated: Jul 13 2020

Appendix C:  Comprehensive Case / Harley-Davidson

Excel Templates - Students
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Excel templates for use with Module Reviews.

Self Study Quizzes
Last Updated: Jul 24 2023

Brief practice quizzes containing multiple choice questions for each module. Solutions included.

Advanced Accounting, 4e (Hamlen)
Errata - Textbook
Last Updated: Mar 31 2020

Corrections that were made to the text after the first printing. 

Excel Templates - Student
Last Updated: Mar 31 2020

Excel spreadsheets for select assignments are provided on the book’s website. These spreadsheets will save time in data entry and allow students to dedicate additional time to learning the material. The Excel spreadsheets are identified by the Excel icon.

Chapters 1-6 and 10 available. Others coming soon!

Practice Quizzes
Last Updated: Mar 31 2020
Practice Quiz Solutions
Last Updated: Mar 31 2020
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