Cheat Sheet 118 FINAL

Cheat Sheet 118 FINAL - Likely Valuation Method for Major...

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Likely Valuation Method for Major Accounts on the Balance Sheet Group Project Questions Cash – Fair For short term look at liquidity ratios Inventories – Lower of Cost or Market For long term look at solvency ratios Prepaid expenses – Net Book Value For equity investment look at market ratios Buildings – Net Book Value Bonds Payable – Present Value Intangible Assets – NBV or OC Qualitative Characteristics Stock Holder’s Equity – residual of (Assets-Liabilities) 1. Primary Qualities Accounts Receivable – Net Realizable Value A. Relevance Long Term Investment – OC or FMR 1. Predictive Value Machinery - Net Book Value 2. Feedback Value PPE – Net Book Value 3. Timeliness Short-term Investment – Fair Market Value B. Reliability Land – Original Cost 1. Verifiability Short term Payables – Fair Value 2. Representational Faithfulness 3. Neutrality 2. Secondary Qualities Recognition and Measurement Concepts A. Comparability Assumptions B. Consistency 1. Economic Entity 2. Going Concern Elements 3. Monetary Unit 1. Assets 4. Periodicity 2. Liabilities Principles 3. Equity 1. Historical Cost 4. Investment by owners 2. Revenue Recognition 5. Distribution to owners 3. Matching 6. Comprehensive Income 4. Full Disclosure 7. Revenues Constraints 8. Expenses 1. Cost Benefit 9. Gains 2. Materiality 10. Losses 3. Industry Practice 4. Conservatism Price = EPS ((1+G)/(R-G) EPS = Earnings per share G = growth rate R = Risk Free Rate + Beta (Market Rate – Risk Free Rate) Risk Free Rate = Treasury Bond Rate Market Rate - Risk Free Rate = Risk Premium Beta – correlation to trend of price to stock market If B > 1 high risk (low price) If B< 1 low risk (high price)
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This note was uploaded on 04/08/2008 for the course ECON 118 taught by Professor Loster during the Spring '07 term at UCSB.

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Cheat Sheet 118 FINAL - Likely Valuation Method for Major...

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