Do you agree that Cathay is financially
healthy and why?
Accounting Information and Ratios
Accounting number is the language of business finance
Good working knowledge of financial sta
The Cost of Capital
Chapter 13, BDH 2/e
13.1 A First Look at the Weighted Average Cost
of Capital (Components)
13.2 The Firms Costs of Debt and Equity
13.3 A Second Look at the Weighted Average
Audit risks and responses
Audit risk Auditor response
Minty has incurred $5m on updating, repairing and
replacing a significant amount of the production process
If this expenditure is of a capital nature, it should be
capitalised as part of p
Control objectives for sales and despatch system
To ensure that orders are only accepted if goods are available to be processed for customers.
To ensure that all orders are recorded completely and accurately.
To ensure that goods are not supplied to po
The strategy should consider the factors that, in the auditors professional judgement, are significant in
directing Mintys audit
teams efforts, such as:
The determination of materiality for the audit.
The need to maintain a questioning mind and to exerc
Inventory availability for telephone orders is not checked at
the time the order is placed. The order clerks manually
check the availability later and only then inform customers if
there is insufficient inventory available.
There is the risk that where go
Inventory is stored within 15 warehouses; some are owned
by Minty and some rented from third parties. Only
warehouses owned by Minty should be included within
PPE. There is a risk of overstatement of PPE and
understatement of rental expenses if Minty has
Flowcharts are a graphic illustration of the internal control system for the sales and despatch system.
demonstrate the sequence of events and standard symbols are used to signify controls or documents.
Advantages of this method i
Minty has incurred expenditure of $45 million on
developing a new brand of fizzy drink. This expenditure is
research and development under IAS 38 Intangible Assets.
The standard requires research costs to be expensed and
development costs to be capitalise
Revenue is possibly overstated if the sales returns are not
completely and accurately recorded.
Review the breakdown of sales of damaged goods, and
ensure that they have been accurately removed from
The management of Minty receives a significant
Internal control questionnaires (ICQ) or internal control evaluation questionnaires (ICEQ) contain a list
of questions; ICQs are
used to assess whether controls exist whereas ICEQs test the effectiveness of the controls.
Advantages of this
For non-responses, with the clients permission, the team should arrange to send a follow up
If the receivable does not respond to the follow up, then with the clients permission, the senior
the customer and ask whether t
A Second Look
Chapters 10, BDH 2/e
Chapter 10, BDH 2/e
10.1 The Discounted Free Cash Flow Model
10.2 Valuation Based on Comparable Firms
10.3 Information, Competition, and Stock P
Chapter 7, BDH 2/e
7.1 Stock Basics
7.2 The Mechanics of Stock Trades
7.3 The Dividend-
7.4 Estimating Dividends in the Dividend-
7.5 Limitations of the Dividend-
Chapter 9 (Contd)
Your car broke down last week. You took it to
the auto shop and the mechanic charged $5,000
to fix it. You estimated that the market value of
the car would be $7,000 if it was still run
How does China Unicom determine its capital
budget? Why its stock price fell at the
Chapter 8 (Contd)
As at HKT 2009/02/20
Peter bought 10,000 shares of Thiz Technology
and made a 74% return in one day.
John bought 10,000 shares of HKRH and made
a 16.8% return in
Do you agree that the share price increases
of Rare Element Resources is a bubble?
Why or why not?
What is the actual interest cost to you if
you borrow $20,000 tax loan and repay in
18 months? Is it based on the standard
interest rate, APR, or the monthly flat rate?
Chapter 4 (contd)
Time Value of Money:
Valuing Cash Flow
Ellen is 35 years old, and she has decided it is
time to plan seriously for her retirement. She
plans to start saving $10,000 in a retirement
account at the end of each yea
Chapter 3 (contd)
Time Value of Money:
You are a financial planner wishing to persuade a
young client to reconsider her $50,000 invested in
Your client believes that stock mutual funds will return
about 12% for th
Time Value of Money:
If you were the shareholders of
Cadbury, at what price would you be
willing to sell your shares to Kraft?
Chapter 2 (contd)
Wynn reported both Net Income and
EBITDA . Which data is more important
to value the company, and why?
Profit vs. Cash Flow
You Cant Deposit Net Income, Only Cash
A firm may b