M2.1. Reviewing the Financial Statements of Kimberley-Clark
Corporation
Introduction
This case runs through the basics of financial statements. It also introduces the student to
Kimberley-Clark (KMB), the firm that is followed in the Continuing Case that
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Winter 2014
Quiz 1
Name: _
Use the DCF method to value a company with the following characteristics. It will be in business for three
years, generating $900 in revenue each year. It will have PPE of $800 bought at time zero, which will depr
Question 5 is the heart of the case and the critical Fortune article on Pre-Paid Legal Services Does the PPLS accounting for sales commissions reflect economic reality?
1
Preview of Question 5.
PPLS Commission policy 3. Sales associates get 25 % co
Introduction to Valuation - Valuing a Bond
Consider valuing a 3-year bond with principal equal to $1,000 and $120 interest rate payable at the end of each year. Thus the coupon rate is 12 percent. Also assume that the appropriate discount rate to app
M5.2 Analysts Forecasts and Valuation: PepsiCo and Coca-Cola I
This case is a straight-forward application of the valuation techniques in this chapter. A parallel
valuation of the two firms is in Minicase 6.1 in the next chapter. Minicase 4.1 in Chapter 4
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FSA Case
The case involves the analysis of a single company of your choosing. Four or five people may work
together on the project. Do not try to work on the project alone without talking to me first. It has proven
overwhelming for several
CHAPTER FIVE
Accrual Accounting and Valuation: Pricing Book Values
Concept Questions
C5.1. True. A firm with positive expected residual earnings (produced by an ROCE above the
cost of capital) must be valued at a premium.
C5.2. To trade at book value, as
M3.2. Nifty Stocks? Returns to Stock Screening
Introduction
This case is self-guiding case. It was written in October 1999 with no idea of the outcome, but
with a good guess: those who forget the lessons of history are deemed to repeat it.
You might refer
M1.1 Critique of an Equity Analysis: America Online, Inc.
Introduction
This case can be used to outline how the analyst goes about a valuation and, specifically,
to introduce pro forma analysis. It can also be used to stress the importance of strategy in
Management 126
FSA Case
The case involves the analysis of a single company of your choosing. Four or five people may work
together on the project. Do not try to work on the project alone without talking to me first. It has proven
overwhelming for several
Management 126
Winter 2012
Quiz 1
Name: _
Use the residual income method to value a company with the following characteristics. It will be in business for
three years, generating $800 in revenue in year 1, $600 in year 2, and $400 in year 3. It will have
CHAPTER FOUR
Cash Accounting, Accrual Accounting, and Discounted Cash Flow Valuation
Concept Questions
C4.1. The first sentence is true: dividends are the payoff to equity investing. The second sentence
is true in theory but not in practice. Equity value
Exercises
Drill Exercises
E3.1. Calculating a Price from Comparables
P/E for the comparable firm = 100/5 = 20
P/B for the comparable firm = 100/50 = 2
Price for target, from earnings = $2.50 20 = $50 per share
Price for target, form book value = $30 2 = $
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Ratio information
General ratio information
What is a ratio?
A ratio is one variable divided by another. In financial analysis, at least one of the variables in the
ratio must come from the financial statements (either directly or as a line
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Practice Quiz 2 (given Winter 2014)
Consult the 2012 financial statements for Loreal available on the class website (specifically use statements 4.1,
4.3, and 4.5).
1) Calculate the DSI for Loreal in 2011 and 2012.
2012: 2033.8 / (6587.7/36
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Practice Quiz 2 Solution
1) If Im concerned about a build-up in Microsofts receivables in 2012, which ratio should I calculate?
Days sales outstanding (DSO)
Calculate this ratio for 2012 and 2011.
2012: 15780 / (73723 / 366) = 78.3
2011: 14
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Practice final
(given 12/7/11 with some modifications)
Many questions refer to the 2010 financial statements for Macys.
Please provide all answers in the space provided. Do not exceed the
number of lines provided for short answer questions.
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Practice Final
(originally given Winter 2014 with 2 questions omitted since they covered pre-midterm
material)
Many questions refer to the 2013 annual report for Novo Nordisk (NOVO), a Danish
pharmaceutical company. Note that NOVO employs I
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Practice final solution
Part 1 Miscellaneous questions
i) V =
t =1
Dt
( 1+r )t
ii) The entity method of valuation discounts free cash flows prior to payments to debtholders
(interest and principal) then subtracts the value of debt at the en
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Practice Final Solution
Part 1 General questions (15 pts)
i 10 pts) Each of the following accounting issues can result in low earnings quality. Explain what
the problem is with each of them and why earnings quality could be poor.
Fair valua
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Inter-corporate investments
Solution
1) Derive the debt cost of capital and abnormal earnings (equity basis) under each of the following treatments
of the investments.
a) Treat the investments as a reduction in debt.
Debt cost of capital: N
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Cost of capital exercises
Solution
1) Calculate the debt cost of capital.
Interest rate x (1 tax rate) = 6% x (1-40%) = 3.6%.
2) Calculate the equity cost of capital based on the CAPM model.
The expected return according to CAPM is
risk-fre
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Cost of capital exercises
Winchester Inc, has $4 billion in debt with an interest rate of 6%. In addition, the company has $8 billion in
book value of equity, $10 billion in market value of equity, and $12 billion in estimated equity value.
CHAPTER TWO
Introduction to the Financial Statements
Concept Questions
C2.1. The change in shareholders equity is equal earnings minus net payout to shareholders
only if earnings are comprehensive earnings. See equation 2.4. Net income, calculated accordi
Session 1:
Introduction to FSA
Mgmt 126: Financial Statement
Analysis
Dr. Michael Williams
1
TOPICS
o What is financial statement analysis?
o Why would we want to do it?
o Equity versus debt focus
o Valuation modeling
o Ratios
o Earnings quality
o Special