Solution Manual Financial Statement Analysis and Security Valuation 4th Edition by Stephen Penman 2025

, SOLUTIONS .TO
.EXERCISE .AND .CASES



For

FINANCIAL .STATEMENT .ANALYSIS .AND .SECURITY .VALUATION




Stephen .H. .Penman

, CHAPTER .ONE

Introduction .to .Investing .and .Valuation


Exercises

. Drill

Exercises
.


E1.1. . . Calculating .Enterprise .Value


Enterprise .Value .= .$1,800 .million

E1.2. . . Calculating .Value .Per .Share


Equity .Value .= .$1,800

E1.3 Buy .or .Sell?

Value .= .$850 .+ .$675

= .$1,525 .million

Value .per .share .= .$1,525/25 .=

.$61 .Market .price = .$45

Therefore, .BUY!




Applications

E1.4. . . Finding .Information .on .the .Internet: .Dell .Computer .and .General .Motors

This .is .an .exercise .in .discovery. . The .links .on .the .book’s .web .site .will .help .with .the

.search. .Here .is .the .link .to .yahoo .finance:


http://finance.yahoo.com

E1.5. . . Enterprise .Market .Value: .General .Mills .and .Hewlett-Packard


(a) General .Mills

, Market value of the equity =
Book value of total (short-term and long-term) debt =
Enterprise value



Note .three .points:

(i) Total .market .value .of .equity .= .Price .per .share . .Shares .outstanding.

(ii) The .book .value .of .debt .is .typically .assumed .to .equal .its .market .value,

.but .financial .statement .footnotes .give .market .value .of .debt .to .confirm


.this.


(iii) The .book .value .of .equity .is .not .a .good .indicator .of .its .market .value. . The .price-

to- .book .ratio .for .the .equity .can .be .calculated .from .the .numbers .given:

$20,925/$6,215.8 .= .3.37.



(b) This .question .provokes .the .issue .of .whether .debt .held .as .assets .is .part .of .enterprise

.value .(a .part .of .operations) .or .effectively .a .reduction .of .the .net .debt .claim .on .the .firm. . The


.issue .arises .in .the .financial .statement .analysis .in .Part .II .of .the .book: .are .debt .assets .part .of


.operations .or .part .of .financing .activities? . Debt .is .part .of .financing .activities .if .it .is .held .to

.absorb .excess .cash .rather .than .used .as .a .business .asset. .The .excess .cash .could .be .applied .to


.buying .back .the .firm’s .debt .rather .than .buying .the .debt .of .others, .so .the .net .debt .claim .on


.enterprise .value .is .what .is .important. . Put .another .way, .HP .is .not .in .the .business .of .trading


.debt, .so .the .debt .asset .is .not .part .of .enterprise .operations. .The .calculation .of .enterprise .value


.is .as .follows:


Market .value .of .equity .= .$47 . .2,473 .million .shares .= .$116,231 .million

Book .value .of .net .debt .claims:
Short-term .borrowing $ . 711
.million .Long-term .debt 7,688