Solution Manual for Financial Statement Analysis and Security Valuation (Stephen H. Penman) – Complete Verified Q&A Solutions for All Chapters (1–17)

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Solution To Exercise And Cases For Financial Statement Analysis And Security
Valuation

By Stephen H. Penman

All chapters (1-17) verified Q&A | Grade A+ Asssured
Isbn: 9780073379661




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TABLE OF CONTENTS

CHAPTER ONE Introduction to Investing and Valuation ........................................................................................................................
CHAPTER TWO Introduction to the Financial Statements ......................................................................................................................
CHAPTER THREE :How Financial Statements are Used in Valuation ................................................................................................
CHAPTER FOUR: Cash Accounting, Accrual Accounting, and Discounted Cash Flow Valuation .............................................
CHAPTER FIVE: Accrual Accounting and Valuation: Pricing Book Values Exercises ....................................................................
CHAPTER SIX : Accrual Accounting and Valuation: Pricing Earnings................................................................................................
CHAPTER SEVEN :Viewing the Business Through the Financial Statements .................................................................................
CHAPTER EIGHT :The Analysis of the Statement of Shareholders’ Equity .....................................................................................
CHAPTER NINE :The Analysis of the Balance Sheet and Income Statement .................................................................................. 1
CHAPTER TEN: The Analysis of the Cash Flow Statement..................................................................................................................... 1
CHAPTER ELEVEN :The Analysis of Profitability ..................................................................................................................................... 1
CHAPTER TWELVE :The Analysis of Growth and Sustainable Earnings ........................................................................................ 1
CHAPTER THIRTEEN: The Value of Operations and the Evaluation of Enterprise Price-to-Book Ratios and Price-
Earnings Ratios....................................................................................................................................................................................................... 1
CHAPTER FOURTEEN: Anchoring on the Financial Statements: ........................................................................................................ 1
CHAPTER FIFTEEN :Full-Information Forecasting, Valuation, and Business Strategy Analysis ........................................... 2
CHAPTER SIXTEEN: Creating Accounting Value and Economic Value ............................................................................................ 2
CHAPTER SEVENTEEN: The Analysis of the Quality of Financial Statements ............................................................................... 2




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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


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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


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