FINANCIAL STATEMENT ANALYSIS
VALUATION 6TH EDITION
COMPREHENSIVE EXAM QUESTIONS
WITH SOLUTIONS GRADED A
◉ Market price, "P". Answer: Often used as a surrogate for value,
sometimes also called "fair value".
◉ The aim of fundamental information analysis. Answer: To analyze the
value of securities with key value-drivers, such as profit, earnings, risk,
growth and competitive position.
◉ Useful financial variables, i.e. value-relevant fundamentals, for
investor decision-making. Answer: EPS, accounts receivables, R&D
levels, capital expenditure, order backlog, productivity and e.g. inflation
information.
◉ Fair value. Answer: A rational and unbiased estimate of the potential
market price of a good, service, or asset.
◉ Value in use. Answer: Value of asset in continued use, e.g. the
discounted value of future cash flows (i.e. the "present value" of future
cash flows.
,◉ Substance value. Answer: The selling value of assets. Often the fair
value of assets less debts.
◉ Intangible. Answer: An intangible asset is a non-monetary asset that
cannot be seen or touched.
◉ Equity. Answer: Assets - liabilities
◉ Book value. Answer: The value of a company's total assets minus its
total liabilities.
◉ Value of debt. Answer: Typically the value of liabilities in nominal
value.
◉ Value of the firm. Answer: Business valuation tells you the dollar
value of a company, which is usually determined by a combination of its
assets, liabilities, earnings, potential future earnings, and market
capitalization.
◉ Goodwill. Answer: The value a company gets from its brand,
customer base and reputation associated with its intellectual property.
◉ Gordon growth model. Answer: CF/(r-g) = cash flows/(discount rate-
average percentage growth)
, ◉ Profitability. Answer: A measure of how efficiently a business
converts its expenses into profits for its owners.
◉ Solidity. Answer: The proportion of equity to the total assets of an
organization or company. It indicates the percentage of assets financed
by equity rather than debt.
◉ Liquidity. Answer: A company's ability to convert assets to cash or
acquire cash—through a loan or money in the bank—to pay its short-
term obligations or liabilities.
◉ Liabilities. Answer: Debts, bonds, bank loans
◉ Derivatives. Answer: Financial contracts, set between two or more
parties, that derive their value from an underlying asset, a group of
assets, or a benchmark.
◉ Profit margin. Answer: Profit/net revenue*100%, 5% is a low margin,
10% is a healthy margin, and 20% is a high margin
◉ Return on equity. Answer: Profit/equity, good between 15-20 %
◉ Equity ratio. Answer: Equity/balance sheet total
VALUATION 6TH EDITION
COMPREHENSIVE EXAM QUESTIONS
WITH SOLUTIONS GRADED A
◉ Market price, "P". Answer: Often used as a surrogate for value,
sometimes also called "fair value".
◉ The aim of fundamental information analysis. Answer: To analyze the
value of securities with key value-drivers, such as profit, earnings, risk,
growth and competitive position.
◉ Useful financial variables, i.e. value-relevant fundamentals, for
investor decision-making. Answer: EPS, accounts receivables, R&D
levels, capital expenditure, order backlog, productivity and e.g. inflation
information.
◉ Fair value. Answer: A rational and unbiased estimate of the potential
market price of a good, service, or asset.
◉ Value in use. Answer: Value of asset in continued use, e.g. the
discounted value of future cash flows (i.e. the "present value" of future
cash flows.
,◉ Substance value. Answer: The selling value of assets. Often the fair
value of assets less debts.
◉ Intangible. Answer: An intangible asset is a non-monetary asset that
cannot be seen or touched.
◉ Equity. Answer: Assets - liabilities
◉ Book value. Answer: The value of a company's total assets minus its
total liabilities.
◉ Value of debt. Answer: Typically the value of liabilities in nominal
value.
◉ Value of the firm. Answer: Business valuation tells you the dollar
value of a company, which is usually determined by a combination of its
assets, liabilities, earnings, potential future earnings, and market
capitalization.
◉ Goodwill. Answer: The value a company gets from its brand,
customer base and reputation associated with its intellectual property.
◉ Gordon growth model. Answer: CF/(r-g) = cash flows/(discount rate-
average percentage growth)
, ◉ Profitability. Answer: A measure of how efficiently a business
converts its expenses into profits for its owners.
◉ Solidity. Answer: The proportion of equity to the total assets of an
organization or company. It indicates the percentage of assets financed
by equity rather than debt.
◉ Liquidity. Answer: A company's ability to convert assets to cash or
acquire cash—through a loan or money in the bank—to pay its short-
term obligations or liabilities.
◉ Liabilities. Answer: Debts, bonds, bank loans
◉ Derivatives. Answer: Financial contracts, set between two or more
parties, that derive their value from an underlying asset, a group of
assets, or a benchmark.
◉ Profit margin. Answer: Profit/net revenue*100%, 5% is a low margin,
10% is a healthy margin, and 20% is a high margin
◉ Return on equity. Answer: Profit/equity, good between 15-20 %
◉ Equity ratio. Answer: Equity/balance sheet total
