THIS DOCUMENT BELONGS TO TESBANKSNERD
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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, THIS DOCUMENT BELONGS TO TESBANKSNERD
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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, THIS DOCUMENT BELONGS TO TESBANKSNERD
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
~4~
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
~1~
, THIS DOCUMENT BELONGS TO TESBANKSNERD
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
~2~
, THIS DOCUMENT BELONGS TO TESBANKSNERD
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
~3~
, THIS DOCUMENT BELONGS TO TESBANKSNERD
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
~4~
