Part 1 FRAMEWORK
A Framework for Business Analysis and Valuation Using Financial Statements
The Role of Financial Reporting in Capital Markets
From Business Activities to Financial Statements
From Financial Statements to Business Analysis
Summary
Discussion Questions
CASE: The Role of Capital Market Intermediaries in the Dot-Corn Crash of 2000
Part 2 BUSINESS ANALYSIS AND VALUATION TOOLS
Strategy Analysis
Industry Analysis
Applying Industry Analysis: The Personal Computer Industry
Competitive Strategy Analysis
Corporate Strategy Analysis
Summary
Discussion Questions
CASE: America Online, Inc.
Overview of Accounting Analysis
The Institutional Framework for Financial Reporting
Factors Influencing Accounting Quality
Steps in Doing Accounting Analysis
Accounting Analysis Pitfalls
Value of Accounting Data and Accounting Analysis
Summary
Discussion Questions
CASE: Harnischfeger Corporation
4 Implementing Accounting Analysis
Recasting Financial Statements
Asset Distortions
Overstated Assets
Understated Assets
Liability Distortions
Equity Distortions
Summary
Discussion Questions
Appendix: Recasting Financial Statements Into Standardized Templates
CASE: Pre-Paid Legal Services, Inc.
5 Financial Analysis
Ratio Analysis
Cash Flow Analysis
Summary
Discussion Questions
Appendix: Part A: Nordstrom, Inc. Financial Statements
Part B: The TJX Companies, Inc. Financial Statements
CASE: The Home Depot, Inc.
6 Prospective Analysis: Forecasting
Relation of Forecasting to Other Analyses
The Techniques of Forecasting
Making Forecasts
Sensitivity Analysis
Summary
Discussion Questions
Appendix: The Behavior of Components of ROE
CASE: Krispy Kreme Doughnuts
7 Prospective Analysis: Valuation Theory and Concepts
Defining Value for Shareholders
The Discounted Abnormal Earnings Valuation Method
Valuation Using Price Multiples
Shortcut Forms of Earnings-Based Valuation
The Discounted Cash Flow Model
Comparing Valuation Methods
Summary
Discussion Questions
Appendix: Reconciling the Discounted Dividends and Discounted
Abnormal Earnings Models
CASE: Valuation Ratios in the Airline Industry
Prospective Analysis: Valuation Implementation
Detailed Forecasts of Performance
Computing a Discount Rate
Terminal Values
Computing Estimated Values
Summary
Discussion Questions
CASE: Home Depot, Inc. in the New Millennium
Part 3 BUSINESS ANALYSIS AND VALUATION APPLICATIONS
9 Equity Security Analysis
Investor Objectives
Equity Security Analysis and Market Efficiency
Approaches to Fund Management and Securities Analysis
The Process of a Comprehensive Security Analysis
Performance of Security Analysts and Fund Managers
Summary
Discussion Questions
CASE: United Parcel Service's IPO
10 Credit Analysis and Distress Prediction
The Market for Credit
The Credit Analysis Process
Financial Statement Analysis and Public Debt
Prediction of Distress and Turnaround
Summary
Discussion Questions
CASE: Amazon.com in the Year 2000
11 Mergers and Acquisitions
Motivation for Merger or Acquisition
Acquisition Pricing
Acquisition Financing
Acquisition Outcome
Summary
Discussion Questions
CASE: Schneider and Square D
12 Corporate Financing Policies
Factors That Determine Firms' Debt Policies
The Optimal Long-Term Mix of Debt and Equity
The Financing of New Projects
Factors That Determine Dividend Policies
Summary
Discussion Questions
CASE: CUC International, Inc. (A)
13 Communication and Governance
Governance Overview
Management Communication with Investors
Communication Through Financial Reporting
Other Forms of Communicating with Investors
Auditor Analysis
Audit Committee Reviews
Summary
Discussion Questions
CASE: Computer Associates International, Inc.: Governance and Investor
Communication Challenge
Part 4 ADDITIONAL CASES
Anacomp, Inc.
Arch Communications Group Inc.
Boston Chicken, Inc.
Brierley Investments Limited
The City of New York
Comdisco, Inc. (A)
Comdisco, Inc. (B)
Korea Stock Exchange 1998
Manufactured Homes, Inc.
Maxwell Shoe Company, Inc.
The Murray Ohio Manufacturing Company
Oracle Systems Corporation
Sensormatic Electronics Corporation-1995
Thermo Electron Corporation
The Upjohn Company: The Upjohn-Pharmacia Merger
Index
Author Index