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Financial Reporting, Financial Statement Analysis, and Valuation A Strategic Perspective (with Thomson One Access Code)

by: Stickney, Clyde P.; Brown, Paul; Wahlen, James M.

Financial Reporting, Financial Statement Analysis, and Valuation A Strategic Perspective (with Thomson One Access Code)

by: Stickney, Clyde P.; Brown, Paul; Wahlen, James M.

ISBN 13:
9780324302950
ISBN 10:
0324302959
Edition: 6th
Format: Hardcover
Copyright: 04/04/2006
Publisher: South-Western College Pub
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Summary

Stickney/Brown/Wahlen is a balanced, flexible, and complete Financial Statement Analysis book that is written with the premise that students learn financial statement analysis most effectively by performing the analysis on actual companies. Students learn to integrate the concepts from economics, business strategy, accounting, and other business disciplines through the integration of a unique six-step process.

Preface

About the Authors

xiii

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

(84)

Overview of Financial Statement Analysis

(2)

Step 1: Identify the Industry Economic Characteristics

(2)

Tools for Studying Industry Economics

(5)

Value Chain Analysis

(2)

Porter's Five Forces Classification Framework

(2)

Economic Attributes Framework

(1)

Step 2: Identify the Company Strategies

(3)

Framework for Strategy Analysis

(1)

Application of Strategy Framework to PepsiCo's Beverage Segment

(2)

Step 3: Assess the Quality of the Financial Statements

(17)

Balance Sheet---Measuring Financial Position

(6)

Income Statement---Measuring Operating Performance

(6)

Statement of Cash Flows

(3)

Independent Auditor's Opinion and the Sarbanes-Oxley Act of 2002

(1)

Summary of Financial Statements, Notes, and Accountant's Opinion

(1)

Step 4: Analyze Profitability and Risk

(5)

Tools of Profitability and Risk Analysis

(4)

Step 5: Prepare Forecasted Financial Statements

(1)

Step 6: Value the Firm

(1)

The Association between Earnings and Share Prices

(2)

Role of Financial Statement Analysis in an Efficient Capital Market

(1)

Sources of Financial Statement Information

(1)

Summary

(1)

Appendix 1.1 Preparing a Term Project

(5)

Questions and Exercises

(2)

Problems and Cases

(18)

Integrative Case 1.1 Starbucks

(8)

Case 1.2 Nike: Somewhere between a Swoosh and a Slam Dunk

(10)

Asset and Liability Valuation and Income Measurement

(39)

Asset and Liability Valuation

(6)

Historical Value: Acquisition Cost

(1)

Historical Value: Adjusted Acquisition Cost

(1)

Historical Value: Present Value of Cash Flows Using Historical Interest Rates

(1)

Current Values: Current Replacement Cost

(1)

Current Values: Net Realizable Value

(1)

Current Values: Present Values of Cash Flows Using Current Interest Rates

(1)

GAAP Valuations

(1)

Income Recognition

(5)

Treatment 1: Value Changes Recognized on the Balance Sheet and Income Statement When Realized

(1)

Treatment 2: Value Changes Recognized on the Balance Sheet When They Occur but Recognized in Net Income When Realized

(1)

Treatment 3: Value Changes Recognized on the Balance Sheet and the Income Statement When They Occur

(1)

Summary of Asset and Liability Valuation and Income Recognition

(1)

Accounting for Income Taxes

(8)

Overview of Income Tax Accounting

(4)

Measuring Income Tax Expense: A Bit More to the Story

101

(3)

Reporting Income Taxes in the Financial Statements

104

(1)

PepsiCo's Reporting of Income Taxes

104

(1)

Framework for Analyzing the Effects of Transactions on the Financial Statements

105

(5)

Overview of the Analytical Framework

107

(3)

Summary of Analytical Framework

110

(1)

Summary

110

(1)

Questions and Exercises

111

(1)

Problems and Cases

112

(9)

Integrative Case 2.1 Starbucks

121

(3)

Income Flows versus Cash Flows: Key Relationships in the Dynamics of a Business

124

(74)

Net Income, Cash Flows, and Life Cycle Relations

126

(18)

Net Income and Cash Flow from Operations

126

(9)

Relation between Cash Flows from Operating, Investing, and Financing Activities

135

(2)

Illustrations of Cash Flow Relations

137

(7)

Preparing the Statement of Cash Flows

144

(8)

Algebraic Formulation

144

(1)

Classifying Changes in Balance Sheet Accounts

145

(6)

Illustration of the Preparation Procedure

151

(1)

Summary

152

(1)

Questions and Exercises

153

(4)

Problems and Cases

157

(15)

Integrative Case 3.1 Starbucks

172

(2)

Case 3.2 Prime Contractors

174

(2)

Case 3.3 W. T. Grant Company

176

(22)

Profitability Analysis

198

(86)

Profitability Analysis

200

(1)

Rate of Return on Assets

200

(29)

Disaggregating ROA

205

(1)

Economic and Strategic Factors in the Interpretation of ROA

205

(9)

Analyzing the Profit Margin for ROA

214

(8)

Analyzing Total Assets Turnover

222

(3)

Supplementing ROA in Profitability Analysis

225

(4)

Rate of Return on Common Shareholders' Equity

229

(5)

Earnings per Common Share

234

(4)

Calculating EPS

235

(2)

Criticisms of EPS

237

(1)

Interpreting Financial Statement Ratios

238

(1)

Comparisons with Corresponding Ratios of Earlier Periods

238

(1)

Comparisons with Corresponding Ratios of Other Firms

239

(1)

Summary

239

(1)

Questions and Exercises

240

(2)

Problems and Cases

242

(24)

Integrative Case 4.1 Starbucks

266

(6)

Case 4.2 Profitability and Risk Analysis of Wal-Mart Stores

272

(12)

Risk Analysis

284

(78)

Disclosures Regarding Risk and Risk Management

285

(3)

Financial Statement Analysis of Risk

288

(1)

Analyzing Short-Term Liquidity Risk

289

(7)

Analyzing Long-Term Solvency Risk

296

(4)

Analyzing Credit Risk

300

(5)

Analyzing Bankruptcy Risk

305

(11)

The Bankruptcy Process

305

(1)

Models of Bankruptcy Prediction

306

(7)

Synthesis of Bankruptcy Prediction Research

313

(3)

Market Equity Beta Risk

316

(1)

Financial Reporting Manipulation Risk

317

(5)

Motivations for Earnings Manipulation

317

(1)

Empirical Research on Earnings Manipulation

318

(2)

Application of Beneish's Model to Sunbeam Corporation

320

(2)

Summary of Income Manipulation Risk

322

(1)

Summary

322

(1)

Questions and Exercises

323

(2)

Problems and Cases

325

(8)

Integrative Case 5.1 Starbucks

333

(1)

Case 5.2 Massachusetts Stove Company---Bank Lending Decision

333

(8)

Case 5.3 Fly-by-Night International Group: Can This Company Be Saved?

341

(10)

Case 5.4 Millennial Technologies: Apocalypse Now

351

(11)

Quality of Accounting Information and Adjustments to Reported Financial Statement Data

362

(72)

Accounting Quality

363

(5)

High Quality Reflects Economic Information Content

364

(2)

High Quality Signals Earnings Persistence over Time

366

(2)

Discontinued Operations

368

(3)

Extraordinary Gains and Losses

371

(3)

Changes in Accounting Principles

374

(3)

Other Comprehensive Income Items

377

(1)

Impairment Losses on Long-Lived Assets

378

(4)

Restructuring and Other Charges

382

(4)

Changes in Estimates

386

(2)

Gains and Losses from Peripheral Activities

388

(2)

Restated Financial Statement Data

390

(3)

Accounting Classification Differences

393

(2)

Financial Reporting Worldwide

395

(3)

Earnings Management

398

(2)

Summary

400

(1)

Questions and Exercises

400

(2)

Problems and Cases

402

(18)

Integrative Case 6.1 Starbucks

420

(2)

Case 6.2 Hewlett-Packard: A Pack Ard (of) Mess

422

(5)

Case 6.3 International Paper: A Recurring Dilemma

427

(7)

Revenue Recognition and Related Expenses

434

(88)

Income Recognition

435

(17)

Criteria for Revenue Recognition

435

(3)

Criteria for Expense Recognition

438

(2)

Application of Revenue and Expense Recognition Criteria

440

(4)

Income Recognition for Long-Term Contractors

444

(4)

Revenue Recognition When Cash Collectibility Is Uncertain

448

(4)

Inventory Cost-Flow Assumption

452

(9)

FIFO

453

(1)

LIFO

453

(2)

Weighted Average

455

(1)

Conversion from LIFO to FIFO

455

(4)

Stock Price Reaction to Changes in Inventory Cost-Flow Assumption

459

(1)

Persistent Earnings and the Cost-Flow Assumption

459

(2)

Accounting for Fixed Assets

461

(7)

Fixed-Asset Valuation

461

(1)

Depreciable Life

462

(1)

Depreciation Method

463

(3)

Impairment of Fixed Assets (Long-Lived Assets)

466

(1)

Persistent Earnings and Fixed-Asset Reporting

467

(1)

Accounting for Intangible Assets

468

(9)

Accounting for Research and Development Costs

470

(2)

Accounting for Software Development Costs

472

(2)

Accounting for Goodwill

474

(2)

Persistent Earnings and Intangible-Asset Reporting

476

(1)

Summary

477

(1)

Appendix 7.1 Accounting for the Effects of Changing Prices

478

(6)

Questions and Exercises

484

(2)

Problems and Cases

486

(12)

Integrative Case 7.1 Starbucks

498

(2)

Case 7.2 Arizona Land Development Company

500

(15)

Case 7.3 Chiron Corporation---An R&D Puzzle

515

(2)

Case 7.4 Corporacion Industrial Sanluis: Coping with Changing Prices

517

(5)

Liability Recognition and Related Expenses

522

(108)

Principles of Liability Recognition

523

(1)

Principles of Liability Valuation

523

(1)

Application of Criteria for Liability Recognition

524

(4)

Controversial Issues in Liability Recognition

528

(7)

Issuance of Hybrid Securities

528

(1)

Off-Balance-Sheet Financing Arrangements

529

(6)

Leases

535

(10)

Operating Lease Method

536

(1)

Capital Lease Method

536

(2)

Choosing the Accounting Method

538

(2)

Effects on Lessor

540

(2)

Lease Accounting for Tax Purposes

542

(1)

Converting Operating Leases to Capital Leases

543

(2)

Impact of Accounting for Operating Leases as Capital Leases

545

(1)

Derivative Instruments

545

(16)

Nature and Use of Derivative Instruments

546

(2)

Accounting for Derivatives

548

(2)

Illustrations of Accounting for Derivatives

550

(9)

Summary of Derivative Examples

559

(1)

Disclosures Related to Derivative Instruments

559

(2)

Accounting Quality Issues and Derivatives

561

(1)

Retirement Benefits

561

(14)

Pensions

562

(9)

Analysts' Treatment of Pensions

571

(2)

Postretirement Benefits Other Than Pensions

573

(2)

Income Taxes

575

(12)

Review of Income Tax Accounting

575

(2)

Required Income Tax Disclosures

577

(6)

Assessing a Firm's Tax Position

583

(1)

Analyzing PepsiCo's Income Tax Disclosures

584

(3)

Summary of Income Taxes

587

(1)

Understanding Reserves in the Financial Statements

587

(4)

Nature of a Reserve Account

588

(1)

Use of Reserve Accounts

589

(1)

Summary of Reserves

590

(1)

Summary

591

(1)

Questions and Exercises

591

(2)

Problems and Cases

593

(27)

Integrative Case 8.1 Starbucks

620

(1)

Case 8.2 American Airlines and United Airlines: A Pension for Debt

621

(9)

Intercorporate Entities

630

(91)

Corporate Acquisitions

631

(6)

Purchase Method

631

(5)

Corporate Acquisitions and Income Taxes

636

(1)

Corporate Disclosures on Acquisitions

636

(1)

Investments in Securities

637

(19)

Accounting for Investments

638

(1)

Percentage of Voting Stock

638

(1)

Minority, Passive Investments

639

(4)

Minority, Active Investments

643

(1)

Majority, Active Investments

644

(9)

Primary Beneficiary of a Variable-Interest Entity

653

(2)

Income Tax Consequences of Investments in Securities

655

(1)

Foreign Currency Translation

656

(11)

Functional Currency Concept

656

(2)

Translation Methodology---Foreign Currency Is Functional Currency

658

(4)

Translation Methodology---U.S. Dollar Is Functional Currency

662

(1)

Implications of Functional Currency Determination for Analysis

663

(3)

Foreign Currency Translation and Income Taxes

666

(1)

Interpreting the Effects of Exchange Rate Changes on Operating Results

666

(1)

Accounting for Stock-Based Compensation

667

(4)

Summary

671

(1)

Questions and Exercises

671

(2)

Problems and Cases

673

(21)

Integrative Case 9.1 Starbucks

694

(1)

Case 9.2 Fisher Corporation

695

(16)

Case 9.3 Clark Equipment Company: Analyzing a Joint Problem

711

(7)

Case 9.4 Loucks Corporation: Obtaining Security in Translation

718

(3)

Forecasting Financial Statements

721

(91)

Overview

721

(1)

Introduction to Forecasting

722

(2)

Preparing Financial Statement Forecasts

724

(6)

General Forecasting Principles

724

(1)

Six-Step Forecasting Game Plan

725

(1)

Practical Tips for Implementing the Six-Step Forecasting Game Plan

726

(3)

Using FSAP to Prepare Forecasted Financial Statements

729

(1)

Step 1: Projecting Sales and Other Revenues

730

(7)

Projecting Revenues from Sales

730

(6)

Projecting Other Revenues

736

(1)

Step 2: Projecting Operating Expenses

737

(3)

Step 3: Projecting the Assets on the Balance Sheet

740

(14)

Step 4: Projecting Liabilities and Shareholders' Equity

754

(7)

Step 5: Projecting Interest Expense, Interest Income, Nonrecurring or Unusual Items, Provision for Income Tax, and the Change in Retained Earnings

761

(6)

Closing the Loop: Solving for Co-Determined Variables

766

(1)

Step 6: Projecting the Statement of Cash Flows

767

(5)

Shortcut Approaches to Forecasting

772

(3)

Analyzing Projected Financial Statements

775

(3)

Sensitivity Analysis and Reactions to Announcements

778

(1)

Summary

779

(1)

Questions and Exercises

780

(2)

Problems and Cases

782

(12)

Income Statement

788

(3)

Balance Sheet

791

(2)

Statement of Cash Flows

793

(1)

Integrative Case 10.1 Starbucks

794

(8)

Case 10.2 Massachusetts Stove Company: Analyzing Strategic Options*

802

(10)

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

812

(43)

Introduction and Overview

812

(4)

Equivalence among Dividends, Cash Flows, and Earnings Valuation

814

(2)

Risk-Adjusted Expected Rates of Return

816

(12)

Cost of Common Equity Capital

816

(4)

Adjusting Market Equity Beta to Reflect a New Capital Structure

820

(2)

Evaluating the Use of the CAPM to Measure the Cost of Equity Capital

822

(1)

Cost of Debt Capital

823

(1)

Cost of Preferred Equity Capital

824

(1)

Computing the Weighted Average Cost of Capital

824

(4)

Rationale for Dividends-Based Valuation

828

(4)

Dividends-Based Valuation Concepts

829

(3)

The Dividends Valuation Model

832

(2)

Implementing the Dividends Valuation Model

834

(14)

Measuring Periodic Dividends

834

(2)

Selecting a Forecast Horizon

836

(2)

Continuing Value of Future Dividends

838

(4)

Using the Dividends Valuation Model to Value PepsiCo

842

(3)

Sensitivity Analysis and Investment Decision Making

845

(1)

Evaluation of the Dividends Valuation Method

846

(2)

Summary

848

(1)

Questions and Exercises

848

(1)

Problems and Cases

849

(4)

Integrative Case 11.1 Starbucks

853

(2)

Valuation: Cash-Flow-Based Approaches

855

(77)

Introduction and Overview

855

(2)

Rationale for Cash-Flow-Based Valuation

857

(1)

Free-Cash-Flows-Based Valuation Concepts

858

(11)

Risk, Discount Rates, and the Cost of Capital

859

(1)

Free Cash Flows Valuation Examples for a Single-Asset Firm

860

(2)

Dividends to the Investor versus Cash Flows to the Firm

862

(1)

Nominal versus Real Cash Flows

863

(1)

Pre-Tax versus After-Tax Free Cash Flows

864

(1)

Selecting a Forecast Horizon

865

(1)

Computing Continuing Value of Future Free Cash Flows

866

(3)

Measuring Periodic Free Cash Flows

869

(12)

A Framework for Free Cash Flows

869

(3)

Free Cash Flows Measurement

872

(9)

Cash-Flow-Based Valuation Models

881

(2)

Valuation Models for Free Cash Flows for Common Equity Shareholders

881

(1)

Valuation Models for Free Cash Flows for All Debt and Equity Capital Stakeholders

882

(1)

Free Cash Flows Valuation of PepsiCo

883

(12)

PepsiCo Discount Rates

884

(1)

Computing Free Cash Flows for PepsiCo

885

(1)

PepsiCo's Free Cash Flows to All Debt and Equity Capital Stakeholders

885

(3)

PepsiCo's Free Cash Flows to Common Equity

888

(1)

Valuation of PepsiCo Using Free Cash Flows to Common Equity Shareholders

889

(1)

Valuation of PepsiCo Using Free Cash Flows to All Debt and Equity Capital Stakeholders

890

(3)

Sensitivity Analysis and Investment Decision Making

893

(2)

Evaluation of the Free Cash Flows Valuation Method

895

(1)

Summary

895

(2)

Questions and Exercises

897

(1)

Problems and Cases

898

(17)

Integrative Case 12.1 Starbucks

915

(2)

Case 12.2 Holmes Corporation: LBO Valuation

917

(15)

Valuation: Earnings-Based Approaches

932

(35)

Introduction and Overview

932

(2)

Rationale for Earnings-Based Valuation

934

(3)

Earnings-Based Valuation: Practical Advantages and Concerns

937

(2)

Theoretical and Conceptual Foundations for Residual Income Valuation

939

(6)

Illustrations of Residual Income Measurement and Valuation

941

(4)

Residual Income Valuation Model with Finite Horizon Earnings Forecasts and Continuing Value Computation

945

(1)

Valuation of PepsiCo Using the Residual Income Model

946

(6)

Discount Rates for Residual Income

947

(1)

PepsiCo's Book Value of Equity and Residual Income

947

(2)

Discounting PepsiCo's Residual Income to Present Value

949

(1)

Necessary Adjustments to Compute Common Equity Share Value

949

(1)

Sensitivity Analysis and Investment Decision Making

950

(2)

Residual Income Model Implementation Issues

952

(4)

Consistency in Residual Income, Dividends, and Free Cash Flow Value Estimates

956

(1)

Summary

957

(1)

Questions and Exercises

957

(2)

Problems and Cases

959

(6)

Integrative Case 13.1 Starbucks

965

(2)

Valuation: Market-Based Approaches

967

(54)

Introduction and Overview

968

(1)

Market Multiples of Accounting Numbers

969

(2)

Market-to-Book and Value-to-Book Ratios

971

(4)

A Theoretical Model of the Value-to-Book Ratio

971

(4)

Application of the Value-to-Book Model to PepsiCo

975

(8)

Reasons Why VB Ratios and MB Ratios May Differ from One

978

(2)

Empirical Data on MB Ratios

980

(2)

Empirical Research Results on the Predictive Power of MB Ratios

982

(1)

Price-Earnings and Value-Earnings Ratios

983

(14)

A Model for the Value-Earnings Ratio

983

(2)

Price-Earnings Ratios

985

(11)

Summary of VE and PE Ratios

996

(1)

Using Market Multiples of Comparable Firms

997

(1)

Price Differentials

997

(3)

Computing PDIFF for PepsiCo

998

(2)

Reverse Engineering

1000

(2)

Reverse Engineering PepsiCo's Stock Price

1001

(1)

The Relevance of Academic Research for the Work of the Security Analyst

1002

(5)

Level-of-Aggregation Issue

1003

(1)

Theory Development and Practice Feed Each Other

1004

(1)

Has the Theory of Capital Market Efficiency Gotten in the Way?

1004

(1)

Striking Evidence on the Degree of Market Efficiency and Inefficiency with Respect to Earnings

1005

(2)

Summary

1007

(1)

Questions and Exercises

1008

(1)

Problems and Cases

1009

(9)

Integrative Case 14.1 Starbucks

1018

(3)

Appendix A Financial Statements and Notes for PepsiCo, Inc. and Subsidiaries

1021

(26)

Appendix B Management's Discussion and Analysis for PepsiCo, Inc. and Subsidiaries

1047

(24)

Appendix C Financial Statement Analysis Package (FSAP)

1071

(39)

Appendix D User Manual for Financial Statement Analysis Package (FSAP)

1110

(7)

Index

1117

Amazon no longer offers textbook rentals. We do!

Financial Reporting, Financial Statement Analysis, and Valuation A Strategic Perspective (with Thomson One Access Code)

Financial Reporting, Financial Statement Analysis, and Valuation A Strategic Perspective (with Thomson One Access Code)

9780324302950

0324302959

Summary

Table of Contents

Supplemental Materials

Write a Review

Amazon no longer offers textbook rentals. We do!

Financial Reporting, Financial Statement Analysis, and Valuation A Strategic Perspective (with Thomson One Access Code)

Financial Reporting, Financial Statement Analysis, and Valuation A Strategic Perspective (with Thomson One Access Code)

9780324302950

0324302959

Summary

Table of Contents

Supplemental Materials

Write a Review

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