About the Authors
Preface
Brief Contents
Contents
Module 1: Framework for Analysis and Valuation
Step 1 Business Environment and Accounting
Financial Statements: Demand and Supply
Review of Financial Statements
Analyzing the Business Environment
Step 2 Adjusting and Analyzing Financial Data
Step 3 Forecasting Financial Numbers
Step 4 Business Valuation
Appendix 1A: Financial Statement Data and Analytics
Module 2: Review of Business Activities and Financial Statements
Interpreting a Balance Sheet
Interpreting an Income Statement
Interpreting a Statement of Stockholders’ Equity
Interpreting a Statement of Cash Flows
Articulation of Financial Statements
Analyzing Transactions and Adjustments
Additional Information Sources
Analysis Discussion Points
Module 3: Profitability Analysis and Interpretation
ROE Disaggregation: DuPont Analysis
Return on Assets and Its Disaggregation
Analysis of Financial Leverage
Balance Sheet Analysis with an Operating Focus
Income Statement Analysis with an Operating Focus
Return on Net Operating Assets (RNOA)
RNOA Disaggregation into Margin and Turnover
Appendix 3A: Operating versus Nonoperating Classification
Appendix 3B: Nonoperating Return Component of ROE
Appendix 3C: Vertical and Horizontal Analysis
Analysis Discussion Points
Module 4 Credit Risk Analysis and Interpretation
Credit Risk Analysis Process
Predicting Bankruptcy Risk
Appendix 4A: Verizon Financial Statements and Debt and Lease Notes
Appendix 4B: Approaches of Other Credit Raters
Analysis Discussion Point
Module 5: Revenue Recognition and Operating Income
Analyzing Sales Allowances
Analyzing Unearned (Deferred) Revenue
Foreign Currency Effects on Revenue, Expenses, and Cash Flow
Analyzing Accounts Receivable
Analyzing Expenses and Losses
Pro Forma and Non-GAAP Disclosures
Analysis Discussion Points
Module 6: Asset Recognition and Operating Assets
Analyzing Inventory-Costing Methods
Analyzing Inventory-Reporting
Analyzing Inventory-Tools
Analyzing PP&E Assets-Capitalization and Depreciation
Analyzing PP&E Assets-Sales, Impairments, and Restructuring
Analyzing PP&E Assets-Tools
Analyzing Intangible Assets
Analysis Discussion Points
Module 7: Liability Recognition and Nonowner Financing
Analyzing Accrued Liabilities
Analyzing Short-Term Debt
Analyzing Long-Term Debt-Pricing
Analyzing Long-Term Debt-Reporting
Appendix 7A: Time Value of Money
Appendix 7B: Amortization of Debt
Analysis Discussion Points
Module 8: Equity Recognition and Owner Financing
Analyzing Stockholders’ Equity and Classes of Stock
Analyzing Stock Transactions
Analyzing Stock-Based Compensation
Analyzing Dividends and Stock Splits
Analyzing Accumulated Other Comprehensive Income (AOCI)
Analyzing Earnings per Share (EPS)
Appendix 8A: Stock-Based Compensation: Reporting and Analyzing
Module 9: Intercorporate Investments
Analyzing Intercorporate Investments
Analyzing Equity Investments with Significant Influence
Analyzing Equity Investments with Control
Appendix 9A: Analyzing Derivatives
Appendix 9B: Analyzing Equity Carve-Outs
Analysis Discussion Point
Module 10: Analyzing Leases, Pensions, and Taxes
Appendix 10A: Lease Accounting Example- Finance and Operating Leases
Module 11: Financial Statement Forecasting
Forecasting the Income Statement
Forecasting the Balance Sheet
Building Forecasts from Segment Disclosures
Appendix 11A: Forecasting the Statement of Cash Flows
Appendix 11B: Multiyear Forecasting with Target Cash and Debt Financing
Appendix 11C: Parsimonious Method for Forecasting NOPAT and NOA
Appendix 11D: Morgan Stanley’s Forecast Report on Procter & Gamble
Module 12: Cost of Capital and Valuation Basics
Estimating Cost of Capital
Appendix 12A: Estimating Cost of Equity Capital
Analysis Discussion Points
Module 13: Cash-Flow-Based Valuation
Discounted Cash Flow (DCF) Model
Appendix 13A: P&G Financial Statements
Appendix 13B: Derivation of Free Cash Flow Formula
Appendix 13C: Deutsche Bank Valuation of P&G
Analysis Discussion Point
Module 14: Operating-Income-Based Valuation
Residual Operating Income (ROPI) Model
Steady State in Valuation
Managerial Insights from the ROPI Model
Assessment of Valuation Models
Appendix 14A: P&G Financial Statements
Analysis Discussion Point
Module 15: Market-Based Valuation
Valuation Model Using Market Multiples
Application of Market Multiples
Valuation Using Balance Sheet Multiples
Valuation Using Income Statement Multiples
Selecting Comparables for Market Multiples
Interpreting and Reverse Engineering Market Multiples
Analysis Discussion Points
Appendix A: Compound Interest Tables
Appendix B: Computing and Analyzing Cash Flows
Framework for Statement of Cash Flows
Relation Among Financial Statements
Statement of Cash Flows Format
Cash Flow from Operating Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Interpreting and Analyzing CASH FLOWS
Appendix BB: Direct Method Reporting for Statement of Cash Flows
Appendix C: Comprehensive Case
Appendix D: Data Analytics and Blockchain Technology
Appendix E: Chart of Accounts with Acronyms
Index
