Financial Statement Analysis
Valuation, Credit Analysis & Executive Compensation
By Christian Petersen & Thomas Plenborg
Pearson Education
Distributed by Trans-Atlantic Publications Inc.
April 2012
ISBN: 9780273752356
478 Pages, Illustrated
$92.50 Paper Original
This well-structured and thoughtful text is ideal for undergraduate students in accounting and finance, graduate students and MBA students wishing to gain insight into financial statement analysis.
Focusing on three user-groups—equity, credit and compensation analysts—the authors present a variety of targeted tools and techniques for analysis and interpretation of financial statements. This text prompts students and professionals with a range of career goals to think critically when analysing financial data—and to make different decisions based on user-group objectives.
Contents:
Contents
Preface
Acknowledgements
1.Introduction to financial statement analysis
Introduction to financial statement analysis
International Financial Reporting Standards
Decisions and decision models
Outline of the book
Conclusions
Review questions
Part 1 Accounting data
2.Introduction to financial statements and bookkeeping
Introduction to financial statements and bookkeeping
The income statement and statement of comprehensive income
Balance sheet
Cash flow statement
Statement of changes in owners’ equityRecording transactions and preparing financial statementsTransaction analysis illustratedFinancial statements
Conclusions
Review questions
Appendix 2.1
3.Accrual-based versus cash-flow-based performance measures
Accrual-based versus cash-flow-based performance measures
The distinction between accrual-based versus cash-flow-based performance measures
Conclusions
Review questions
Part 2 Financial analysis
4.The analytical income statement and balance sheet
The analytical income statement and balance sheet
Carlsberg’s NOPAT and invested capital
Conclusions
Review questions
5.Profitability analysis
Profitability analysis
Measurement of operating profitability
Alternative interpretations of the return on invested capital
Decomposition of return on invested capital
Analysis of profit margin and turnover rate of invested capitalIndexing and common-size analysis of invested capital
Conclusions
Review questions
Appendix 5.1
6.Growth analysis
Growth
Sustainable growth rate
Is growth always value creating?
What is the quality of growth?
Is growth sustainable?
Is growth in earnings per share (EPS) value creating?
Does growth in financial ratios caused by share buy-back always add value?
The relationship between growth and liquidity
Conclusions
Review questions
7.Liquidity risk analysis
Liquidity risk
Measuring short-term liquidity risk
Measuring long-term liquidity risk
Shortcomings of financial ratios measuring the short- and long-term liquidity risk
Conclusions
Review questions
Appendix 7.1
Part 3 Decision making
8.Forecasting
Forecasting
The design of pro forma statements
Designing a template for forecastingThe estimation of financial value drivers
Financial statement analysis
Conclusions
Review questions
Appendix 8.1
9.Valuation
Valuation
Approaches to valuation
The attributes of an ideal valuation approach
Present value approaches
The relative valuation approach (multiples)
The liquidation approach
Conclusions
Review questions
Appendix 9.1
10.Cost of capital
Cost of capital
Weighted average cost of capital (WACC)
Alternative methods of measuring the systematic risk (®e)
Conclusions
Review questions
Appendix 10.1
11.Credit analysis
Corporate credit analysis
The fundamental credit analysis approach
Pricing credit risk
Prediction of corporate default using statistical models
Conclusions
Review questions
12.Accounting-based bonus plans for executives
Introduction to executive compensationCharacteristics of an effective bonus plan
Components of a bonus plan
Choice of performance measures
Choice of performance standards
Choice of pay to performance structure
EVA-based bonus contract – a feasible solution to accounting-based performance measures
Conclusions
Review questions
Part 4 Assessment of accounting data
13.Accounting quality
Accounting quality
The purpose of financial statement analysis and good accounting quality
Assessment of accounting quality
Total assessment of accounting quality
Conclusions
Review questions
14.Accounting flexibility in the income statement
Accounting flexibility in the income statement
Accounting regulation and flexibility
Accounting flexibility in the income statement
Accounting flexibility and economic consequences
Accounting issues in valuation
Accounting issues in credit analysis
Accounting issues in executive compensation
Conclusions
Review questions
Appendix 14.1
Appendix 14.2
15.Accounting flexibility in the balance sheet
Accounting flexibility in the balance sheet
Assets, liabilities and related expenses
Accounting flexibility and economic consequences
Accounting issues in valuation
Accounting issues in credit analysis
Accounting issues in executive compensation
Conclusions
Review questions
Appendix 15.1
Glossary
Index