Business analysis and valuation: text & cases by Krishna G Palepu · Business analysis and valuation: text & cases IFRS Edition. by Krishna G Palepu; Paul M. Find all the study resources for Business Analysis and Valuation by Krishna G. Palepu; Paul M. Healy; Antwoordenboek "Intermediate accounting", 1st edition. Oct 24, A Framework for Business Analysis and Valuation Using Financial mance, second edition, by F. M. Scherer (Chicago: Rand McNally.
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Cases. Business Analysis And Valuation Ifrs Edition Text And Cases - [Free] Business Analysis Thu, 04 Apr GMT IFRS WILEY pdf |. Business Analysis and Valuation IFRS edition richly informs on contemporary financial statement data use in various valuation tasks, balancing each concept. Meta-organization Design: In Inter-organizational And 6 initiative (huston and sakkab, ), to public-sector organizations like nasa (lakhani, lifshitz.
The critical performance of a financial services company includes the quality of assets e. The quality of loans that financial institution holds can be measured as bad debt allowance divided by loans outstanding. Risk exposure can be measured by comparing the duration between assets and liabilities. Profitability can be measured as net profit divided by net worth. Question 2. Why might a firm decide not to have its debt rated? The public debt rating influences the yield that must be offered to sell the debt instrument.
Suppose that a company has information which is favorable in borrowing but confidential. It would disclose the confidential information to the rating agency on the condition that its confidentiality be maintained. The rating agency can work as an intermediary which will close the information gap between the company and public investors.
A rating agency with credibility may help a company to get low cost financing. Since debt ratings can be used as a mechanism to monitor management performance, corporate managers may not want debt rating, which is another monitoring tool.
Question 3. Some have argued that the market for original-issue junk bonds developed in the U. Proponents of this argument suggest that rating agencies rated companies too harshly at the low end of the rating scale, denying investment grade status to some deserving companies.
What are proponents of this argument effectively assuming were the incentives of rating agencies? What economic forces could give rise to this incentive?
Rating agencies are conservative, because the cost of incorrect rating is asymmetrically severe if the investment-grade firms go bankrupt. There are two types of errors in the rating decision: 1 rating below investment-grade when the firm is healthy; 2 rating investment-grade when the firm is not healthy i.
Question 4. Many debt agreements require borrowers to obtain the permission of the lender before undertaking a major acquisition or asset sale.
Why would the lender want to include this type of restriction? When the firm is in financial difficulty, conflicts may arise between debtors and stockholders. Since the stock has an option value, a major acquisition of risky assets under financial distress can increase the value of stock but decrease the value of debt.
To protect against the possibility of increased business risk, lenders establish debt covenants that borrowers obtain permission of the lender before making a major acquisition. Asset sales potentially reduce the security lenders have in the case of financial distress.
Question 5. Betty argues that restricting the flexibility of management decisions such as dividend payout decisions would reduce the shareholder wealth. However, if the dividend payout decisions are not restricted, management or other agents of the shareholders can liquidate the company by paying cash dividends to shareholders in the case of financial distress.
Unless there is a restriction on dividend payout, rational lenders, concerned about the liquidation of the firm through cash dividend, will demand higher interest rates. Question 6. A bank extends three loans to the following companies: an Italy-based biotech firm; a France-based car manufacturer; and a U. How may these three loans from each other in terms of loan maturity, required collateral, and loan amount?
By doing so they are able to regularly reevaluate the loan and adjust the terms of the loan if necessary. However, if the dividend payout decisions are not restricted, management or other agents of the shareholders can liquidate the company by paying cash dividends to shareholders in the case of financial distress. Unless there is a restriction on dividend payout, rational lenders, concerned about the liquidation of the firm through cash dividend, will demand higher interest rates.
Question 6. A bank extends three loans to the following companies: an Italy-based biotech firm; a France-based car manufacturer; and a U. How may these three loans from each other in terms of loan maturity, required collateral, and loan amount? By doing so they are able to regularly reevaluate the loan and adjust the terms of the loan if necessary.
Consequently, the bank may be more inclined to extend loans with long maturities to U. Additionally, the bank may decide to extend only small loan amount to the Italy-based and France- based companies. This would force these companies to borrow from more than one bank, thereby making it more difficult costly for the borrowers to strategically default and spreading the risk of the total loan across a few banks.
In the example, especially the French car manufacturer has assets that can serve as collateral. The biotech firm has mostly intangible assets that banks typically do not accept as collateral. In summary, the three loans could have the following characteristics: - Italy-based biotech firm: little collateral; short maturity; small amount - France-based car manufacturer: much collateral; medium maturity; medium amount - U.
Cambridge Construction Plc follows the percentage-of-completion method for reporting long-term contract revenues. The percentage of completion is based on the cost of materials shipped to the project site as a percentage of total expected material costs. Under the revenue recognition method of Cambridge Construction, the company can accelerate revenue and net profit recognition by downloading materials.
Can Cambridge improve its Z score by behaving as the analyst claims in Question 7? Is this change consistent with economic reality?
Cambridge can improve its Z score by accelerating revenue recognition even if this change is not consistent with economic reality. Question 6 shows why accounting analysis is important in credit analysis and distress prediction. Purely quantitative models, such as the Altman Z-score, cannot substitute for the hard work of financial analysis business strategy analysis, accounting analysis, financial analysis, and prospective analysis.
Question 9. A banker should decide whether the borrowing firm has the ability to service the debt at the scheduled rate. Current period negative cash flow from operations is one of the factors that the banker needs to consider but it is not the only factor. If the company can generate positive cash flow from operations in the future, lending to that company may not be risky. When the amount of available security is sufficient to support the loan, the bank can minimize the risk of loss in case of default.
If the borrower is the subsidiary and the parent presents some financial strength independent of the subsidiary, a guarantee of the parent will reduce the risk of loss. Question A leading retailer finds itself in a financial bind. This source of financing is cheap, since it avoids violating either the debt-to-assets or interest coverage ratios in our covenants.
Why or why not? No, for several reasons. This will happen if the lease is recorded as a finance lease. Second, an operating lease arrangement may allow the company to reduce the debt, but it will also reduce the asset base.