Business Analysis and Valuation: IFRS Edition PDF
Preview Business Analysis and Valuation: IFRS Edition
THIRD EDITION B U S I N E S S A N A L Y S I S A N D V A L U A T I O N IFRS EDITION Krishna G. Palepu Paul M. Healy Erik Peek Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Business Analysis and Valuation: © 2013, Cengage Learning EMEA IFRS edition, Third Edition ALL RIGHTS RESERVED. No part of this work covered by Krishna G. Palepu, Paul M. Healy & the copyright herein may be reproduced, transmitted, Erik Peek stored or used in any form or by any means graphic, electronic, or mechanical, including but not limited to Publishing Director: Linden Harris photocopying, recording, scanning, digitizing, taping, Publisher: Andrew Ashwin Web distribution, information networks, or information storage and retrieval systems, except as permitted under Commissioning Editor: Annabel Section 107 or 108 of the 1976 United States Copyright Ainscow Act, or applicable copyright law of another jurisdiction, Production Editor: Beverley Copland without the prior written permission of the publisher. Production Controller: Eyvett Davis While the publisher has taken all reasonable care in Marketing Manager: Amanda Cheung the preparation of this book, the publisher makes no representation, express or implied, with regard to the accuracy Typesetter: CENVEO Publisher Services of the information contained in this book and cannot accept Cover design: Adam Renvoize any legal responsibility or liability for any errors or omissions from the book or the consequences thereof. Products and services that are referred to in this book may be either trademarks and/or registered trademarks of their respective owners. The publishers and author/s make no claim to these trademarks. The publisher does not endorse, and accepts no responsibility or liability for, incorrect or defamatory content contained in hyperlinked material. For product information and technology assistance, contact [email protected]. For permission to use material from this text or product, and for permission queries, email [email protected]. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: 978-1-4080-5642-4 Cengage Learning EMEA Cheriton House, North Way, Andover, Hampshire, SP10 5BE United Kingdom Cengage Learning products are represented in Canada by Nelson Education Ltd. For your lifelong learning solutions, visit www.cengage.co.uk Purchase your next print book, e-book or e-chapter at www.cengagebrain.com Printed in Singapore by Seng Lee Press 1 2 3 4 5 6 7 8 9 10 – 15 14 13 Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. BRIEF CONTENTS Frame Work PART 1 1 1 AFRAMEWORKFORBUSINESSANALYSISAND VALUATIONUSINGFINANCIALSTATEMENTS 3 BUSINESS ANALYSIS PART AND VALUATION TOOLS 2 45 2 STRATEGYANALYSIS 47 3 AccountingAnalysis:TheBasics 88 4 AccountingAnalysis:Accounting Adjustments 136 5 FinancialAnalysis 181 6 ProspectiveAnalysis:Forecasting 239 7 ProspectiveAnalysis:ValuationTheory andConcepts 278 8 ProspectiveAnalysis:Valuation Implementation 330 BUSINESS ANALYSIS AND PART VALUATION APPLICATIONS 3 379 9 EquitySecurityAnalysis 381 10 CreditAnalysisandDistressPrediction 410 11 MergersandAcquisitions 440 ADDITIONAL CASES PART 491 4 iii Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CONTENTS Preface xi Acknowledgements xv Authors xvi WalkThroughTour xvii DigitalSupportResources xix Frame Work PART 1 1 1 AFRAMEWORKFORBUSINESSANALYSISAND VALUATIONUSINGFINANCIALSTATEMENTS 3 TheRoleofFinancialReportinginCapitalMarkets 4 FromBusinessActivitiestoFinancialStatements 5 InfluencesoftheAccountingSystemonInformationQuality 6 AlternativeformsofCommunicationwithInvestors 11 FromFinancialStatementstoBusinessAnalysis 13 PublicversusPrivateCorporations 15 Summary 16 CoreConcepts 16 Questions,ExercisesandProblems 17 Notes 20 Appendix:DefiningEurope 22 CASETheroleofcapitalmarketintermediaries inthedot-comcrashof2000 23 BUSINESS ANALYSIS PART AND VALUATION TOOLS 2 45 2 STRATEGYANALYSIS 47 IndustryAnalysis 47 ApplyingIndustryAnalysis:TheEuropeanAirlineIndustry 51 CompetitiveStrategyAnalysis 53 CorporateStrategyAnalysis 57 Summary 59 CoreConcepts 60 Questions,ExercisesandProblems 61 Notes 63 CASEVIZIO,Inc. 65 v Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. vi CONTENTS 3 AccountingAnalysis:TheBasics 88 FactorsInfluencingAccountingQuality 88 StepsinAccountingAnalysis 90 RecastingFinancialStatements 95 AccountingAnalysisPitfalls 104 ValueofAccountingDataandAccountingAnalysis 105 Summary 106 CoreConcepts 106 Questions,ExercisesandProblems 107 Notes 110 AppendixA:First-TimeAdoptionofIFRS 112 AppendixB:RecastingFinancialStatementsinto StandardizedTemplates 113 CASEFiatGroup’sfirst-timeadoptionofIFRS 118 4 AccountingAnalysis:Accounting Adjustments 136 RecognitionofAssets 136 AssetDistortions 140 RecognitionofLiabilities 154 LiabilityDistortions 155 EquityDistortions 161 Summary 163 CoreConcepts 163 Questions,ExercisesandProblems 164 Notes 172 CASEMarksandSpencer’saccountingchoices 173 5 FinancialAnalysis 181 RatioAnalysis 181 CashFlowAnalysis 202 Summary 206 CoreConcepts 207 Questions,ExercisesandProblems 208 Notes 215 Appendix:Hennes&MauritzABFinancialStatements 216 CASECarrefourS.A. 223 6 ProspectiveAnalysis:Forecasting 239 TheOverallStructureoftheForecast 239 PerformanceBehavior:AStartingPoint 242 ForecastingAssumptions 245 FromAssumptionstoForecasts 252 Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CONTENTS vii SensitivityAnalysis 255 Summary 256 CoreConcepts 257 Questions,ExercisesandProblems 257 Notes 261 Appendix:TheBehaviorofComponentsofROE 261 CASEForecastingearningsandearningsgrowthin theEuropeanoilandgasindustry 264 7 ProspectiveAnalysis:ValuationTheory andConcepts 278 DefiningValueforShareholders 279 TheDiscountedCashFlowModel 280 TheDiscountedAbnormalEarningsModel 281 TheDiscountedAbnormalEarningsGrowthModel 283 ValuationUsingPriceMultiples 287 ShortcutFormsofEarnings-BasedValuation 291 ComparingValuationMethods 293 Summary 295 CoreConcepts 296 SummaryofNotationUsedinthisChapter 297 Questions,ExercisesandProblems 297 Notes 301 AppendixA:AssetValuationMethodologies 302 AppendixB:ReconcilingtheDiscountedDividends,Discounted AbnormalEarnings,andDiscountedAbnormalEarnings GrowthModels 303 CASETomTom’sinitialpublicoffering:dudornugget? 305 8 ProspectiveAnalysis:Valuation Implementation 330 ComputingaDiscountRate 330 DetailedForecastsofPerformance 339 TerminalValues 341 ComputingEstimatedValues 346 SomePracticalIssuesinValuation 351 Summary 352 CoreConcepts 352 Questions,ExercisesandProblems 353 Notes 355 CASERyanairHoldingsplc 357 Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. viii CONTENTS BUSINESS ANALYSIS AND PART VALUATION APPLICATIONS 3 379 9 EquitySecurityAnalysis 381 InvestorObjectivesandInvestmentVehicles 381 EquitySecurityAnalysisandMarketEfficiency 383 ApproachestoFundManagementandSecuritiesAnalysis 384 TheProcessofaComprehensiveSecurityAnalysis 385 PerformanceofSecurityAnalystsandFundManagers 389 Summary 391 CoreConcepts 392 Questions 392 Notes 393 CASEValuationatNovartis 395 10 CreditAnalysisandDistressPrediction 410 WhyDoFirmsUseDebtFinancing? 411 TheMarketforCredit 413 CountryDifferencesinDebtFinancing 414 TheCreditAnalysisProcessinPrivateDebtMarkets 416 FinancialStatementAnalysisandPublicDebt 421 PredictionofDistressandTurnaround 425 CreditRatings,DefaultProbabilitiesandDebtValuation 427 Summary 430 CoreConcepts 431 Questions 432 Notes 433 CASEGetronics’debtratings 434 11 MergersandAcquisitions 440 MotivationforMergerorAcquisition 440 AcquisitionPricing 443 AcquisitionFinancingandFormofPayment 447 AcquisitionOutcome 449 ReportingonMergersandAcquisitions:PurchasePriceAllocations 452 Summary 462 CoreConcepts 463 Questions 463 Notes 464 CASEPPR–PUMA:Asuccessfulacquisition? 466 Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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