财务报表分析答案.docx

财务报表分析答案.docx

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财务报表分析答案

Chapter9

ProspectiveAnalysis

REVIEW

Prospectiveanalysisisthefinalstepinthefinancialstatementanalysisprocess.Itincludesforecastingofthebalancesheet,incomestatementandstatementofcashflows.Prospectiveanalysisiscentraltosecurityvaluation.BoththefreecashflowandresidualincomevaluationmodelsdescribedinChapter1requireestimatesoffuturefinancialstatements.Weprovideadetailedexampleoftheforecastingprocesstoprojecttheincomestatement,thebalancesheet,andthestatementofcashflows.Wedescribetherelevanceofforecastingforsecurityvaluationandprovideanexampleutilizingforecastedfinancialstatementstoimplementtheresidualincomevaluationmodel.Wediscusstheconceptofvaluedriversandtheirreversiontolong-runequilibriumlevels.Intheappendix,weprovideadetailedexampleofshort-termcashflowforecasting.

OUTLINE

∙TheProjectionProcess

ProjectingFinancialStatements

ApplicationofProspectiveAnalysisintheResidualIncomeValuationModel

TrendsinValueDrivers

∙Short-termForecasting（Appendix）

ANALYSISOBJECTIVES

∙Describetheimportanceofprospectiveanalysis.

∙Explaintheprocessofprojectingtheincomestatement,thebalancesheetandthestatementofcashflows.

∙DiscussandillustratetheImportanceofSensitivityAnalysis.

∙Describetheimplementationoftheprojectionprocessinthevaluationofequitysecurities.

∙Discusstheconceptofvaluedriversandtheirreversiontolong-runequilibriumlevels.

QUESTIONS

1.Prospectiveanalysisiscentraltosecurityvaluation.Allvaluationmodelsrelyonforecastsofearningsorcashflowsthatare,then,discountedbacktothepresenttoarriveattheestimatedvalueofthesecurity.Prospectiveanalysisisalsousefultoexaminetheviabilityofcompanies’strategicplans,thatis,whethertheywillbeabletogeneratesufficientcashflowsfromoperationstofinanceexpectedgrowthorwhethertheywillberequiredtoseekexternalfinancing.Inaddition,prospectiveanalysisisusefultoexaminewhetherannouncingstrategieswillyieldthebenefitsexpectedbymanagement.Finally,prospectiveanalysiscanbeusedbycreditorstoassesscompanies’abilitytomeetdebtservicerequirements.

2.Priortotheforecastingprocess,financialstatementscanberecasttobetterportrayeconomicreality.Adjustmentsmightincludeeliminationoftransitoryitemsorreallocatingthemtopastorfutureyears,capitalizing（expensing）itemsthathavebeenexpensed（capitalized）bymanagement,capitalizingoperatingleasesandotherformsofoff-balancesheetfinancing,andsoforth.

3.Inadditiontotrendanalysis,analystsfrequentlyincorporateexternal（non-financial）informationintotheprospectiveprocess.Someexamplesaretheexpectedlevelofmacroeconomicactivity,thedegreetowhichthecompetitivelandscapeischanging,anystrategicinitiativesthathavebeenannouncedbymanagement,andsoforth.

4.Theforecasthorizonistheperiodforwhichspecificestimatesaremade.Itisusually5-7years.Forecastsbeyondtheforecasthorizonareofdubiousvaluesinceestimatesareuncertain.

5.Sinceallvaluationmodelsareinfinitehorizonmodels,analystsfrequentlyassumeasteadystateintoperpetuityaftertheforecasthorizon.Acommonassumptionisthatthecompanywillgrowatthelong-runrateofinflation,thatis,remainingconstantinrealterms.

6.Theprojectionprocessbeginswithanexpectedgrowthinsales.Grossprofitandoperatingexpensesare,then,estimatedasapercentageofforecastedsalesusinghistoricalratiosandexternalinformation.Depreciationexpenseisusuallyestimatedasapercentageofbeginninggrossdepreciableassetsundertheassumptionthatdepreciationpolicieswillremainconstant.Interestexpenseisusuallyestimatedatanaverageborrowingrateappliedtothebeginningbalanceofinterestbearingliabilities.Projectionsofexpectedinterestratesareusedforvariablerateindebtednessandnewborrowings.Finally,taxexpenseisestimatedusingtheeffectivetaxrateonpre-taxincome.

7.Inthefirststep,balancesheetitemsareprojectedusingforecastedincomesales（COGS）andrelevantturnoverratios.Long-termassetsareprojectedusingforecastedcapitalexpenditures.Long-termliabilitiesareprojectedfromcurrentmaturitiesoflong-termdebtdisclosedinthedebtfootnote,andpaid-in-capitalisassumedtobeconstantinthisstage.Retainedearningsareprojectedadding（subtracting）projectedprofits（losses）andsubtractingprojecteddividends.Oncetotalliabilitiesandequitiesareforecasted,totalassetsissetequaltothisamountandforecastedcashiscomputedastheplugfigure.

Inthesecondstep,long-termliabilitiesandequitiesareadjustedtoyieldthedesiredlevelofcash.Theanalystmustbecarefultomaintainthehistorical