Business Analysis and Valuation,
g g g g
Using Financial Statements 5th
g g g
Edition by Paul M. Healy
g g g g g
Complete Chapter Solutions Manual ar
g g g g
e included (Ch 1 to 12)
g g g g g
** Immediate Download
g g
** Swift Response
g g
** All Chapters included
g g g
, Chapterg1
AgFrameworkgforgBusinessgAnalysisgandgValuationgUsin
ggFinancialgStatements
DiscussiongQuestions
1. John,gwhoghasgjustgcompletedghisgfirstgfinancegcourse,gisgunsuregwhetherghegshouldgtakegagcourseging
businessganalysisgandgvaluationgusinggfinancialgstatements,gsinceghegbelievesgthatgfinancialganalysisgadd
sglittlegvalue,ggivengthegefficiencygofgcapitalgmarkets.gExplaingtogJohngwhengfinancialganalysisgcangaddg
value,gevengifgcapitalgmarketsgareggenerallygseengasgbeinggefficient.
Thegefficientgmarketghypothesisgstatesgthatgsecuritygpricesgreflectgallgavailableginformation,gasgifgsuc
hginformationgcouldgbegcostlesslygdigestedgandgtranslatedgimmediatelygintogdemandsgforgbuysgorgsel
ls.gThegefficientgmarketghypothesisgimpliesgthatgtheregisgnogfurthergneedgforganalysisginvolvinggagsea
rchgforgmispricedgsecurities.
However,gifgallginvestorsgadoptedgthisgattitude,gnogequityganalysisgwouldgbegconducted,gmispricingg
wouldggoguncorrected,gandgmarketsgwouldgnoglongergbegefficient.gThisgisgwhygtheregmustgbegjustgen
oughgmispricinggtogprovidegincentivesgforgtheginvestmentgofgresourcesgingsecurityganalysis.
Evengingangextremelygefficientgmarket,gwhereginformationgisgfullygimpoundedgingpricesgwithingmin
utesgofgitsgrevelationg(i.e.,gwheregmispricinggexistsgonlygforgminutes),gJohngcanggetgrewardsgwithgstr
onggfinancialganalysisgskills:
1. Johngcanginterpretgthegnewlygannouncedgfinancialgdatagfastergthangothersgandgtradegongitgwithi
ngminutes;gand
2. FinancialganalysisghelpsgJohngtogunderstandgthegfirmgbetter,gplacingghimgingagbettergpositiongt
oginterpretgothergnewsgmoregaccuratelygasgitgarrives.
Marketsgmaygbegnotgefficientgundergcertaingcircumstances.gMispricinggofgsecuritiesgmaygexistgdays
gorgevengmonthsgaftergthegpublicgrevelationgofgagfinancialgstatementgwhengthegfollowinggthreegcond
itionsgaregsatisfied:
1. relativegtoginvestors,gmanagersghavegsuperiorginformationgongtheirgfirms’gbusinessgstrategiesgan
dgoperation;
2. managers’gincentivesgaregnotgperfectlygalignedgwithgallgshareholders’ginterests;gand
3. accountinggrulesgandgauditinggaregimperfect.
Whengthesegconditionsgaregmetgingreality,gJohngcouldggetgprofitgbygusinggtradinggstrategiesgdesigne
dgtogexploitganygsystematicgwaysgingwhichgthegpubliclygavailablegdatagaregignoredgorgdiscountedgin
gthegprice-settinggprocess.
Capitalgingmarketgefficiencygisgnotgrelevantgingsomegareas.gJohngcanggetgbenefitsgbygusinggfinancialg
analysisgskillsgingthosegareas.gForgexample,ghegcangassessghowgmuchgvaluegcangbegcreatedgthrough
,acquisitiongofgtargetgcompany,gestimategthegstockgpricegofgagcompanygconsideringginitialgpublicgoffe
ring,gandgpredictgtheglikelihoodgofgagfirm’sgfuturegfinancialgdistress.
2. Ing2009,gLarrygSummers,gformergSecretarygofgthegTreasury,gobservedgthatg“ingthegpastg20-
yeargperiod,gweghavegseengtheg1987gstockgmarketgcrash.gWeghavegseengthegSavingsg&gLoangdebaclegan
dgcommercialgrealgestategcollapsegofgtheglateg80’sgandgearlyg90’s.gWeghavegseengthegMexicangfinancialg
crisis,gthegAsiangfinancialgcrisis,gthegLonggTermgCapitalgManagementgliquiditygcrisis,gthegburstinggofgth
egNASDAQgbubblegandgthegassociatedgEnrongthreatgtogcorporateggovernance.gAndgnowgwe’vegseengthis
g[globalgeconomicgcrisis],gwhichgisgmoregseriousgthanganygofgthat.g Twentygyears,g7gmajorgcrises.gOneg
majorgcrisisgeveryg3gyears.”g Howgcouldgthisghappenggivengtheglargegnumbergofgfinancialgandginformati
ongintermediariesgworkinggingfinancialgmarketsgthroughoutgthegworld?gCangcrisesgbegavertedgbygmoreg
effectivegfinancialganalysis?
Financialgintermediariesgperformgagvarietygofgfunctionsgthatgaregdesignedgtogmitigategproblemsgingourgfi
nancialgmarkets.
Auditorsgcertifygthegcredibilitygofgfinancialgreports;gauditgcommitteesghiregthegexternalgauditorsgandgov
erseegbothgtheginternalgandgexternalgauditorsgtogensuregthatgtheygdogagthoroughgjobgofgassuringgthegcom
pany’sgfinancialginformationgisgreliablegandgnotgfraudulent.gCorporategboardsgaregtaskedgwithgmonitori
nggandgappointinggthegfirm’sgCEOgandgwithgoverseeinggitsgstrategy.gFinancialganalystsgevaluategagfirm’
sgfinancialgperformancegandgvaluationgandgassessgwhethergagstockgisgagworthwhileginvestment,gandgalso
gensuregthatgtheregisgcommonginformationgongagstockgingthegmarketgtogreducegadversegselectiongproble
ms.gInvestmentgbanksghelpgtogprovideggoodgcompaniesgwithgaccessgtogcapitalgandgtoghelpginsuregthatgin
vestorsgcangallocategcapitalgtoggoodgbusinesses.gAndgsogtheglistggoesgon,gincludingginvestmentgmanager
s,ghedgegfundgmanagers,gandgthegbusinessgpress.
Itgisganginterestinggquestiongasgtogwhygthesegvariousginstitutionsgfailedgtogdetectgthegproblemsgunderlyin
ggthegcrisisgidentifiedgbygLarrygSummers.gOnegexplanationgisgthatgtheygfacegtheirgowngconflictsgofginter
est.gAuditorsghavegcertainlygreceivedgcriticismgforgauditgfailures.gSomegsuggestgthatgthisgarisesgbecauseg
auditorsgareg(perhapsgunconsciously)greluctantgtogtakegaghardglinegagainstgimportantgclientsgforgfeargofgl
osinggthegaccount.gSimilargconcernsghavegbeengraisedgaboutgfinancialganalysts,gwhichgeithergworrygabou
tgthegreactionsgofgcorporategmanagers,gmajorgclients,gorginvestmentgbankersgatgtheirgfirmgifgtheygwritegn
egativegreportsgaboutgcompaniesgtheygfollow.gCorporategboardsghavegbeengcriticizedgforgbeinggbeholden
gtogthegseniorgexecutivesgofgthegcompaniesgtheygoversee.gRecentggovernancegchangesgweregintendedgtog
correctgsomegofgthesegconflictsgofginterest.gForgexample,gingthegU.S.gthegSarbanesgOxleygActgwasgintend
edgtoggivegAuditgCommitteesgmoregcloutgandgchangegthegincentivesgofgauditors.gThegGlobalgFinancialgS
ettlementgandgRegulationgFairgDisclosuregweregintendedgtogreducegthegconflictsgofginterestgforgfinancialg
analysts.gManygofgthesegchangesgweregalsogimplementedgoutsidegthegU.S.gHowever,gitgisgdifficultgtogeli
minategthegconflictinggincentivesgofgintermediaries,gwhogbygtheirgnaturegaregingthegdifficultgpositiongofgt
ryinggtogworkgforgtwogbosses.
Agsecondgpotentialgexplanationgisgthatghumangbeingsgaregsubjectgtogbehavioralgbiasesgthatgleadgthemgtog
makegcommongmistakes.gForgexample,gmostgretailginvestorsgextrapolatedgperformancesgatgEnron,gintern
etgstocks,gandgmortgagegbackedgsecuritiesgtogconcludegthatgthesegwouldgcontinuegtogbegterrificginvestme
nts.gTheygpouredgmoneygintogthesegsectorsgandgstocksgandgshowedglittleginterestginghearinggfromganalys
ts,gauditors,ginvestmentgbankers,getc.gwhoghadgagcontrariangpointgofgview.gForgexample,gatgthegheightgof
gtheginternetgboom,gWarrengBuffetgexpressedgconcerngaboutgthegsectorgbutgwasgdismissedgasgagdinosaurg
whogdidn’tgunderstandgthegnewgeconomy.gLessginformedgorglessgconfidentgintermediariesgwouldgfindgit
, difficultgtogchallengegthegpopulargviewgofgsuchghotgmarketsgorgtogjudgegwhengsuchghotgmarketsgwouldgc
rash.
Givengthesegproblems,gwegwillgprobablygcontinuegtoghavegcrisesgunlessgwegcangcorrectgthegfundamentalg
conflictsgofginterestgthatgpervadegthegindustrygandgcangfiguregoutghowgtogmodifyghumangbehavior.
3. Accountinggstatementsgrarelygreportgfinancialgperformancegwithoutgerror.gListgthreegtypesgofgerrorsgth
atgcangarisegingfinancialgreporting.
Threegtypesgofgpotentialgerrorsgingfinancialgreportingginclude:
1. errorgintroducedgbygrigiditygingaccountinggrules;
2. randomgforecastgerrors;gand
3. systematicgreportinggchoicesgmadegbygcorporategmanagersgtogachievegspecificgobjectives.
AccountinggRules.gUniformgaccountinggstandardsgmaygintroducegerrorsgbecausegtheygrestrictgmana
gementgdiscretiongofgaccountinggchoice,glimitinggthegopportunitygforgmanagers’gsuperiorgknowledg
egtogbegrepresentedgthroughgaccountinggchoice.gForgexample,gSFASgNo.g2grequiresgfirmsgtogexpense
gallgresearchgandgdevelopmentgexpendituresgwhengtheygaregoccurred.gNotegthatgsomeg researchgexpe
ndituresghavegfuturegeconomicgvalueg(thus,gtogbegcapitalized)gwhilegothersgdognotg(thus,gtogbegexpen
sed).gSFASgNo.g2gdoesgnotgallowgmanagers,gwhogknowgthegfirmgbettergthangoutsiders,gtogdistinguis
hgbetweengthegtwogtypesgofgexpenditures.gUniformgaccountinggrulesgmaygrestrictgmanagers’gdiscreti
on,gforgogthegopportunitygtogportraygthegeconomicgrealitygofgfirmgbettergand,gthus,gresultgingerrors.
ForecastgErrors.gRandomgforecastgerrorsgmaygarisegbecausegmanagersgcannotgpredictgfuturegconse
quencesgofgcurrentgtransactionsgperfectly.gForgexample,gwhengagfirmgsellsgproductsgongcredit,gmana
gersgmakegangestimategofgthegproportiongofgreceivablesgthatgwillgnotgbegcollectedg(allowancegforgdou
btfulgaccounts).gBecausegmanagersgdognotghavegperfectgforesight,gactualgdefaultsgareglikelygtogbegdif
ferentgfromgestimatedgcustomergdefaults,gleadinggtogagforecastgerror.
Managers’gAccountinggChoices.gManagersgmaygintroducegerrorsgintogfinancialgreportinggthroughgt
heirgowngaccountinggdecisions.gManagersghavegmanygincentivesgtogexercisegtheirgaccountinggdiscret
iongtogachievegcertaingobjectives,gleadinggtogsystematicginfluencesgongtheirgfirms’greporting.gForgex
ample,gmanygtopgmanagersgreceivegbonusgcompensationgifgtheygexceedgcertaingprespecifiedgprofitgt
argets.gThisgprovidesgmotivationgforgmanagersgtogchoosegaccountinggpoliciesgandgestimatesgtogmaxi
mizegtheirgexpectedgcompensation.
4. JoegSmithgarguesgthatg“learningghowgtogdogbusinessganalysisgandgvaluationgusinggfinancialgstatements
gisgnotgveryguseful,gunlessgyougareginterestedgingbecominggagfinancialganalyst.”gComment.
Businessganalysisgandgvaluationgskillsgaregusefulgnotgonlygforgfinancialganalystsgbutgalsogforgcorpor
ategmanagersgandgloangofficers.gBusinessganalysisgandgvaluationgskillsghelpgcorporategmanagersging
severalgways.gFirst,gbygusinggbusinessganalysisgforgequitygsecuritygvaluation,gcorporategmanagersgc
angassessgwhethergthegfirmgisgproperlygvaluedgbyginvestors.gWithgsuperiorginformationgon
g g g g
Using Financial Statements 5th
g g g
Edition by Paul M. Healy
g g g g g
Complete Chapter Solutions Manual ar
g g g g
e included (Ch 1 to 12)
g g g g g
** Immediate Download
g g
** Swift Response
g g
** All Chapters included
g g g
, Chapterg1
AgFrameworkgforgBusinessgAnalysisgandgValuationgUsin
ggFinancialgStatements
DiscussiongQuestions
1. John,gwhoghasgjustgcompletedghisgfirstgfinancegcourse,gisgunsuregwhetherghegshouldgtakegagcourseging
businessganalysisgandgvaluationgusinggfinancialgstatements,gsinceghegbelievesgthatgfinancialganalysisgadd
sglittlegvalue,ggivengthegefficiencygofgcapitalgmarkets.gExplaingtogJohngwhengfinancialganalysisgcangaddg
value,gevengifgcapitalgmarketsgareggenerallygseengasgbeinggefficient.
Thegefficientgmarketghypothesisgstatesgthatgsecuritygpricesgreflectgallgavailableginformation,gasgifgsuc
hginformationgcouldgbegcostlesslygdigestedgandgtranslatedgimmediatelygintogdemandsgforgbuysgorgsel
ls.gThegefficientgmarketghypothesisgimpliesgthatgtheregisgnogfurthergneedgforganalysisginvolvinggagsea
rchgforgmispricedgsecurities.
However,gifgallginvestorsgadoptedgthisgattitude,gnogequityganalysisgwouldgbegconducted,gmispricingg
wouldggoguncorrected,gandgmarketsgwouldgnoglongergbegefficient.gThisgisgwhygtheregmustgbegjustgen
oughgmispricinggtogprovidegincentivesgforgtheginvestmentgofgresourcesgingsecurityganalysis.
Evengingangextremelygefficientgmarket,gwhereginformationgisgfullygimpoundedgingpricesgwithingmin
utesgofgitsgrevelationg(i.e.,gwheregmispricinggexistsgonlygforgminutes),gJohngcanggetgrewardsgwithgstr
onggfinancialganalysisgskills:
1. Johngcanginterpretgthegnewlygannouncedgfinancialgdatagfastergthangothersgandgtradegongitgwithi
ngminutes;gand
2. FinancialganalysisghelpsgJohngtogunderstandgthegfirmgbetter,gplacingghimgingagbettergpositiongt
oginterpretgothergnewsgmoregaccuratelygasgitgarrives.
Marketsgmaygbegnotgefficientgundergcertaingcircumstances.gMispricinggofgsecuritiesgmaygexistgdays
gorgevengmonthsgaftergthegpublicgrevelationgofgagfinancialgstatementgwhengthegfollowinggthreegcond
itionsgaregsatisfied:
1. relativegtoginvestors,gmanagersghavegsuperiorginformationgongtheirgfirms’gbusinessgstrategiesgan
dgoperation;
2. managers’gincentivesgaregnotgperfectlygalignedgwithgallgshareholders’ginterests;gand
3. accountinggrulesgandgauditinggaregimperfect.
Whengthesegconditionsgaregmetgingreality,gJohngcouldggetgprofitgbygusinggtradinggstrategiesgdesigne
dgtogexploitganygsystematicgwaysgingwhichgthegpubliclygavailablegdatagaregignoredgorgdiscountedgin
gthegprice-settinggprocess.
Capitalgingmarketgefficiencygisgnotgrelevantgingsomegareas.gJohngcanggetgbenefitsgbygusinggfinancialg
analysisgskillsgingthosegareas.gForgexample,ghegcangassessghowgmuchgvaluegcangbegcreatedgthrough
,acquisitiongofgtargetgcompany,gestimategthegstockgpricegofgagcompanygconsideringginitialgpublicgoffe
ring,gandgpredictgtheglikelihoodgofgagfirm’sgfuturegfinancialgdistress.
2. Ing2009,gLarrygSummers,gformergSecretarygofgthegTreasury,gobservedgthatg“ingthegpastg20-
yeargperiod,gweghavegseengtheg1987gstockgmarketgcrash.gWeghavegseengthegSavingsg&gLoangdebaclegan
dgcommercialgrealgestategcollapsegofgtheglateg80’sgandgearlyg90’s.gWeghavegseengthegMexicangfinancialg
crisis,gthegAsiangfinancialgcrisis,gthegLonggTermgCapitalgManagementgliquiditygcrisis,gthegburstinggofgth
egNASDAQgbubblegandgthegassociatedgEnrongthreatgtogcorporateggovernance.gAndgnowgwe’vegseengthis
g[globalgeconomicgcrisis],gwhichgisgmoregseriousgthanganygofgthat.g Twentygyears,g7gmajorgcrises.gOneg
majorgcrisisgeveryg3gyears.”g Howgcouldgthisghappenggivengtheglargegnumbergofgfinancialgandginformati
ongintermediariesgworkinggingfinancialgmarketsgthroughoutgthegworld?gCangcrisesgbegavertedgbygmoreg
effectivegfinancialganalysis?
Financialgintermediariesgperformgagvarietygofgfunctionsgthatgaregdesignedgtogmitigategproblemsgingourgfi
nancialgmarkets.
Auditorsgcertifygthegcredibilitygofgfinancialgreports;gauditgcommitteesghiregthegexternalgauditorsgandgov
erseegbothgtheginternalgandgexternalgauditorsgtogensuregthatgtheygdogagthoroughgjobgofgassuringgthegcom
pany’sgfinancialginformationgisgreliablegandgnotgfraudulent.gCorporategboardsgaregtaskedgwithgmonitori
nggandgappointinggthegfirm’sgCEOgandgwithgoverseeinggitsgstrategy.gFinancialganalystsgevaluategagfirm’
sgfinancialgperformancegandgvaluationgandgassessgwhethergagstockgisgagworthwhileginvestment,gandgalso
gensuregthatgtheregisgcommonginformationgongagstockgingthegmarketgtogreducegadversegselectiongproble
ms.gInvestmentgbanksghelpgtogprovideggoodgcompaniesgwithgaccessgtogcapitalgandgtoghelpginsuregthatgin
vestorsgcangallocategcapitalgtoggoodgbusinesses.gAndgsogtheglistggoesgon,gincludingginvestmentgmanager
s,ghedgegfundgmanagers,gandgthegbusinessgpress.
Itgisganginterestinggquestiongasgtogwhygthesegvariousginstitutionsgfailedgtogdetectgthegproblemsgunderlyin
ggthegcrisisgidentifiedgbygLarrygSummers.gOnegexplanationgisgthatgtheygfacegtheirgowngconflictsgofginter
est.gAuditorsghavegcertainlygreceivedgcriticismgforgauditgfailures.gSomegsuggestgthatgthisgarisesgbecauseg
auditorsgareg(perhapsgunconsciously)greluctantgtogtakegaghardglinegagainstgimportantgclientsgforgfeargofgl
osinggthegaccount.gSimilargconcernsghavegbeengraisedgaboutgfinancialganalysts,gwhichgeithergworrygabou
tgthegreactionsgofgcorporategmanagers,gmajorgclients,gorginvestmentgbankersgatgtheirgfirmgifgtheygwritegn
egativegreportsgaboutgcompaniesgtheygfollow.gCorporategboardsghavegbeengcriticizedgforgbeinggbeholden
gtogthegseniorgexecutivesgofgthegcompaniesgtheygoversee.gRecentggovernancegchangesgweregintendedgtog
correctgsomegofgthesegconflictsgofginterest.gForgexample,gingthegU.S.gthegSarbanesgOxleygActgwasgintend
edgtoggivegAuditgCommitteesgmoregcloutgandgchangegthegincentivesgofgauditors.gThegGlobalgFinancialgS
ettlementgandgRegulationgFairgDisclosuregweregintendedgtogreducegthegconflictsgofginterestgforgfinancialg
analysts.gManygofgthesegchangesgweregalsogimplementedgoutsidegthegU.S.gHowever,gitgisgdifficultgtogeli
minategthegconflictinggincentivesgofgintermediaries,gwhogbygtheirgnaturegaregingthegdifficultgpositiongofgt
ryinggtogworkgforgtwogbosses.
Agsecondgpotentialgexplanationgisgthatghumangbeingsgaregsubjectgtogbehavioralgbiasesgthatgleadgthemgtog
makegcommongmistakes.gForgexample,gmostgretailginvestorsgextrapolatedgperformancesgatgEnron,gintern
etgstocks,gandgmortgagegbackedgsecuritiesgtogconcludegthatgthesegwouldgcontinuegtogbegterrificginvestme
nts.gTheygpouredgmoneygintogthesegsectorsgandgstocksgandgshowedglittleginterestginghearinggfromganalys
ts,gauditors,ginvestmentgbankers,getc.gwhoghadgagcontrariangpointgofgview.gForgexample,gatgthegheightgof
gtheginternetgboom,gWarrengBuffetgexpressedgconcerngaboutgthegsectorgbutgwasgdismissedgasgagdinosaurg
whogdidn’tgunderstandgthegnewgeconomy.gLessginformedgorglessgconfidentgintermediariesgwouldgfindgit
, difficultgtogchallengegthegpopulargviewgofgsuchghotgmarketsgorgtogjudgegwhengsuchghotgmarketsgwouldgc
rash.
Givengthesegproblems,gwegwillgprobablygcontinuegtoghavegcrisesgunlessgwegcangcorrectgthegfundamentalg
conflictsgofginterestgthatgpervadegthegindustrygandgcangfiguregoutghowgtogmodifyghumangbehavior.
3. Accountinggstatementsgrarelygreportgfinancialgperformancegwithoutgerror.gListgthreegtypesgofgerrorsgth
atgcangarisegingfinancialgreporting.
Threegtypesgofgpotentialgerrorsgingfinancialgreportingginclude:
1. errorgintroducedgbygrigiditygingaccountinggrules;
2. randomgforecastgerrors;gand
3. systematicgreportinggchoicesgmadegbygcorporategmanagersgtogachievegspecificgobjectives.
AccountinggRules.gUniformgaccountinggstandardsgmaygintroducegerrorsgbecausegtheygrestrictgmana
gementgdiscretiongofgaccountinggchoice,glimitinggthegopportunitygforgmanagers’gsuperiorgknowledg
egtogbegrepresentedgthroughgaccountinggchoice.gForgexample,gSFASgNo.g2grequiresgfirmsgtogexpense
gallgresearchgandgdevelopmentgexpendituresgwhengtheygaregoccurred.gNotegthatgsomeg researchgexpe
ndituresghavegfuturegeconomicgvalueg(thus,gtogbegcapitalized)gwhilegothersgdognotg(thus,gtogbegexpen
sed).gSFASgNo.g2gdoesgnotgallowgmanagers,gwhogknowgthegfirmgbettergthangoutsiders,gtogdistinguis
hgbetweengthegtwogtypesgofgexpenditures.gUniformgaccountinggrulesgmaygrestrictgmanagers’gdiscreti
on,gforgogthegopportunitygtogportraygthegeconomicgrealitygofgfirmgbettergand,gthus,gresultgingerrors.
ForecastgErrors.gRandomgforecastgerrorsgmaygarisegbecausegmanagersgcannotgpredictgfuturegconse
quencesgofgcurrentgtransactionsgperfectly.gForgexample,gwhengagfirmgsellsgproductsgongcredit,gmana
gersgmakegangestimategofgthegproportiongofgreceivablesgthatgwillgnotgbegcollectedg(allowancegforgdou
btfulgaccounts).gBecausegmanagersgdognotghavegperfectgforesight,gactualgdefaultsgareglikelygtogbegdif
ferentgfromgestimatedgcustomergdefaults,gleadinggtogagforecastgerror.
Managers’gAccountinggChoices.gManagersgmaygintroducegerrorsgintogfinancialgreportinggthroughgt
heirgowngaccountinggdecisions.gManagersghavegmanygincentivesgtogexercisegtheirgaccountinggdiscret
iongtogachievegcertaingobjectives,gleadinggtogsystematicginfluencesgongtheirgfirms’greporting.gForgex
ample,gmanygtopgmanagersgreceivegbonusgcompensationgifgtheygexceedgcertaingprespecifiedgprofitgt
argets.gThisgprovidesgmotivationgforgmanagersgtogchoosegaccountinggpoliciesgandgestimatesgtogmaxi
mizegtheirgexpectedgcompensation.
4. JoegSmithgarguesgthatg“learningghowgtogdogbusinessganalysisgandgvaluationgusinggfinancialgstatements
gisgnotgveryguseful,gunlessgyougareginterestedgingbecominggagfinancialganalyst.”gComment.
Businessganalysisgandgvaluationgskillsgaregusefulgnotgonlygforgfinancialganalystsgbutgalsogforgcorpor
ategmanagersgandgloangofficers.gBusinessganalysisgandgvaluationgskillsghelpgcorporategmanagersging
severalgways.gFirst,gbygusinggbusinessganalysisgforgequitygsecuritygvaluation,gcorporategmanagersgc
angassessgwhethergthegfirmgisgproperlygvaluedgbyginvestors.gWithgsuperiorginformationgon
