SOLUTIONS TO EXERCISES AND CASES
FOR
FINANCIAL STATEMENT ANALYSIS AND SECURITY VALUATION 5TH EDITION
BY STEPHEN PENMAN (AUTHOR)- ALL CHAPTERS 1-20 COVERED| A+
GUARANTEED PASS
1
, TABLE OF CONTENT
List of Cases
List of Accounting Clinics
CHAPTER 1 Introduction to Investing and Valuation
CHAPTER 2 Introduction to the Financial Statements
PART ONE: Financial Statements and Valuation
CHAPTER 3 How Financial Statements Are Used in Valuation
CHAPTER 4 Cash Accounting, Accrual Accounting, and Discounted Cash Flow Variation
CHAPTER 5 Accrual Accounting and Valuation: Pricing Book Values
CHAPTER 6 Accrual Accounting and Valuation: Pricing Earnings
CHAPTER 7 Valuation and Active Investing
PART TWO: The Analysis of Financial Statements
CHAPTER 8 Viewing the Business Through the Financial Statements
CHAPTER 9 The Analysis if the Statement of Shareholders' Equity
CHAPTER 10 The Analysis of the Balance Sheet and Income Statement
CHAPTER 11 The Analysis of the Cash Flow Statement
CHAPTER 12 The Analysis of Profitability
CHAPTER 13 The Analysis of Growth and Sustainable Earnings
PART THREE: Forecasting and Valuation Analysis
CHAPTER 14 The Value of Operations and the Evaluation of Enterprise Price-to-Book Ratios and Price-
Earnings Ratios
CHAPTER 15 Anchoring on the Financial Statements: Simple Forecasting and Simple Valuation
CHAPTER 16 Full-Information Forecasting, Valuation, and Business Strategy Analysis
PART FOUR: Accounting Analysis and Valuation
CHAPTER 17 Creating Accounting Value and Economics Value
CHAPTER 18 Analysis of the Quality of Financial Statements
PART FIVE: The Analysis of Risk and Return
CHAPTER 19 The Analysis of Equity Risk and Return for Active Investing
CHAPTER 20 The Analysis of Credit Risk and Return
CHAPTER ONE
Introduction To Investing And Valuation
Concept Questions
2
,C1.1.Fundamental Risk Arises From The Inherent Risk In The Business – From
Sales Revenue Falling Or Expenses Rising Unexpectedly, For Example. Price Risk Is
The Risk Of Prices Deviating From Fundamental Value. Prices Are Subject To
Fundamental Risk, But Can Move Away From Fundamental Value, Irrespective Of
Outcomes In The Fundamentals. When An Investor Buys A Stock, She Takes On
Fundamental Risk – The Stock Price Could Drop Because The Firm’s Operations
Don’t Meet Expectations – But She Also Runs The (Price) Risk Of Buying A Stock
That Is Overpriced Or Selling A Stock That Is Underpriced. Chapter 19 Elaborates
And Figure 19.5 (In Chapter 19) Gives A Display.
C1.2.A Beta Technology Measures The Risk Of An Investment And The Required
Return That The Risk Requires. The Capital Asset Pricing Model (CAPM) Is A Beta
Technology; Is Measures Risk (Beta) And The Required Return For The Beta. An
Alpha Technology Involves Techniques That Identify Mispriced Stocks That Can
Earn A Return In Excess Of The Required Return (An Alpha Return). See Box 1.1.
The Appendix To Chapter 3 Elaborates On Beta Technologies.
3
, C1.3.This Statement Is Based On A Statistical Average From The Historical Data:
The Return On Stocks In The U.S. And Many Other Countries During The
Twentieth Century Was Higher Than That For Bonds, Even Though There Were
Periods When Bonds Performed Better Than Stocks. So, The Argument Goes, If
One Holds Stocks Long Enough, One Earns The Higher Return.
However, It Is Dangerous Making Predictions From Historical Averages When
Risky Investment Is Involved. Averages From The Past Are Not Guaranteed In The
Future. After All, The Equity Premium Is A Reward For Risk, And Risk Means That
The Investor Can Get Hit (With No Guarantee Of Always Getting A Higher Return).
The Investor Who Holds Stocks (For Retirement, For Example) May Well Find That
Her Stocks Have Fallen When She Comes To Liquidate Them. Indeed, For The Past
5-Year Period, The Past 10-Year Period, And The Past 25-Year Period Up To 2010,
Bonds Outperformed Stocks—Not Very Pleasant For The Post War Baby-Boomer
At Retirement Age At That Point Who Had Held “Stocks For The Long Run.”
Waiting For The “Long-Run” May Take A Lot Of Time (And “In The Long Run
We Are All Dead”).
4
FOR
FINANCIAL STATEMENT ANALYSIS AND SECURITY VALUATION 5TH EDITION
BY STEPHEN PENMAN (AUTHOR)- ALL CHAPTERS 1-20 COVERED| A+
GUARANTEED PASS
1
, TABLE OF CONTENT
List of Cases
List of Accounting Clinics
CHAPTER 1 Introduction to Investing and Valuation
CHAPTER 2 Introduction to the Financial Statements
PART ONE: Financial Statements and Valuation
CHAPTER 3 How Financial Statements Are Used in Valuation
CHAPTER 4 Cash Accounting, Accrual Accounting, and Discounted Cash Flow Variation
CHAPTER 5 Accrual Accounting and Valuation: Pricing Book Values
CHAPTER 6 Accrual Accounting and Valuation: Pricing Earnings
CHAPTER 7 Valuation and Active Investing
PART TWO: The Analysis of Financial Statements
CHAPTER 8 Viewing the Business Through the Financial Statements
CHAPTER 9 The Analysis if the Statement of Shareholders' Equity
CHAPTER 10 The Analysis of the Balance Sheet and Income Statement
CHAPTER 11 The Analysis of the Cash Flow Statement
CHAPTER 12 The Analysis of Profitability
CHAPTER 13 The Analysis of Growth and Sustainable Earnings
PART THREE: Forecasting and Valuation Analysis
CHAPTER 14 The Value of Operations and the Evaluation of Enterprise Price-to-Book Ratios and Price-
Earnings Ratios
CHAPTER 15 Anchoring on the Financial Statements: Simple Forecasting and Simple Valuation
CHAPTER 16 Full-Information Forecasting, Valuation, and Business Strategy Analysis
PART FOUR: Accounting Analysis and Valuation
CHAPTER 17 Creating Accounting Value and Economics Value
CHAPTER 18 Analysis of the Quality of Financial Statements
PART FIVE: The Analysis of Risk and Return
CHAPTER 19 The Analysis of Equity Risk and Return for Active Investing
CHAPTER 20 The Analysis of Credit Risk and Return
CHAPTER ONE
Introduction To Investing And Valuation
Concept Questions
2
,C1.1.Fundamental Risk Arises From The Inherent Risk In The Business – From
Sales Revenue Falling Or Expenses Rising Unexpectedly, For Example. Price Risk Is
The Risk Of Prices Deviating From Fundamental Value. Prices Are Subject To
Fundamental Risk, But Can Move Away From Fundamental Value, Irrespective Of
Outcomes In The Fundamentals. When An Investor Buys A Stock, She Takes On
Fundamental Risk – The Stock Price Could Drop Because The Firm’s Operations
Don’t Meet Expectations – But She Also Runs The (Price) Risk Of Buying A Stock
That Is Overpriced Or Selling A Stock That Is Underpriced. Chapter 19 Elaborates
And Figure 19.5 (In Chapter 19) Gives A Display.
C1.2.A Beta Technology Measures The Risk Of An Investment And The Required
Return That The Risk Requires. The Capital Asset Pricing Model (CAPM) Is A Beta
Technology; Is Measures Risk (Beta) And The Required Return For The Beta. An
Alpha Technology Involves Techniques That Identify Mispriced Stocks That Can
Earn A Return In Excess Of The Required Return (An Alpha Return). See Box 1.1.
The Appendix To Chapter 3 Elaborates On Beta Technologies.
3
, C1.3.This Statement Is Based On A Statistical Average From The Historical Data:
The Return On Stocks In The U.S. And Many Other Countries During The
Twentieth Century Was Higher Than That For Bonds, Even Though There Were
Periods When Bonds Performed Better Than Stocks. So, The Argument Goes, If
One Holds Stocks Long Enough, One Earns The Higher Return.
However, It Is Dangerous Making Predictions From Historical Averages When
Risky Investment Is Involved. Averages From The Past Are Not Guaranteed In The
Future. After All, The Equity Premium Is A Reward For Risk, And Risk Means That
The Investor Can Get Hit (With No Guarantee Of Always Getting A Higher Return).
The Investor Who Holds Stocks (For Retirement, For Example) May Well Find That
Her Stocks Have Fallen When She Comes To Liquidate Them. Indeed, For The Past
5-Year Period, The Past 10-Year Period, And The Past 25-Year Period Up To 2010,
Bonds Outperformed Stocks—Not Very Pleasant For The Post War Baby-Boomer
At Retirement Age At That Point Who Had Held “Stocks For The Long Run.”
Waiting For The “Long-Run” May Take A Lot Of Time (And “In The Long Run
We Are All Dead”).
4
