Solution Manual for Financial Statement Analysis, 13th Edition By Charles H. Gibson, All Chapter's 1-13, Complete

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Financial statement analysis and security valuation solution
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manual

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SOLUTIONS TO EXERCIS g g



E AND CASES g g




For

FINANCIAL STATEMENT ANALYSIS AND SECURITY VALUATION
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StephengH.gPenman




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CHAPTER ONE g




Introduction to Investing and Valuation
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Exercises Drill
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Exercises
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E1.1.g CalculatinggEnterprisegValue

EnterprisegValueg=g$1,800gmillion

E1.2.ggg CalculatinggValuegPergShare

EquitygValueg=g$1,800

E1.3 BuygorgSell?

Valueg=g$850g+g$675

=g$1,525gmillion

Valuegpergshareg=g$1,525/25g=g$61g

Marketgprice =g$45

Therefore,gBUY!




Applications

E1.4.g FindinggInformationgongthegInternet:gDellgComputergandgGeneralgMotors

Thisgisgangexercisegingdiscovery.gTheglinksgongthegbook’sgwebgsitegwillghelpgwithgthegsearch.g

Heregisgtheglinkgtogyahoogfinance:

http://finance.yahoo.com

E1.5.g EnterprisegMarketgValue:gGeneralgMillsgandgHewlett-Packard

(a) GeneralgMills




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Marketgvaluegofgthegequityg=
Bookgvaluegofgtotalg(short-termgandglong- =
term)gdebtgEnterprisegvalue



Notegthreegpoints:

(i) Totalgmarketgvaluegofgequityg=gPricegpergshareggSharesgoutstanding.

(ii) Thegbookgvaluegofgdebtgisgtypicallygassumedgtogequalgitsgmarketgvalue,gbutgf

inancialgstatementgfootnotesggivegmarketgvaluegofgdebtgtogconfirmgthis.

(iii) Thegbookgvaluegofgequitygisgnotgaggoodgindicatorgofgitsgmarketgvalue.g Thegprice-to-

bookgratiogforgthegequitygcangbegcalculatedgfromgthegnumbersggiven:
g




$20,925/$6,215.8g=g3.37.



(b) Thisgquestiongprovokesgthegissuegofgwhethergdebtgheldgasgassetsgisgpartgofgenterprisegvalueg(

agpartgofgoperations)gorgeffectivelygagreductiongofgthegnetgdebtgclaimgongthegfirm.g Thegissuegarisesging

thegfinancialgstatementganalysisgingPartgIIgofgthegbook:garegdebtgassetsgpartgofgoperationsgorgpartgofgfi

nancinggactivities?g Debtgisgpartgofgfinancinggactivitiesgifgitgisgheldgtogabsorbgexcessgcashgrathergthan

g usedgasgagbusinessgasset.gThegexcessgcashgcouldgbegappliedgtogbuyinggbackgthegfirm’sgdebtgrathergth

angbuyinggthegdebtgofgothers,gsogthegnetgdebtgclaimgongenterprisegvaluegisgwhatgisgimportant.gPutgano

thergway,gHPgisgnotgingthegbusinessgofgtradinggdebt,gsogthegdebtgassetgisgnotgpartgofgenterprisegoperati

ons.gThegcalculationgofgenterprisegvaluegisgasgfollows:

Marketgvaluegofgequityg=g$47gg2,473gmilliongsharesg=g$116,231gmillion

Bookgvaluegofgnetgdebtgclaims:
Short-termgborrowing
$g711gmilliong
Long-termgdebt 7,688



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