Financial Statement Analysis Assignment

Question 1:

Using the financial information in the Statement of Changes in Shareholders' Equity below, please provide the clean surplus equation for 2006. Please provide all details of the numbers used in your computations. Any assumptions made need to be clearly explained.

Question 2:

a) Please compute the Advanced du Pont ratios for 2007 using the reformatted financial statement information provided in the tables directly below. There is no need to average the balance sheet numbers.

As part of this process, please compute the return on equity (ROE) ratio first and then reconcile with the Advanced du Pont full formula of ratios. Also, make sure to compute all ratios (e.g., the profit margin (PM), asset turnover (ATO), spread, EIAT, OROA, and total financing effect). To receive marks, please provide the formulas used and full details of computations.

b) Please compute the free cash flow (FCF) for 2007.

c) Please discuss the 2007 profitability to shareholders of this company by reference to your computed Advanced du Pont ratios and FCF.

Question 3:

a) Please compute equity value per share as at 2007 using the dividend discount model, free cash flow model, and residual income valuation model.

For this task, please refer to the forecasts and other financial data below (on the next two pages). Please provide all workings.

b) Please discuss the characteristics of these three valuation models that might cause the three models to provide you with different equity values per share.

c) The financial statement data used to compute the forecasts and other data provided below has been reformatted but not been checked for permanent and temporary accounting biases.

Please examine your computations from part (a) and provide one example of a possible permanent or temporary accounting distortion that could be present in the financial statement data. Make sure to explain why it is a distortion, and what corrective action an analyst should take.

d) Please discuss a revision of the forecasts below that could cause the free cash flow model to provide you with a negative equity value per share.

Please explain how and why your suggested revision could cause the negative equity value per share in your answer.

e) Please explain the similarities and differences between the residual income valuation model and the residual operating income valuation model.

Attachment:- Assignmernt File.rar