Part 1 Framework

1 A Framework for Business Analysis andValuation Using Financial Statements

The Role of Financial Reporting in CapitalMarkets

From Business Activities to FinancialStatements

From Financial Statements to BusinessAnalysis

Summary

Discussion Questions

CASE: Korea Stock Exchange l998

Part 2 Business Analysis and ValuationTools

2 Strategy Analysis

Industry Ana1ysis

Degree of Actual and Potential Competition

Relative Bargaining Power in Input andOutput Markets

Applying Industry Analysis: The PersonalComputer Industry

Competitive Strategy Analysis

Sources of Competitive Advantage

Achieving and Sustaining CompetitiveAdvantage

Applying Competitive Strategy Analysis

Corporate Strategy Analysis

Summary

Discussion Questions

CASE: America Online, Inc.

3 Overview of Accounting Analysis

The Institutional Framework for FinancialReporting

Doing Accounting Analysis

Accounting Analysis Pitfalls

Value of Accounting Data and AccountingAnalysis

Summary

Discussion Questions

CASE: Harnischfeger Corporation

4 Asset Analysis  

Historical Cost and Conservatism

Asset Reporting Challenges

Common Misconceptions about AssetAccounting

Summary

Discussion Questions

CASE: Boston Chicken, Inc.

5 Liability and Equity Analysis

Liability Definition and ReportingChallenges

Common Misconceptions about LiabilityAccounting

Equity Definition and Reporting Challenges

Summary

Discussion Questions

CASE: Manufactured Homes, Inc.

6 Revenue Analysis

The Revenue Recognition Rule

Revenue Reporting Challenges

Summary

Discussion Questions

CASE: Oracle Systems Corporation

7 Expense Analysis

Matching and Conservatism

Expense Reporting Challenges

Summary

Discussion Questions

CASE: Pre-Paid Legal Services, Inc.

8 Entity Accounting Analysis

Entity Reporting Challenges

Summary

Discussion Questions

CASE: Thermo Electron Corporation

9 Financial Analysis

Ratio Analysis

Cash Flow Analysis

Summary

Discussion Questions

CASE: The Home Depot, Inc.

10 Prospective Analysis: Forecasting  

Relation of Forecasting to Other Analyses

The Techniques of Forecasting

Elements of the Detailed Forecast

Sensitivity Analysis

Summary

Appendix: The Behavior of Components of ROE

Discussion Questions

CASE: Maxwell Shoe Company, Inc.

11 Prospective Analysis: Valuation Theoryand Concepts

Defining Value for Shareholders

The Discounted Abnormal Earnings ValuationMethod

Valuation Using Price Multiples

Determinants of Value-to-Book andValue-Earnings Multiples

Shortcut Forms of Earnings-Based Valuation

The Discounted Cash Flow Model

Comparing Valuation Methods

Summary

Appendix: Reconciling the DiscountedDividends and Discounted Abnormal Earnings

Models

Discussion Questions

CASE: Schneider and Square D

12 Prospective Analysis: ValuationImplementation

Detailed Forecasts of Performance

Terminal Values

Computing a Discount Rate

Computing Estimated Values

Summary

Discussion Questions

CASE: The Gap, Inc.

Part 3 Business Analysis and ValuationApplications

13 Equity Security Analysis

Investor Objectives

Equity Security Analysis and MarketEfficiency

Approaches to Fund Management andSecurities Analysis

The Process of a Comprehensive SecurityAnalysis

Financial Statement Data and SecurityPrices

Summary

Discussion Questions

CASE: Arch Communications Group Inc.

14 Credit Analysis and DistressPrediction  

The Market for Credit

The Credit Analysis Process

Financial Statement Analysis and PublicDebt

Prediction of Distress and Turnaround

Summary

Discussion Questions

CASE: Adelphia Communications Corporation

15 Mergers and Acquisitions

Motivation for Merger or Acquisition

Acquisition Pricing

Acquisition Financing

Acquisition Outcome

Summary

Discussion Questions

CASE: The Upjohn Company: The Upjohn -Pharmacia Merger

16 Corporate Financing Policies

Factors That Determine Firms’ Debt Policies

The Optimal Long-Term Mix of Debt andEquity

The Financing of New Projects

Factors That Determine Firms' DividendPolicies

Summary

Discussion Questions

CASE: CUC International, Inc. (A)

17 Management Communications

Communicating with Investors

Communication Through Financial Reporting

Other Forms of Communicating with investors

Summary

Discussion Questions

CASE: Sensormatic ElectronicsCorporation—1995

Part 4 Additional Cases

Anacomp, Inc.

Brierley Investments Limited

The City of New York

Comdisco, Inc. (A)

Comdisco, Inc. (B)

CompUSA

The Computer Industry in l992

Debt Ratings in the Chemical Industry

Donna Karan International lnc.