1- Within the context of valuation methodology and disclosure, discuss the concepts of “Relevance” and “Representational Faithfulness”.
In what circumstances might you have one, but not the other, or both?
Could one have neither?
Provide and discuss some examples of each scenario, as well as the risk and ramifications.
Responses and follow up discussion should introduce new thoughts and questions, and not just merely commend someone for a good post, or agree with them.
2- Discuss and explain the difference between profit/loss and cash flow. How could a company have positive cash flow, but show a net loss at year end? What are some examples of industries and/or companies that might generate substantial cash flow, but could lose money? Conversely, what are some examples of industries and/or companies that might generate very limited cash flow, but could show a profit at year end?
3- The collapse of W. T. Grant, the 17th largest retailer in the U.S. with 1,200 stores and 82,000 employees in 1975, came as a surprise to the capital markets!
Why should this have not been a surprise?
What got overlooked?
What analysis would have help predict their downfall?
List the financial analysis that would have uncovered their problems?
4- Look back on the research and discussion surrounding Grant Department stores.
Which types of risk were present? List and discuss them.
What types of ratio calculations and analysis should have taken place to better predict Grant’s demise?
Which ratios in particular were likely indicators of Grant’s impending demise?
5- What does profitability analysis mean to you? Why do companies analyze profits? What is Analysis? Do you believe that it is necessary to analyze profits? Answer these questions and provide an article link that supports your answers. Discuss and expand the conversation around each others’ articles. Cite outside material properly.
6- How can two companies with identical P & L statements (identical profitability) at year end provide different annual returns to each of their investors? Which company is the riskier investment? Discuss some different scenarios that result in different levels of risk in each of the cases. Cite outside articles/material.
7- Auditors and regulators are reminding firms to look closely at their accounts payable to be sure they haven’t inadvertently created debt that might alter leverage ratios and violate other loan covenants.
What type of debt are they referring to?
What are some examples of situations / structures that might appear to be operating A-P, but in face should be classified as long term debt?
Discuss the advantages and disadvantages of these various situations / structures?
8- Why ” Gross versus Net” became such a big issue in accounting?
9- For each of the steps in the “Seven Step Forecasting Game Plan” for forecasting, discuss the following:
Who do you suspect is being included in creating each step of the various company forecasts?
Why? Why not? Be specific about the various players and the reasons they might be involved.
10 – What are factors that affect the expected rate of return for holders of debt and equity?
11- Why do you think so much emphasis is placed on cash-flow-based stock evaluations, especially the “free cash flow model”?
12- The Peg Ratio appears to be a refinement that allows us to do what? Is the ratio aptly named? Explain
