INSEAD Library

Includes bibliographical references and index

Digitized

Business Analysis and Valuation Contents Preface Authors xi xvi PART FRAMEWORK 1 A FRAMEWORK FOR BUSINESS ANALYSIS AND VALUATION USING FINANCIAL STATEMENTS The Role of Financial Reporting in Capital Markets From Business Activities to Financial Statements From Financial Statements to Business Analysis Public versus Private Corporations Summary Discussion Questions Notes Appendix: Defining Europe CASE The Role of Capital Market Intermediaries in the Dot-Corn Crash of 2000 1 1 3 4 6 9 12 12 13 13 14 16 PART BUSINESS ANALYSIS 2 AND VALUATION TOOLS 2 STRATEGY ANALYSIS Industry Analysis Applying Industry Analysis: The European Airline Industry Competitive Strategy Analysis Corporate Strategy Analysis Summary Discussion Questions Notes CASE America Online, Inc. 3 OVERVIEW OF ACCOUNTING ANALYSIS The Institutional Framework for Financial Reporting 41 43 43 48 50 54 57 59 60 62 87 87 Factors Influencing Accounting Quality Steps in Accounting Analysis Accounting Analysis Pitfalls Value of Accounting Data and Accounting Analysis Summary Discussion Questions Notes CASE Land Securities Group (A): Choosing Cost or Fair Value on Adoption of IFRS 92 95 100 101 102 103 104 107 4 IMPLEMENTING ACCOUNTING ANALYSIS Recasting Financial Statements First Time Adoption of IFRS Recognition of Assets Asset Distortions Recognition of Liabilities Liability Distortions Equity Distortions Summary Discussion Questions Notes Appendix: Recasting Financial Statements Into Standardized Templates CASE Fiat Group's First-Time Adoption of IFRS 119 120 127 128 132 152 153 162 165 166 168 170 176 5 FINANCIAL ANALYSIS Ratio Analysis Cash Flow Analysis Summary Discussion Questions Notes Appendix A: Volkswagen AG Financial Statements Appendix B: Dr. Ing. h.c.E Porsche Financial Statements CASE Carrefour S.A. 196 196 218 223 224 225 226 233 240 6 PROSPECTIVE ANALYSIS: FORECASTING Relation of Forecasting to Other Analyses The Techniques of Forecasting Making Forecasts Sensitivity Analysis Summary Discussion Questions 260 260 261 266 271 272 273 Notes Appendix: The Behavior of Components of ROE CASE Forecasting Earnings and Earnings Growth in the European Oil and Gas Industry 275 276 278 7 PROSPECTIVE ANALYSIS: VALUATION THEORY AND CONCEPTS Defining Value for Shareholders The Discounted Abnormal Earnings Valuation Method The Discounted Abnormal Earnings Growth Valuation Method Valuation Using Price Multiples Shortcut Forms of Earnings-Based Valuation The Discounted Cash Flow Model Comparing Valuation Methods Summary Discussion Questions Notes Appendix: Reconciling the Discounted Dividends, Discounted Abnormal Earnings, and Discounted Abnormal Earnings Growth Models CASE Puma AG Rudolf Dassler Sport 293 294 295 298 300 305 308 309 312 313 314 316 318 8 PROSPECTIVE ANALYSIS: VALUATION IMPLEMENTATION Detailed Forecasts of Performance Computing a Discount Rate Terminal Values Computing Estimated Values Summary Discussion Questions Notes CASE Ryanair Holdings plc 329 329 330 336 342 346 347 348 350 BUSINESS ANALYSIS AND VALUATION APPLICATIONS PART 371 373 374 375 377 9 EQUITY S ECURITY ANALYS IS 3 Investor Objectives Equity Security Analysis and Market Efficiency Approaches to Fund Management and Securities Analysis The Process of a Comprehensive Security Analysis Performance of Security Analysts and Fund Managers Summary Discussion Questions Notes CASE The Initial Public Offering of PartyGaming Plc 378 383 385 386 387 390 10 CREDIT ANALYSIS AND DISTRESS PREDICTION The Market for Credit The Credit Analysis Process Financial Statement Analysis and Public Debt Prediction of Distress and Turnaround Summary Discussion Questions Notes CASE KarstadtQuelle AG 401 402 405 412 417 419 420 421 423 434 434 438 444 447 450 451 452 453 11 MERGERS AND ACQUISITIONS Motivation for Merger or Acquisition Acquisition Pricing Acquisition Financing Acquisition Outcome Summary Discussion Questions Notes CASE The Air France-KLM Merger 12 CORPORATE FINANCING POLICIES Factors That Determine Firms' Debt Policies The Optimal Long-Term Mix of Debt and Equity The Financing of New Projects Factors That Determine Dividend Policies Summary Discussion Questions Notes CASE CUC International, Inc. 476 476 477 484 487 491 492 493 495 508 509 511 514 13 COMMUNICATION AND GOVERNANCE Governance Overview Management Communication with Investors Communication Through Financial Reporting Other Forms of Communicating with Investors Auditor Analysis Audit Committee Reviews Summary Discussion Questions Notes CASE Investor Relations at Total 518 522 526 528 529 530 533 PART ADDITIONAL CASES 1 Amazon.com In the Year 2000 2 Anacomp, Inc. 3 Home Depot, Inc. in the New Millennium 4 Krispy Kreme Doughnuts 5 Pre-Paid Legal Services, Inc. 6 Schneider and Square D 7 Spyker Cars N.V. 8 The Home Depot, Inc. 9 Two European Hotel Groups (A): Equity Analysis 10 Two European Hotel Groups (B): Debt Analysis 11 United Parcel Service's IPO 12 Valuation Ratios in the Airline Industry Index Author index 563 565 594 617 638 654 668 694 702 723 737 742 768 778 787 4