Which financial statement provides the most accurate indication of value

Answer any 5 of the following questions completely.

 

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  1. In financial statement analysis,  an investor attempts to interpret what the future revenue growth will be in order to determine whether the stock price is fair.  This issue is even more complex when attempting to establish a fair price for an IPO.  Discuss what the problems are when attempting to set a price that will be a reasonable expectation of future value growth.  Include in your response the issues pertaining to a Non-GAAP Financial Report…ineffective Internal Controls…the requirements of the SEC Act of 1933…and the impact on the newly issued IPO’s…like Lyft and Uber (pending).

 

  1. There are 4 financial statements available for the financial analysts to use in determining the value of a company’s stock. Discuss completely which financial statement you believe provides the most accurate indication of value for an investor?  Which financial statement provides the least effective valuation information?  Use examples from a company you have analyzed to underscore your point.

 

  1. Ratio analysis is an extremely important tool utilized by financial statement analysts in determining the future value of a corporation’s stock.  Discuss which ratios you believe are the most useful in determining the future viability of a company.  Include in your discussion the importance of benchmarks and red flags that are obvious indicators of future problems.  Include specific discussions we had in class to enhance your argument.  Give specific examples.

 

  1. A risk oriented management team is viewed as an extremely important characteristic for publically traded companies. In class we have discussed the problems associated with risk oriented decisions that actually erode value instead of create it….Discuss why you believe both risk strategy is both a positive and negative for any management team.  Include in your response the impact of decision-making by Elon Musk at Tesla.

 

  1. Dividends provide investors with a return on investment and are incorporated into the future potential value of a company….share buy-backs (Treasury Stock) are also viewed by many in the investment community to be strong indicator of financial liquidity and viability…..Discuss whether you believe investors actually benefit from this corporate strategy of providing return to their investors…or does it at times mask a more fundamental problem pertaining to the lack of future innovative ideas by the current management team. ESPECIALLY IN LIGHT OF THE PROHIBITION EMBEDDED IN THE CARES ACT.

 

  1. Analysts use both asset valuation and future sales growth as indicators of current stock values.  Describe completely which method you believe provides a more reliable indication of future value, include in your discussion examples provided in class to enhance your response.  Indicate the importance of the types of assets that appear on the financial statements as indicators of future value and the problem with off-balance sheet financing as an impediment to realistic valuation.

 

 

  1. Stock Analysts that provide recommendations to the financial community are not held accountable for your recommendations. Unlike many professionals…their opinions are merely viewed as an expression of their “Freedom of Speech” right.  Does that help or harm the valuation process when an analyst provides BUY recommendations…when…if they were to be legally liable for negligence…they might provide a more reasoned assessment of the future value of the stock value.

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