IGNACIO GARCÍA DE OLALLA
IgnacioGarcíadeOlalla FinancialAnalysisandValuation Workbook
©H.Aschehoug&Co.(W.Nygaard)ASbyUniversitetsforlaget2025
ISBN978-82-15-05817-7
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Preface
Welcometothisexercisebookdesignedtocomplement FinancialAnalysisand Valuation.Thisbookaimstoenhanceyourunderstandingofthevarioustopics coveredinthetextbook.Irecommendbeginningbythoroughlyreadingthe relevantchapterinthetextbookandsolvingtheexamplesprovided.Onceyou feelconfidentwiththematerial,youcanproceedtotheexercisesinthisbook.
Pleasenotethattherearenosuggestedexercisesforchapters1,3,and4.The numberofexercisesproposedmayvaryfortheremainingchapters.Inchapters5, 7,9,and10,youwillencounterexercisesthatarebestsolvedusingExcel.Excel templatescanbefoundonthebook'swebsite.Additionally,chapter11features anappendixcloselyrelatedtotheAppendixtoChapter11inthetextbook, offeringfurtherdevelopmentonthetopic.
Itrustthatthisexercisebookwillassistyouinbuildingasolidfoundationinthe captivatingfieldoffinancialstatementanalysisandvaluation.
IgnacioGarcíadeOlalla October2024
1 Introductiontofinancialstatement analysisandvaluation
LEARNINGOUTCOMES
Afterreadingthischapteryoushouldbeableto:
• understandwhatfinancialstatementanalysisis
• understandwhatvaluationis
• haveanoverviewaboutthestepsinbusinessanalysis
• knowwhatstakeholdersare,andunderstandthefocusofwhatwecallequity-oriented stakeholders
• understandthestructureofthebook
Therearenoexercisesforthischapter.Pleasereadthechapterthoroughlyandthen returntothelearningoutcomestoconfirmthatyoucanfulfillthem.
2 Introductiontoaccountingandthe annualreports
LEARNINGOUTCOMES
Afterreadingthischapteryoushouldbeableto:
• understandthebasicaccountingequationandwhatitscomponentsare
• understandtheexpandedaccountingequationandwhatitscomponentsare
• registerdifferenttransactionsusingtheaccountingequation
• knowwhatthestatementoffinancialpositionisandhowitisconstructed
• knowwhattheincomestatementisandhowitisconstructed
• understandwhatcomprehensiveincomeis
• knowwhatthestatementofequitychangesisandhowitisconstructed
• understandthestatementofcashflows
• understandhowthestatementoffinancialposition,theincomestatement,thestatementof changesinequity,andthestatementofcashflowsrelatetoeachother
• understandthedebit-creditsystem
Exercise2.1
ClassifythefollowingaccountsasAssets,Equity,Liabilities,Revenues,orExpenses.
Account Classification
Property,Plant,andEquipment
RetainedEarnings
ServiceRevenue
AccumulatedDepreciation
Goodwill
MortgagePayable
RentExpense
UnearnedServiceRevenue
ShareCapital–Ordinary
Supplies
AdvertisingExpense
AccountsReceivable Cash Patents
Copyrights
CostofGoodsSold
IncomeTaxesPayable
InterestReceivable
InterestExpense
Inventory NotesPayable
Exercise2.2
Belowyoufindthestatementoffinancialpositionfortheyears20x0and20x1forthe companyMcGeeASA.Fillthemissingvalues(signalledwithletters).
StatementofFinancialPositionMcGeeASA.December31.
AmountsinmillionNOK 20x020x1 ASSETS
Non-currentAssets
Property,PlantandEquipment 17852663
Acc.DepreciationPPE A–1114
Exercise2.3
Belowistheincomestatementfortheyear20x1forthesamefirmasinExercise2.2. Completethemissingnumbers(signalledwithaletter).Rememberthatweusepositive numbersforrevenuesandnegativenumbersforexpenses.
IncomeStatementMcGeeASA
Exercise2.4
Giventhestatementoffinancialpositionfortheyears20x0and20x1andtheincome statementforyear20x1forthefirmMcGeeASA(Exercises2.2and2.3),canyou calculatethedividendsdeclared(andpaid)inyear20x1?Assumethatthefirmhas notissuedmoreequityduringtheyear20x1,i.e.,netincomeanddividendsaretheonly accountsaffectingequity.
Exercise2.5
Afirmbuysequipmenton2.1.20x0forNOK1000000.Thefirmpayscash.Theequipmentisexpectedtohaveausefullifeof5years.Oncethe5yearsareover,thefirm estimatesthattheequipmentwillbecompletelyuselessandhavearesidualvalueof zero.Thecompanyusesthestraight-linedepreciationmethod.
a) Recordthepurchaseoftheequipmentbythefirmon2.1.20x0.
b) Journalizetheadjustingentryforthedepreciationattheendofyear20x0.Notethat thisentrywillberepeatedidenticallyintherestoftheyears.
c) Optional:Repeata)andb)usingthedebit-creditsystem.
d) ShowhowtheaccountsEquipment,AccumulatedDepreciation–Equipment, andNetEquipmentwouldappearinthebalancesheetasof31.12ofyears20x0, 20x1,20x2,20x3,and20x4.
Exercise2.6
CompanyAislookingforacompanytoacquiresoitcanputits€2000000incashto properuse.TheyspotCompanyBanddecidetoacquire60%ofB’sequity.Assumethat CompanyB’smarketvalueofequityequalsbookvalue.Thebalancesheetsforboth firmsareasfollows:
BalanceSheetCompanyA
Cash2000000Equity1500000 Liabilities500000
BalanceSheetCompanyB
Assets1000000Equity1000000
Whatwouldthegroup’sconsolidatedbalancesheetlooklikeaftertheacquisition?
Exercise2.7
BelowarethebalancesofdifferentaccountsforthefirmNIEASasof31.12.x0. Rememberthatexpensesanddividendsarenegativebecausetheyreduceequity intheaccountingequation.
a) Prepareanincomestatementfortheyear20x0.
b) Weknowthatretainedearningsatthebeginningof20x0wereNOK63250.Usinga) andthebalanceoftheDividendsaccount,calculateretainedearningsasof 31.12.20x0.
c) Prepareastatementoffinancialpositionasof31.12.20x0.
Exercise2.8
ThefirmR&MhasperformedthetransactionslistedbelowduringFebruary20x0. Pleasejournalizethetransactions.
February1TheshareholdersputNOK5000000inthefirmasequity.
February4ThecompanyborrowedNOK1000000fromabank.Theloanwillbe repaidinthenext5years.
February8ThecompanyboughtequipmentforNOK100000.Thecompanypays cashforthepurchase.
February11 ThefirmprovidedNOK50000ofservicesonaccount(i.e.,theclientsdid notpaycashatonce).
February15 PaidNOK50000ofsalaries.Thecompanypayssalariesthe15th ofevery monthforservicesprovidedbyemployeesfromthe15th oftheprevious month.
February17 CollectedNOK20000ofaccountsreceivable.
February20 Purchasedforcash200sharesofBacarisseforNOK100pershare. Theinvestmentwasconsideredastradingsecurities.
Usethefollowingaccounts:
Exercise2.9
EZCCorporation’sstatementoffinancialpositiononDecember31,20x0ispresented below:
EZCCorporation StatementofFinancialPosition December31,20x0
InthousandNOK
AccumulatedDepreciation-Buildings–20000AccountsPayable37500
During20x1,thefollowingtransactionsoccurred:
1. OnJanuary5,EZCissuednewequity(ShareCapital–Ordinary)forNOK 24000000.
2.OnFebruary16,EZCperformedservicesforNOK8000000onaccount.
3.OnMarch1,EZCcollectedfeesofNOK60000000inadvanceforservicestobe performedfromMarch1,20x1,toFebruary28,20x2.
4.OnApril10,EZCcollectedNOK70000000fromcustomersonaccount.
5.OnApril30,EZCboughtNOK15000000ofsuppliesonaccount.
6.OnMay29,EZCpaidNOK35000000onaccountspayable.
7.OnDecember31,thefirmpaidotheroperatingexpensesofNOK2500000.
Adjustingdata:
1.AcountofsuppliesindicatesthatNOK7500ofsuppliesremaininstoragebythe endof20x1.
2.Recordrevenuefortransaction3above.
3.Depreciationexpenseforthebuildingsinyear20x1shouldbeNOK2000000.
4.Assumethecompanypaysnotaxes.
a) Preparejournalentriesfortheabovementionedtransactionsandadjustingentries. Usethefollowingaccountsinadditiontotheonesinthestatementoffinancialposition:
ServiceRevenue UnearnedServiceRevenue
SuppliesExpense DepreciationExpense
OtherOperatingExpenses
b) Prepareanincomestatementfortheyear20x1.
c) PrepareastatementoffinancialpositionasofDecember31,20x1.Assumethat thefirmpaysnodividends.Thisimpliesthatallthenetincomebecomesapartof retainedearnings.
Exercise2.10
ThefirmDIRDAMASAperformsthefollowingtransactionsinthefirstquarterofthe year20x0.
January2ThefirmiscreatedbytheplacementofNOK1000000cashfromits shareholders.
January2ThecompanyborrowsNOK1000000fromabank.Theloanistobe repaidannuallyanditbearsanannualinterestrateof5%.
January2DIRDAMpurchasesequipmentforNOK700000.Itpayscash.
January2Thecompanyprepaystherentofitsnewofficeforthewholeyear20x0. NOK150000.
January20ThefirmacquiresinventoriesforNOK300000.Thecompanywillpay thesuppliersin3months.
February28DIRDAMsellsgoodsforNOK500000.ItgetsNOK200000cash,and therestisowedbytheclients.
March31ThecompanycountsinventoriesforNOK100000.Thecompanyneeds toadjustitsinventoryaccount.
March31TheequipmentpurchasedonJanuary2hasausefullifeof7yearsand aresidualvalueofNOK0.Thefirmusesthestraight-linedepreciation method.Thecompanyneedstoregistertheadjustingentryforthedepreciationexpensesinthefirstquarter.
March31Thecompanyneedstorecordtheinterestexpenseforthefirstquarter oftheyear20x0.
March31 ThefirmincursataxexpenseofNOK50000inthefirstquarterof theyear.ThisamountwillbepaidtothetaxauthoritiesinApril.
March31Thefirmneedstorecordtherentexpenseforthefirstquarteroftheyear.
March31DIRDAMdeclaresandpaysacashdividendofNOK40000.
a) Preparejournalentriesfortheabovementionedtransactionsandadjustingentries. Usethefollowingaccounts: Cash Equipment
AccumulatedDepreciationBankLoan SalesRevenue DepreciationExpense
InterestExpense InterestPayable
CostofGoodsSoldRentExpense
PrepaidRent Dividends
TaxExpense TaxPayable
AccountsReceivableAccountsPayable
Inventories ShareCapital
b) Prepareanincomestatementforthefirstquarteroftheyear20x0.
c) Calculatetheretainedearningsasof31.3.20x0.
d) Prepareastatementoffinancialpositionasof31.3.20x0.
Debit-creditexercises
Exercise2.8(alternative)
SolveExercise2.8usingthedebit-creditsystem.
Exercise2.9(alternative)
SolveExercise2.9a)usingthedebit-creditsystem.
Exercise2.10(alternative)
SolveExercise2.10a)usingthedebit-creditsystem.
Solving exercises is an important tool for anyone who is going to learn about financial analysis and valuation.
The workbook aims to enhance your understanding of the various topics covered in the textbook and assist you in building a solid foundation in the field of financial statement analysis and valuation. The workbook follows the same structure as the textbook and contains a number of exercises and thorough solution proposals.
About the textbook:
Do you need an introduction to financial analysis and valuation? In this book you get the basic models and the essential concepts, and you understand how they can be applied, as well as what you can use them for.
In order to make a valuation of a business, you need to go behind the accounting figures. The author explains in the book what you need to analyse and why it is necessary. He gives you a toolbox for the analysis, which includes:
• business strategy
• accounting analysis
• capital cost and capital structure
• profitability
• growth
• liquidity
• forecasts
You need to use different valuation models based on the type of business you are going to value. Here you get good insight into valuation with present value models, market-based valuation and valuation of private companies.
Ignacio García de Olalla is an Associate Professor at det Department of Accounting and Operations Management at BI Norwegian Business School.