ACCT13017 Questions: Week 3 Many Ways to Assess Value

Question 1

What is wrong with just doing what ‘works’ in relation to analysing financial statements? There are plenty of experienced practitioners in our capital markets. Why do we not simply find out what most are doing and just do this ourselves? What do you think and why?

Question 2

What is the benefit of having a structure, such as the du Pont company’s framework, to help use ratios to analyse a firm’s financial statements? Is it any better (or worse) than simply doing what experienced practitioners do? Why or why not?

Question 3

There have been many attempts to identify relationships between firms’ current financial ratios and their future economic and business realities (or, more usually, the future accounting measures of their economic and business realities). Except possibly for predicting corporate failure, no such stable relationships have been identified. Why do you think this is so? Does this suggest that analysing a firm’s financial statements may be of limited use? Why or why not?

Question 4

What are the issues to think about when using comparables to assess a firm’s value?