IUBAT – International University of Business Agriculture and

Technology

Assignment
Course Title: Financial statement analysis
Course code: ACC 404
Section: A

Submitted By,
Jannatul Ferdous
ID:18102072
Department: BBA

Submitted To,
Reefat Arefin Khan
BBA

Date of Submission: 17/04/2021

Q1. Do you think AT&T should have spent millions on merger plans in the first place?
Explain your answer.

 AT&T should not have spent the millions of dollars in the first place. They should have done
a thorough financial analysis of their organization and that of T-Mobile before considering
getting into a merger and acquisition. Their strategic plan to grow EBITDA margins and earning
to allow it to invest in growing areas and pay for the debt they were experiencing after the
millions of dollars and they called of the deal backfired on them. They could have considered the
role TV and internet services play in the wireless market and the legal battle Verizon is going
through.

Q2. Wouldn’t Disney earn higher profits if it charged visitors, say $10.50 each time they
went on a ride? Explain your answer.

 There are 46 rides in Disney world. If a visitor is charged on every ride, he/she do and that
customer rides all that 46 rides well, the Disney will earn higher.

But on most visitor, Disney would be making more money per visitor by charging a single-entry
fee of $105 compared to a fee of $10.50 per ride. Because we cannot assume that every visitor
will rides all the rides in Disney world. Every visitor has to pay the entry fee. That’s how by the
single-entry fee Disney will earn more money compared to charged visitor on each ride. So
Disney will not earn higher profit if it charged visitor $10.50 for each ride.

Q3. What is the dividend discount model? How the dividend discount model works?

 The dividend discount model (DDM) is a quantitative method used for predicting the price of

a company's stock based on the theory that its present-day price is worth the sum of all of its
future dividend payments when discounted back to their present value.

The dividend discount model (DDM) is a method of valuing a company's stock price based on
the theory that its stock is worth the sum of all of its future dividend payments, discounted back
to their present value. In other words, it is used to value stocks based on the net present value of
the future dividends.

Q4. How a valuation model is a model of accounting for the future?

 A relative valuation model compares a firm's value to that of its competitors to determine the
firm's financial worth. One of the most popular relative valuation multiples is the price-to-
earnings (P/E) ratio. Valuation involves forecasting payoffs and discounting expected payoffs for
risk. Accounting is involved in both the numerator and the denominator of a valuation model.
Indeed, a valuation model is a model of accounting for the future, and the effectiveness of a
valuation model rides on the accounting principles employed. Asset value is determined by
future, uncertain payoffs, so valuation requires forecasting under uncertainty, with both the
forecast and the uncertainty priced. Accounting forces an expectation of future residual earnings
of zero, so the forecasting task is removed: valuation is satisfied by the accounting for the
present. If so, both aspects of valuation—forecasting and the discount for risk—will be seen as a
matter of accounting for the future.

Q5. How are taxes allocated to the operating and financing components of income
statement?

 Income statement is a company’s financial statement that indicates how the revenue is
transformed into the net income. Income statement displays the revenues recognized for a
specific period, and the cost and expenses charged against these revenues, including write-offs
and taxes. Income statement takes several steps to find the bottom line, starting with the gross
profit. It then calculates operating expenses and, when deducted from the gross profit, yields
income from operations. Adding to income from operations is the difference of other revenues
and other expenses. When combined with income from operations, this yields income before
taxes. The final step is to deduct taxes, which finally produces the net income for the period
measured.

Net income Gross profit minus operating expenses and taxes. Operating Margin Another
useful indicator of profitability is operating income over net sales. Operating income subtracts
the cost of goods sold (COGS) alongside selling, general, and administrative expenses, leaving
the overall profit before taxes and interest on financial debt. Comparing this to the overall profit
margin can give useful indications of reliance on debt.