FSA Exercises

Contents
Chapter 2..................................................................................................................................... 1
Chapter 3..................................................................................................................................... 4
Chapter 4..................................................................................................................................... 5
Chapter 5..................................................................................................................................... 8
Chapter 6................................................................................................................................... 13
Chapter 7................................................................................................................................... 14
Chapter 8................................................................................................................................... 17
Chapter 10 – Part I.................................................................................................................... 18
Chapter 10 – Part II................................................................................................................... 19
Chapter 9................................................................................................................................... 20
Chapter 11................................................................................................................................. 22
Chapter 12................................................................................................................................. 22

Chapter 2
1. Rock N Roll offered an outdoor concert festival from June 28, 2016 to July 1, 2016.
Concertgoers needed to pay $80 for a four-day pass to the festival, and all 10,000 tickets were
sold out by May 1, 2016, which was the deadline to buy the tickets. Assume that this company
prepared adjusting entries at the end of each month, please answer the following questions:

(1). Please prepare the journal entry for selling the tickets on May 1, 2016.
(2). Please prepare the adjusting journal entries for June 30 and July 31, respectively (Hints:
Rock N Roll will recognize revenue at the end of each month).

May 1, 2016
Debit Credit
Cash $ 800,000
Tickets sold in advance $ 800,000

Note that “tickets sold in advance” is a liability because this is the money the firm owes to the
customers. On May 1, the firm has just received and is holding money, but the firm has to
repay the customers’ tickets if they cancel before the concert.

June 30, 2016

Debit Credit
Tickets sold in advance $ 600,000
 Service revenue $ 600,000

Note: 600,000 = 800,000 / 4 * 3

Note: Since the concert is 4 days from June 28 – July 1  we allocate revenue of 3 days to
June + 1 day to July = 4 days in total

July 31, 2016

Debit Credit
Tickets sold in advance $ 200,000
Service revenue $ 200,000

Note: 200,000 = 800,000 / 4 * 1

2. On April 1, 2016, the Briggs Corporation purchased a 24-month property insurance for
$72,000. The policy is effective immediately. Assume that Briggs prepares adjusting entries
only once a year on December 31. Please answer the following questions:

(1). Please calculate the monthly cost of the insurance.

(2). Prepare the journal entry to record the purchase of insurance on April 1, 2016.
(3). Please prepare the adjusting entry on December 31, 2016.

1) Monthly cost of insurance: 72,000/24 = 3,000

2) April 1, 2016
Debit Credit
Prepaid insurance $ 72,000
Cash $ 72,000

Note: prepaid insurance is classified into assets because it is still Briggs’ money, they just
prepaid it to the insurance company.

3) The firm paid insurance from April 1 to December 31  9 months

27,000 = 3,000*9
December 31, 2016
Debit Credit
Insurance expense $ 27,000
Prepaid insurance $ 27,000

3. Shake Bus Inc. is a company that provides transportation services in Denmark. It had the
following transactions in 2021. 

Please prepare journal entries for all the following transactions in the Shake Bus Inc.

January 20: Purchased papers, inks, and other office supplies of 1,000 DKK on account.
On account = short-term liability (it is not cash)
Papers, inks, etc. = office supplies = assets
A = L + E (Assets increase  Debit them & Liabilities increase  Credit them)

Debit Credit
Office supplies 1,000
Account payable 1,000

February 1: Provided transportation services to a customer and received a cash payment of

2,000 DKK.

A=L+E
E = Revenues – Expenses – Dividends
We debit cash since it’s an asset & we credit revenue since it’s equity

Debit Credit
Cash 2,000
Service revenue 2,000

April 3: Provided services to a tour group for 50,000 DKK. The services were to be paid in
30 days.

When the firm hasn’t received cash yet, then the money goes to account receivable, which
is an asset.
Debit Credit
Accounts receivable 50,000
Service revenue 50,000

May 3: Received the cash payment of 50,000 DKK from the tour group.

Both cash & accounts receivable belong to assets.

Debit Credit
Cash 50,000
Accounts receivable 50,000

July 1: Purchased from Volvo a bus of 500,000 DKK. The purchase was financed with a
loan offered by Volvo. 

Assets increase due to bus

Liabilities increase due to loan
Debit Credit
Bus 500,000
 Note payable 500,000

Chapter 3
1. The operating income of a firm in 2018 was 200,000 DKK, and the depreciation expense
was 20,000 DKK. It had the following changes in its balance sheet, please calculate its cash
flow from operating activities in 2018.
2017 2018

Inventory 4,000 8,500

Account receivable 1,000 7,200

Account payable 6,500 1,300

C F 2018=200,000+ 20,000−( 8,500−4,000 )−( 7,200−1,000 ) + ( 1,300−6,500 )=204,100

2. The Suffolk Company’s net operating income for 2016 was $40,000, and the depreciation
expense was $20,000. Its account balances for the noncash current assets and current
liabilities are listed as follows. Please prepare the operating activities section of the
statement of cash flows.

Operating activities section (2016)

Operating income 40,000
Adjustments to reconcile operating income
to net cash provided by operating activities:
Depreciation expense 20,000
Increase in accounts receivable (8,000)
Decrease in inventory 10,000
Increase in prepaid rent (2,000)
Increase in accounts payable 7,000
Decrease in income taxes payable (4,000)
 Increase in interest payable 3,000
Net cashflow from operating activities 66,000

Chapter 4
1. The income statement of the Lego group in 2017 and 2016 is shown below. Please
transform Lego’s income statement in 2017 for analytical purposes.

Analytical income statement for year 2017 Calculations

Revenue 34,995 Revenue
Operating expenses (24,636) −10239−10208−2352−1837
EBIT 10,359 Operating profit
Tax on EBIT (2,432) 2,395/10,201=0.2348
NOPAT 7,927 10,359∗(1−0.2348)

Net financial expenses (158) 171−13

 Tax shield 37 158∗0.2348
Net financial expenses after tax (121) 158−37

Net earnings 7,806 7,927−121

- Operating expenses:
Operating expenses = Production costs + Sales and distribution expenses +
Administrative expenses + Other operating expenses

- EBIT:
Since we have no EBITDA or EBIT  we can view the Operating profit as EBIT

- Tax on EBIT:
To calculate tax on EBIT, we need the effective tax rate:
Corporation tax 2,395
ETR= = =0.2348=23.48 %
Earningsbefore tax 10,201
Tax on EBIT =ETR∗EBIT
- NOPAT:
EBIT∗(1−ETR)

- Net financial expenses:

Net financial expenses=Financial income−Financial expenses

- Tax shield:
Tax shield =Net financial expenses∗ETR

- Net financial expenses after tax:

Net financial expenses after tax =Net financial expenses−Tax shield

- Net earnings:
Net earnings=NOPAT−Net financial expenses after tax

2. Suppose that you recently got a job as a financial analyst at an investment institution. Your
first task is to conduct financial statement analysis for the company Scanpack AB. Scanpack
AB’s balance sheets for 2016 and 2017 are shown as below (amounts in million). 

 
 Note: assume that only ‘Financial assets’ and ‘Long term debt’ are interest bearing.

Furthermore, the equity statement of Scanpack AB for 2017 is shown as follows (amount in
million) :

 
 
You also know that Scanpack AB reported financial income of 45 million and financial
expenses of 310 million in its income statement for 2017. Its net sales were 8340 million.
The effective tax rate was 28 percent.
 
Please reformulate Scanpack AB’s balance sheets for analytical purposes and also prepare
its analytical income statement for 2017. Please keep zero decimal for the number
calculated in the financial statements.

Balance sheet

Reformulated Balance Sheet 2017 2016

Total assets $ 11,926 $ 11,004
Financial assets $ (1,373) $ (1,238)
Operating assets $ 10,553 $ 9,776
Provisions $ 90 $ 83
Accounts payable $ (2,700) $ (2,340)
Accrued expenses $ 878 $ 1,013
Invested capital $ 6,885 $ 6,330

Step 1) Total assets – Financial assets = Operating assets

Step 2) Operating assets – Operating liabilities (Provisions, Accounts payable, Accrued
expenses) = Invested capital (Net operating assets)
Note: These three items are operating liabilities => not interest bearing

Income statement

Known; Calculated

Reformulated Income Statement 2017

Sales $ 8,340
 Operating expenses incl. tax $ (7,089)
NOPAT $ 1,251

Financial income $ 45
Financial expenses $ (310)
Net financial expenses before tax $ 265
Tax shield (28%) $ 74
Net financial expenses after tax $ (191)

Net earnings $ 1,060

Step 1) Net financial expenses after tax=Net financial expenses before tax−Tax shield
265−74=191

Step 2) NOPAT =Net earnings+ Net financial expenses after tax

1,060+191=1,251

Step 3) Operating expensesincl .tax =Sales−NOPAT

8,430−1,251=7,089

Chapter 5
Suppose you work as a financial analyst at a bank, and one of your assignments is to conduct
financial statement analysis for a pharmaceutical company, which produces medicines to cure
arthritis.
 
This company’s income statement (2018) and balance sheet (2017 and 2018) are shown below:
 
Income Statement  
  2018
  1000 Euro's
Net sales 13,257
Production costs (2,985)
Gross margin 10,272
   
Sales & distribution costs (4,345)
Administrative expenses (641)
R&D expenses (2,081)
Operating profit 3,205
   
Financial income 141
Financial expenses (15)
Profit before tax 3,331
   
Tax expense (794)
Profit for the year 2,537
   

Balance Sheets    
     
ASSETS 2018 2017
1000 Euro's    
Goodwill 3,538 3,538
Product rights 2,112 2,384
Development projects 73 158
Intangible assets 5,723 6,080
     
Property and plants 958 1,100
Machinery 388 452
Prepayments and work under construction 184 112
Tangible assets 1,530 1,664
     
     
Deferred tax assets 192 308
Financial assets 192 308
     
Non-current assets 7,445 8,052
     
Inventories 1,059 1,175
     
Trade receivables 1,648 2,386
Other receivables 420 422
Prepayments 115 138
Receivables 2,183 2,946
     
Securities 1,171 13
     
Cash and cash equivalents 2,155 2,200
     
Current assets 6,568 6,334
     
ASSETS 14,013 14,386
      
     
EQUITY AND LIABILITIES 2018 2017
1000 Euro's    
Share capital 765 760
Retained earnings 7,805 5,946
Equity 8,570 6,706
     
Pension obligations 189 239
Deferred tax liabilities 396 422
Mortage debt 0 1,296
Non-current liabilities 585 1,957
     
Provisions 377 572
Mortage debt 0 65
Bank loan 0 79
Account payable 2,438 2,755
Income tax payable 42 121
Other liabilities 2,001 2,131
Current liabilities 4,858 5,723
     
Total liabilities 5,443 7,680
     
EQUITY AND LIABILITIES 14,013 14,386

1. Your boss knew that you have taken the Financial Statement Analysis course, and he asked
you to prepare the analytical income statement and the analytical balance sheet. Assume
that this pharmaceutical company holds cash for financing rather than operating.

Analytical income statement

Step 1) Net financial income before tax=Financial income−Financial expenses
Step 2) Find ETR=Tax expense/ Profit before tax=– 0.2384
Step 3) Tax on net financial income=Net financial income before tax∗ETR
Step 4) Net fin . income after tax=Net fin .income before tax+Tax on net fin .income
Step 5) Operating expenses=∑ of all costs∧expenses
Step 6) EBIT =Net sales+Operating expenses
Step 7) Tax on EBIT =EBIT∗ETR
Step 8) NOPAT =Net financial income after tax −Net earnings
OR NOPAT =EBIT +Tax on EBIT
Step 9) Net earnings ( Profit for the year )=NOPAT + Net financial income after tax

Note:
When a firm has net financial income, NOPAT is:
NOPAT =Net earnings−Net financial income after tax
When a firm has net financial expenses, NOPAT is:
NOPAT =Net earnings−Net financial expenses after tax

Analytical balance sheet

Step 1) Operating assets=Intangible+ Tangible+ Deferred tax assets+ Invent .+ Receivabl
Note: We include the deferred tax assets bc it is not interest bearing
OR Operating assets=Total assets−Cash∧cash equivalents−Securities

For the rest of the steps see excel file.

2. Please calculate the following financial ratios for 2018. For the ratios that are based on
balance sheet numbers, please use the value of beginning balance. Please keep two
decimals for the results.
 Profit margin
 Turnover of invested capital
 Return on invested capital

NOPAT 2,441
PM = = =0.18=18 %
Revenue 13,257

Revenue 13,257
Turnover Rate of IC= = =2.44
IC 5,433
 NOPAT 2,441
ROIC= = =0.49=49 %
IC 5,433

3. Suppose that the cost of capital for operations (i.e., WACC) is estimated to be 8%, please
calculate the economic value added in 2018. Please keep zero decimal for the results.

EVA=NOPAT −IC∗WACC =2,441−5,433∗0.08=2,006

Chapter 6
Martin is good at printing, so at the beginning of 2017 he started a company, the PRINTTASK
CITY, which performs large printing services for companies. He asked you to help him with a
few tasks related to the financial analysis of the company. The original income statement and
the balance sheet are attached, and also can be seen below:

Tasks:
1. Prepare an analytical income statement for the PRINTTASK CITY. 
2. Please provide an analytical balance sheet for the PRINTTASK CITY. You can assume
that all cash is excess cash, i.e. part of financing assets.
3. Calculate the PRINTTASK CITY’s return on invested capital, the profit margin, the
turnover rate of invested capital, and the return on equity. Please keep four decimals for
the results.
4. Suppose Martin took 300 Euros as dividends, please calculate this company’s
sustainable growth rate in the future. Please keep four decimals for the result.

Analytical income statement 2017 Analytical balance sheet 2017

Revenue 13,500 Total assets 25,675
Operating expenses (10,000) -Cash (7,800)
EBITDA 3,500 Operating assets 17,875
Depreciation expenses (2,000) -Accounts payable (3,000)
EBIT 1,500 Invested capital 14,875
   
Operating tax (375)
Equity 10,675
NOPAT 1,125 Bank loan 12,000
Interest expenses (600) -Cash (7,800)
Tax shield 150 Net interest bearing
Net financial expenses after tax (450) liabilities 4,200
Net earnings 675 Invested capital 14,875
Calculations for analytical income statement:
Operating expenses=COGS+Other operating expenses
EBITDA=Revenue+ Operating Expenses
EBIT =EBITDA+ Depreciationexpenses
Operating tax=EBIT∗ETR
NOPAT =EBIT +Operating tax
Tax shield =Interest expenses∗ETR
Net financial expenses after tax=Interest expenses+Tax shield
Net earnings=NOPAT + Net financial expenses afetr tax

Return on invested capital:

1,125
ROIC= =0.0756=7.56 %
14,875
Profit margin:
1,125
PM = =0.0833=8.33 %
13,500
Turnover rate of invested capital:
13,500
ATO= =0.9076=90.76 %
14,875
Return on equity:
675
ROE= =0.0632=6.32 %
10,675
Sustainable growth rate:
300
PO= =0.4444
675
g=ROE∗(1−PO ) =0.0351=3.51 %

Chapter 7
Suppose you work in the accounting department in a fashion company in Denmark, and your
company is considering having a joint venture with a leading fashion company from Sweden.
You are assigned to lead this project and analyze this Swedish company’s financial situation.
The original income statement and balance sheet of this Swedish company are attached, and
also can be seen below. It is also known that this company’s cash flow from operations in 2019
was 5,823 million SEK. Please keep three decimals for the results.
Tasks: 
1) Calculate the financial leverage of this Swedish fashion company.
2) Calculate this company’s current ratio.
3) Assess whether this company’s cash flow from operations was enough for it to repay
liabilities.

INCOME STATEMENT (Unit: Million SEK)

   
  2019
   
Net sales 200,004
Cost of goods sold (91,914)
GROSS PROFIT 108,090
   
Selling expenses (80,427)
Administrative expenses (7,094)
OPERATING PROFIT 20,569
   
Interest income 41
Interest expense (228)
PROFIT AFTER FINANCIAL
ITEMS 20,382
   
Income tax (4,484)
PROFIT FOR THE PERIOD 15,898

BALANCE SHEET (Unit: Million SEK)

   
  2019
ASSETS  
FIXED ASSETS  
   
Intangible fixed assets  
Brands 18
Customer relations 8
Leasehold and similar rights 592
Capitalized expenditure 6,361
Goodwill 64
  7,043
   
Tangible fixed assets  
Buildings and land 824
Equipment, tools, fixture and fittings 38,994
  39,818
   
Other fixed assets  
Interest bearing long-term receivables 1,039
Deferred tax receivables 2,916
  3,955
   
TOTAL FIXED ASSETS 50,816
   
CURRENT ASSETS  
   
Securities 33,712
   
Current receivables  
Accounts receivables 5,297
Tax receivables 2,375
Other receivables 1,874
Prepaid expenses 2,770
  12,316
   
Cash and cash equivalents 9,718
   
TOTAL CURRENT ASSETS 55,746
   
TOTAL ASSETS 106,562
   
  2019
EQUITY AND LIABILITIES  
   
EQUITY  
Share capital 207
Reserves 1,015
Retained earnings 58,491
Total Equity 59,713
   
LIABILITIES  
   
Long-term liabilities  
Provisions for pensions 445
Deferred tax liabilities 5,331
Other interest-bearing liabilities 350
  6,126
   
Current liabilities  
Accounts payable 7,215
Tax liabilities 918
Liabilities to credit institutions 9,745
Interest-bearing liabilities 125
Other liabilities 3,672
Accrued expenses and prepaid income 19,048
  40,723
   
TOTAL LIABLITIES 46,849
   
TOTAL EQUITY AND LIABILITIES 106,562
 Total liabilities 46,849
Financial leverage= = =0.785
Equity 59,713

Current assets 55,746

Current ratio= = =1.369
Current liabilities 40,723

¿ 5,823
CFO ¿ debt ratio=Cashflow ¿ Operations = =0.124
Total liabilities 46,849

0.124 < 0.2 (criteria for sufficient cash flow), which is not enough to repay the liabilities

Chapter 8
1. In this link, you will find a firm’s initial financial statements in year zero and the forecasting
for year one. Please fill in the pro forma statements for year one based on all the available
information.
Hint: For the connection between accounts in the pro forma statements, please check Table
8.1 on the textbook or the related information on the slides.

2. In 2018, a financial institute was considering investing in a German fashion company. After
talking with a professional consulting company, it got the forecasting for a series of value
drivers for this German fashion company (shown in this link). The financial situation of this
German fashion company in 2018 was as follows: its sales revenue was 23,678 million
Euros, and its invested capital was 6,690 million Euros. Based on the above information,
please predict this German fashion company’s free cash flow to the firm in 2019-2023.

See excel file for answers

Chapter 10 – Part I
1. In 2015, a private company was considering an IPO, thus it was interested in its enterprise
value. The following information in 2012-2015 was given:

Its invested capital in 2016 was predicted to be 104,427,763, and the NOPAT in 2016 was
predicted to be 12,692,635. The firm also predicted that a growth rate of 2% in all the items
of balance sheet and income statement would be observed after 2016. The weighted
average cost of capital in 2012-2015 was 7.86%, and the one since 2016 was expected to
 be the same. Given the above information, please estimate its enterprise value at the end of
2015 based on the discounted cash flow model. Please keep zero decimal for the results.

Information: For year 2016

IC=104,427,763
NOPAT =12,692,635
g=2%
WAC C 2012−2015 =7.86 %
E V 2015 =?

See excel file for exact calculations

Note: Net operating assets (NOA) are equivalent to the invested capital (IC).
FCFF=NOPAT – Increase ∈ IC

FCF F2016 10,645,031

EV 2015 = = =181,655,836
WACC −g 7.86 %−2%

2. In 2018, a financial institute was considering investing in a German fashion company. After
talking with a professional consulting company, it got the forecasting for a series of value
drivers for this German fashion company (shown in this link). The financial situation of this
German fashion company in 2018 was as follows: its sales revenue was 23,678 million
Euros, and its invested capital was 6,690 million Euros. The weighted average cost of
capital is 6.4%, and we assume that the free cash flow to the firm after 2024 would
permanently increase by 3.5% per year. Please estimate the enterprise value of this
German fashion company in 2018 based on the discounted cash flow model. Please keep
zero decimal for the results (and three decimals for the discount factors). 

See excel file for answers

Chapter 10 – Part II
1. In 2015, a private company was considering an IPO, thus it was interested in its enterprise
value. The following information in 2012-2015 was given:

Its invested capital in 2016 was predicted to be 104,427,763, and the NOPAT in 2016 was
predicted to be 12,692,635. The firm also predicted that a growth rate of 2% in all the items
 of balance sheet and income statement would be observed after 2016. The weighted
average cost of capital in 2012-2015 was 7.86%, and the one since 2016 was expected to
be the same. Given the above information, please estimate its enterprise value as the end of
2015 based on the economic value added model. Please keep zero decimal for the results.

NOPA T 2016−I C2015∗WACC

∗1
(WACC −g)
E V 2015 =I C 2015 + 0
=¿
1
12,692,635−102,380,160∗7.86 %
¿ 102,380,160+
7.86 %−2 %
¿ 181,655,833
We drop the first half of the equation since there are no forecasted periods (n=0), that is why
discount factor = 1/1
See excel file for more details

2. At the end of fiscal year 2017, Global Inc. reported 5,444 million DKK of invested capital and
7,130 million DKK of equity in its balance sheet. The sales in 2017 were 17,238 million DKK.
The forecasting on value drivers in 2018-2021 are shown in this link. Fiscal year 2021 was
the first year in the terminal period, and the economic value added was expected to
permanently increase by 3 percent per year after 2021. The weighted average cost of
capital in all the periods was assumed to be 7 percent. Please prepare the pro forma
statement and estimate the enterprise value at the end of 2017 based on the economic
value added model. Please keep zero decimal for the results (and three decimals for the
discount factors).

Chapter 9
1. The Fish Loving Ltd. produces and sells fish feed in the European market. The following
table shows its key financials. You can find the condensed income statements and
balance sheets; the WACC is also given for each year.
Assume that the revenue of this company would increase by 2% per year after 2017,
which would lead to the constant growth of dividend with 2% per year. Assume that the
WACC in all the future years would be the same as the one for 2016. The dividend in
2017 was expected to be 394,307.76. Based on the discounted cash flow model, an
analyst estimated the Fish Loving Ltd.’s enterprise value in 2016 to be 10,251,401.
Given the above information, please calculate the required rate of return on equity that
yields the same valuation. Please keep four decimals for the results.

Solution:
We can use the Dividend Discount Model for the valuation, which will generate the
equity value. However, we want to find the enterprise value. The gap is the value of the
net interest-bearing liabilities (NIBL), and since we don’t know the exact value, we can
assume that NIBL = book value. Therefore, we can calculate NIBL  equity value
required rate of return on equity.

NIB L2016=Financial liabilities−Financial assets

¿ 285,520−450,428
¿−164,908

Equity value 2016 =Enteprise value−NIBL

¿ 10,251,401−(−164,908 )
¿ 10,416,309

Equity value > Enterprise value because NIBL = negative

We know that 2017 is the first year of the terminal period. Thus, we can simplify the
di v N +1
DDM equation by only using from the equation, which equals to the equity value
(r e−g)
( P0 ).
 di v N +1
∗1
N
div t ( r e −g )
P 0= ∑ t
+ N
t =1 ( 1+r e ) ( 1+r e )
Transform the equation:
di v N +1
P 0=
( r e−g )
di v N +1
¿>r e =g +
P0
394,307.76
r e =2 % + =0.0579=5.79 %
10,416,309

2. In 2018, a financial institute was considering investing in a German fashion company.

The financial situation of this German fashion company in 2018 was as follows: its sales
revenue was 23,678 million Euros, and its invested capital was 6,690 million Euros. The
consulting company suggested you get inspiration from industry peers, and it showed
the information about industry peers in the table below. The consulting company claimed
that the industry average ratio of enterprise value to EBIT would be a reliable predictor
for the value of this German fashion company. You also knew that the EBIT margin of
this German fashion company in 2018 was 12.5%, and net interest-bearing liabilities
accounted for 40% of invested capital in 2018. What is the implied market value of equity
in 2018 based on the above information? Please keep two decimals for the results.

  Peer A Peer B Peer C Peer D Peer E

EBIT 1,030 1,999 3,500 2,432 2,531
Enterprise value 30,900 57,971 98,000 77,824 88,585

Solution:
Relative valuation approach:
1) Industry average ratio:
Enteprise value
Average ratio= =30.80
EBIT
2) EBITDA of German company:
EBITDA=Sales revenue∗EBIT margin
¿ 23,678∗12.5 %
¿ 2,959.75
3) Value of NIBL:
Assuming that book value = market value, calculate the book value of NIBL
NIBL=IC∗NIBL of IC
¿ 6,690∗40 %
¿ 2,676
4) Equity:
Implied market value of equity=Enteprise value−NIBL
 ¿ EBITDA∗Average ratio−NIBL
¿ 2,959.75∗30.80−2,676
¿ 88,484.30

Alternatively, put all in one equation:

Equity=23,678∗12.5 %∗30.80−6,690∗40 %=88,484.30

Chapter 11
A Danish company, Matas A/S, is listed on the Nasdaq OMX. The attached Excel file contains
the financial information of Matas. The fiscal year of Matas differs from its calendar year, and it
runs from April 1st to March 31st of next year. Accordingly, the fiscal year 2015, for instance,
refers to the year ending on March 31st of 2016. 
Suppose you work as a financial analyst following Matas, and you have the following task to
complete.
You plan to implement a credit analysis for Matas based on the Altman Z-score. In the fiscal
year 2009-2012, Matas was not listed, and thus the information on share price was not
available. For these years, we assume that its share price was 150 DKK per share (see Excel
sheet “Share price” for other years). Note that the net working capital in Altman Z-score can be
directly calculated as current assets minus current liabilities. Please keep one decimal for
accounts and three decimals for the Z-score.

Altman Z-score:

See excel file for exact calculations

Note: everything is given directly from balance sheet and income statement besides 
 NWC = Current assets – Current liabilities
 Market value of equity = Shares outstanding × Share price

Chapter 12
Suppose that you got a job as a financial analyst. One of your first assignments was to conduct
a financial statement analysis for a pharmaceutical company that produces medicines to cure
arthritis. Based on the reported income statement and balance sheets, you knew that, at the
end of fiscal year 2018, the book value of this firm’s equity was 9370 and net financing assets
were 3137 (i.e., net interest-bearing liabilities were -3137), the sale revenue was 13257, and the
EBIT was 3205.
One of your colleagues had deep knowledge on the pharmaceutical industry. She forecasted
the value drivers in the spreadsheet. The cost of capital for operations (i.e., WACC) was
estimated to be 8%. Based on the information of industrial peers, this colleague estimated the
reasonable EV/EBIT ratio to be 20.53.

Question: What was the long-run constant growth rate of EVA in the terminal period implied by
the above EV/EBIT ratio? Please keep zero decimal for accounts and keep three decimals for
discount factors and the results. 

Solution:
Note: NIBL are negative bc financing assets > financing liabilities
This exercise is a combination of the Present value approach and Relative valuation approach.
Value drivers  present value approach EV/EBIT  relative valuation approach

T 2018∗EV
E V 2018 =EBI =3,205∗20.53=65,799
EBIT

2,235
65,799=6,233+7,263+ ∗0.735
8 %−g
Solve for g:
2,235∗0.735
g=8 %− =0.049∨4.9 %
65,799−6,233−7,264

See excel file for more details