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 BUSINESS
ANALYSIS
AND
VALUATION

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 Business Analysis and Valuation: © 2019, Cengage Learning EMEA
IFRS Standards edition, 5th Edition
Krishna G. Palepu, Paul M. Healy WCN: 02-300
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 Brief contents

PART I Framework 1
1 A framework for business analysis and valuation using financial statements 2

PART II Business analysis and valuation tools 45

2 Strategy analysis 46
3 Accounting analysis: The basics 78
4 Accounting analysis: Accounting adjustments 118
5 Financial analysis 174
6 Prospective analysis: Forecasting 232
7 Prospective analysis: Valuation theory and concepts 274
8 Prospective analysis: Valuation implementation 312

PART III Business analysis and valuation applications 357

9 Equity security analysis 358
10 Credit analysis and distress prediction 386
11 Mergers and acquisitions 417

PART IV Additional cases 459

iii

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Contents

Preface viii
Acknowledgements xii
PART II
Authors xiii Business analysis and valuation
Digital Support Resources xiv
tools 45

PART I 2 Strategy analysis

Industry analysis 46
46

Framework 1 Degree of actual and potential competition 46

Bargaining power in input and output markets 50
1 A framework for business analysis Applying industry analysis: The european airline
and valuation using financial industry 51
statements 2 Competition in the european airline industry 51
The role of financial reporting in capital markets 2 The power of suppliers and buyers 52
From business activities to financial statements 4 Limitations of industry analysis 53
Influences of the accounting system on information
Competitive strategy analysis 53
quality 5
Sources of competitive advantage 53
Feature 1: Accrual accounting 5
Achieving and sustaining competitive advantage 55
Feature 2: Accounting conventions and standards 7
Applying competitive strategy analysis 56
Feature 3: Managers’ reporting strategy 8
Feature 4: Auditing, legal liability, and public enforcement 9 Corporate strategy analysis 57
Sources of value creation at the corporate level 57
Alternative forms of communication with investors 10
Applying corporate strategy analysis 59
Analyst meetings 11
Voluntary disclosure 12 Summary 60
From financial statements to business analysis 12 Core concepts 61
Analysis step 1: Business strategy analysis 14 Questions, exercises, and problems 61
Analysis step 2: Accounting analysis 14 Problem 1 The European airline industry 62
Analysis step 3: Financial analysis 15
Notes 64
Analysis step 4: Prospective analysis 15
Case Akris: Competition in the high-end fashion
Public versus private corporations 15
industry 65
Summary 16
Core concepts 16 3 Accounting analysis: The basics 78
Questions, exercises, and problems 18 Factors influencing accounting quality 78
Problem 1 The Neuer Markt 18 Noise from accounting rules 78
Forecast errors 79
Problem 2 Fair value accounting for financial
Managers’ accounting choices 79
instruments 20
Steps in accounting analysis 80
Notes 21
Step 1: Identify key accounting policies 81
Appendix: Defining Europe 23 Step 2: Assess accounting flexibility 81
CASE The role of capital market intermediaries in the Step 3: Evaluate accounting strategy 82
dot-com crash of 2000 25 Step 4: Evaluate the quality of disclosure 83

iv

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 Contents v

Step 5: Identify potential red flags 84 Problem 3 H&M and Inditex’s non-current assets 155
Step 6: Recast financial statements and undo accounting Notes 156
distortions 85
CASE Accounting for the iPhone Upgrade Program (A) 158
Recasting financial statements 86
Some complications 86
Categories of financial statement items 87
5 Financial analysis 174
Ratio analysis 174
Accounting analysis pitfalls 95 Measuring overall profitability 178
Conservative accounting is not “good” accounting 95 Decomposing profitability: Traditional approach 179
Not all unusual accounting is questionable 96 Decomposing profitability: Alternative approach 180
Common accounting standards are not the same as common Assessing operating management: Decomposing net profit
accounting practices 96 margins 184
Value of accounting data and accounting analysis 96 Evaluating investment management: Decomposing asset
Summary 97 turnover 188
Evaluating financial management: Financial leverage 191
Core concepts 97
Putting it all together: Assessing sustainable growth rate 194
Questions, exercises, and problems 98 Historical patterns of ratios for European firms 197
Problem 1 Key accounting policies 99 Cash flow analysis 197
Problem 2 Fashion retailers’ key accounting policies 99 Cash flow and funds flow statements 197
Problem 3 Euro Disney and the first five steps of Analyzing cash flow information 199
accounting analysis 100 Analysis of Hennes & Mauritz’s and Inditex’s cash flow 202
Notes 102 Summary 203
Appendix A: First-time adoption of IFRS Standards 104 Core concepts 203
Appendix B: Recasting financial ­statements into Questions, exercises, and problems 205
standardized templates 105 Problem 1 ROE decomposition 205
Case Toshiba: Accounting fraud 111 Problem 2 Ratios of three fashion retailers 208
Problem 3 The Fiat Group in 2008 211
4 Accounting analysis: Accounting Problem 4 Ahold versus Delhaize 213
adjustments 118 Notes 215
Recognition of assets 118
Who owns or controls resources? 119 Appendix: Hennes & Mauritz AB financial statements 216
Can economic benefits be measured with reasonable CASE Carrefour S.A. 221
certainty? 120
Have fair values of assets declined below book value? 120 6 Prospective analysis: Forecasting 232
Are fair value estimates accurate? 121 The overall structure of the forecast 232
Asset distortions 122 A Practical Framework for Forecasting 233
Recognition of liabilities 140 Information for forecasting 234
Has an obligation been incurred? 140 Performance behavior: A starting point 235
Can the obligation be measured? 140 Revenue growth behavior 236
Liability distortions 141 Earnings behavior 236
Returns on equity behavior 237
Equity distortions 147
The behavior of components of ROE 238
Contingent claims 147
Forecasting assumptions 239
Summary 148
Background: Macroeconomic and industry growth 239
Core concepts 149 Revenue growth 240
Questions, exercises, and problems 150 NOPAT margins 243
Problem 1 Impairment of non-current assets 153 Working capital to revenue 245
Problem 2 Audi, BMW, and Skoda’s research and Non-current assets to revenue 246
development 153 Non-operating investments 247

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vi Contents

Capital structure 247 8 Prospective analysis: Valuation

From assumptions to forecasts 247 implementation 312
Cash flow forecasts 250 Computing a discount rate 312
Sensitivity analysis 250 Estimating the cost of equity 313
Seasonality and interim forecasts 251 Estimating the required return on net operating assets 318
Estimating the weighted average cost of capital 318
Summary 252
Detailed forecasts of performance 322
Core concepts 252 Making performance forecasts for valuing H&M 322
Questions, exercises, and problems 253 Terminal Values 324
Problem 1 Predicting Tesco’s 2017/2018 earnings 254 Terminal values with the competitive equilibrium assumption 326
Notes 257 Competitive equilibrium assumption only on incremental
revenue 326
Appendix: The behavior of components of roe 257
Terminal value with persistent abnormal performance and
CASE Forecasting earnings and earnings growth in the growth 326
European oil and gas industry 260 Terminal value based on a price multiple 327
Selecting the terminal year 328
7 Prospective analysis: Valuation theory Estimates of Hennes & Mauritz’s terminal value 328
and concepts 274 Computing Estimated Values 329
Defining value for shareholders 275 From asset values to equity values 331
The discounted cash flow model 276 Asset valuation versus equity valuation 333
The discounted abnormal profit model 278 Value estimates versus market values 334
Accounting methods and discounted abnormal profit 279 Sensitivity analysis 334
The discounted abnormal profit growth model 280 Some practical issues in valuation 335
Dealing with accounting distortions 335
Valuation using price multiples 285
Dealing with negative book values 335
Main issues with multiple-based valuation 285
Dealing with excess cash flow 336
Determinants of value-to-book and value-earnings
multiples 286 Summary 336
Shortcut forms of profit-based valuation 289 Core concepts 337
Abnormal profit (growth) simplification 289 Questions, exercises, and problems 338
ROE and growth simplifications 291 Problem 1 Hugo Boss’s and Adidas’s terminal values 339
Comparing valuation methods 291 Problem 2 Anheuser-Busch InBev S.A. 339
Focus on different issues 292
Notes 340
Differences in required structure 292
Differences in terminal value implications 292 CASE Ferrari: The 2015 Initial Public Offering 341
Summary 294
Core Concepts 294 PART III
Summary of notations used in this chapter 295
Business analysis and valuation
Questions, exercises, and problems 296
Problem 1 Estimating Hugo Boss’s equity value 297
applications 357
Problem 2 Estimating Adidas’s equity value 298
9 Equity security analysis 358
Notes 299 Investor objectives and investment vehicles 358
Appendix A: Asset valuation methodologies 300 Equity security analysis and market efficiency 360
Appendix B: Reconciling the discounted dividends, Market efficiency and the role of financial statement
discounted abnormal profit, and discounted abnormal analysis 360
profit growth models 301 Market efficiency and managers’ financial reporting
CASE Valuation Multiples in Fast Fashion 303 strategies 361

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 Contents vii

Evidence of market efficiency 361 Notes 410

Approaches to fund management and securities CASE Getronics’ debt ratings 411
analysis 361
Active versus passive management 362 11 Mergers and acquisitions 417
Quantitative versus traditional fundamental analysis 362 Motivation for merger or acquisition 417
Formal versus informal valuation 362
Acquisition pricing 420
The process of a comprehensive security analysis 362 Analyzing premium offered to target shareholders 420
Selection of candidates for analysis 363 Analyzing value of the target to the acquirer 421
Inferring market expectations 363 DuPont’s pricing of Danisco 424
Developing the analyst’s expectations 366
Acquisition financing and form of payment 424
The final product of security analysis 366
Effect of form of payment on acquiring shareholders 424
Performance of security analysts and fund managers 367 Effect of form of payment on target shareholders 426
Performance of security analysts 367 DuPont’s financing of Danisco 426
Performance of fund managers 368
Acquisition outcome 427
Summary 369 Other potential acquirers 427
Core concepts 369 Target management entrenchment 428
Questions 370 Antitrust and security issues 429
Analysis of outcome of DuPont’s offer for Danisco 429
Notes 371
Reporting on mergers and acquisitions: Purchase price
CASE Valuation at Novartis 373
allocations 430
Danisco’s purchase price allocation 432
10 Credit analysis and distress Summary 441
prediction 386
Why do firms use debt financing? 386 Core concepts 441
The market for credit 388 Questions 442
Commercial banks 389 Notes 443
Non-bank financial institutions 389 CASE Glencore/Xstrata: Playing Aida’s Triumphal March
Public debt markets 389 on Top of the Everest 445
Sellers who provide financing 390
Country differences in debt financing 390
Country factors and credit types 390 PART IV
Country factors and the optimal mix of debt and equity 391
Additional cases 459
The credit analysis process in private debt markets 392
1 Enforcing financial reporting standards: The case
Step 1: Consider the nature and purpose of the loan 393
of White Pharmaceuticals AG 460
Step 2: Consider the type of loan and available security 393
Step 3: Conduct a financial analysis of the potential borrower 395 2 KarstadtQuelle AG 468
Step 4: Assemble the detailed loan structure, including loan 3 Tesco: From Troubles to Turnaround 479
covenants 396 4 Valuing Europe’s fastest growing company:
Financial statement analysis and public debt 398 HelloFresh in 2017 490
The meaning of debt ratings 398 5 Spotify’s direct-listing IPO 499
Factors that drive debt ratings 399
6 The Air France–KLM merger 519
Prediction of distress and turnaround 402
7 Measuring impairment at Dofasco 539
Models for distress prediction 402
Investment opportunities in distressed companies 404 8 The initial public offering of PartyGaming Plc 558
Credit ratings, default probabilities, and debt valuation 404 9 Two European hotel groups (A): Equity analysis 568
Summary 407 10 Two European hotel groups (B): Debt analysis 577
Core concepts 408 11 Fiat Group’s first-time adoption of IFRS Standards 582
Questions 409
Index 599

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Preface

F inancial statements are the basis for a wide range of business analyses. Managers use them to monitor and judge
their firms’ performance relative to competitors, to communicate with external investors, to help judge what
financial policies they should pursue, and to evaluate potential new businesses to acquire as part of their investment
strategy. Securities analysts use financial statements to rate and value companies they recommend to clients. Bankers
use them in deciding whether to extend a loan to a client and to determine the loan’s terms. Investment bankers
use them as a basis for valuing and analyzing prospective buyouts, mergers, and acquisitions. And consultants use
them as a basis for competitive analysis for their clients. Not surprisingly, therefore, there is a strong demand among
business students for a course that provides a framework for using financial statement data in a variety of business
analysis and valuation contexts. The purpose of this book is to provide such a framework for business students and
practitioners. This IFRS Standards edition is the European adaptation of the authoritative US edition – authored by
Krishna G. Palepu and Paul M. Healy – that has been used in Accounting and Finance departments in universities
around the world. In 2007 we decided to write the first IFRS Standards edition because of the European business
environment’s unique character and the introduction of mandatory IFRS Standards reporting for public corpora-
tions in the European Union. This fifth IFRS Standards edition is a thorough update of the successful fourth edition,
incorporating new examples, cases, problems and exercises, and regulatory updates.

This IFRS Standards edition

Particular features of the IFRS Standards edition are the following:
●● A large number of examples support the discussion of business analysis and valuation throughout the chapters.
The examples are from (mostly European) companies that students will generally be familiar with, such as
Audi, BMW, British American Tobacco, BP, Carlsberg, Deutsche Telekom, easyGroup, Hennes and Mauritz,
Lufthansa, Renault, Sanofi, Société Générale, and Tesco.
●● The chapters dealing with accounting analysis (Chapters 3 and 4) prepare students for the task of analyzing IFRS
Standards-based financial statements. All numerical examples of accounting adjustments in Chapter 4 describe
adjustments to IFRS Standards-based financial statements. Further, throughout the book we discuss various
topics that are particularly relevant to understanding IFRS Standards-based (European) financial reports, such
as: the classification of expenses by nature and by function; a principles-based approach versus a rules-based
approach to standard setting; the first-time adoption of IFRS Standards; cross-country differences and similari-
ties in external auditing and public enforcement, and cross-country differences in financing structures.
●● The terminology that we use throughout the chapters is consistent with the terminology that is used in the
IFRS Standards.
●● Throughout the chapters, we describe the average performance and growth ratios, the average time-series
behavior of these ratios, and average financing policies of a sample of close to 7,800 firms that have been listed
on European public exchanges between 1998 and 2017.
●● The financial analysis and valuation chapters (Chapters 5-8) focus on firms in the apparel retail sector, primar-
ily Hennes & Mauritz and Inditex. Throughout these chapters, we explicitly differentiate between analyzing
and valuing operations and analyzing and valuing non-operating investments. Further, Chapter 8 explicitly
discusses implementation differences between equity-based and asset-based valuation approaches.

viii

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 Preface ix

●● Chapter 10 on credit analysis includes a discussion of how credit ratings and default probability estimates can
be used in debt valuation. Chapter 11 on M&A analysis includes a discussion on how to perform a purchase
price allocation using the tools and techniques from Chapters 5 through 8.
●● Data, analyses, problems, and examples have been thoroughly updated in the fifth edition.
●● We have updated some of the fourth IFRS Standards edition’s cases (‘Carrefour SA,’ ‘Forecasting Earnings
and Earnings Growth in the European Oil and Gas Industry,’ ‘Two European Hotel Groups’) and have
included eight new cases: ‘Akris: Competition in the High-End Fashion Industry,’ ‘Toshiba: Accounting Fraud,’
‘Accounting for the iPhone Upgrade Program,’ ‘Valuation Multiples in Fast Fashion,’ ‘Ferrari: The 2015 Initial
Public Offering,’ ‘Tesco: From Troubles to Turnaround,’ ‘Spotify’s Direct Listing IPO,’ and ‘Valuing Europe’s fast-
est growing company: HelloFresh in 2017.’

Key features
This book differs from other texts in business and financial analysis in a number of important ways. We introduce
and develop a framework for business analysis and valuation using financial statement data. We then show how this
framework can be applied to a variety of decision contexts.

FRAMEWORK FOR ANALYSIS

We begin the book with a discussion of the role of accounting information and intermediaries in the economy, and
how financial analysis can create value in well-functioning markets (Chapter 1). We identify four key components,
or steps, of effective financial statement analysis:
●● Business strategy analysis
●● Accounting analysis
●● Financial analysis
●● Prospective analysis
The first step, business strategy analysis (Chapter 2), involves developing an understanding of the business and
competitive strategy of the firm being analyzed. Incorporating business strategy into financial statement analysis
is one of the distinctive features of this book. Traditionally, this step has been ignored by other financial statement
analysis books. However, we believe that it is critical to begin financial statement analysis with a company’s strategy
because it provides an important foundation for the subsequent analysis. The strategy analysis section discusses
contemporary tools for analyzing a company’s industry, its competitive position and sustainability within an indus-
try, and the company’s corporate strategy.
Accounting analysis (Chapters 3 and 4) involves examining how accounting rules and conventions represent a
firm’s business economics and strategy in its financial statements, and, if necessary, developing adjusted account-
ing measures of performance. In the accounting analysis section, we do not emphasize accounting rules. Instead
we develop general approaches to analyzing assets, liabilities, entities, revenues, and expenses. We believe that such
an approach enables students to effectively evaluate a company’s accounting choices and accrual estimates, even
if students have only a basic knowledge of accounting rules and standards. The material is also designed to allow
students to make accounting adjustments rather than merely identify questionable accounting practices.
Financial analysis (Chapter 5) involves analyzing financial ratio and cash flow measures of the operating, financ-
ing, and investing performance of a company relative to either key competitors or historical performance. Our
distinctive approach focuses on using financial analysis to evaluate the effectiveness of a company’s strategy and to
make sound financial forecasts.
Finally, under prospective analysis (Chapters 6–8) we show how to develop forecasted financial statements and
how to use these to make estimates of a firm’s value. Our discussion of valuation includes traditional discounted cash
flow models as well as techniques that link value directly to accounting numbers. In discussing accounting-based

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
x Preface

valuation models, we integrate the latest academic research with traditional approaches such as earnings and book
value multiples that are widely used in practice.
While we cover all four steps of business analysis and valuation in the book, we recognize that the extent of
their use depends on the user’s decision context. For example, bankers are likely to use business strategy analysis,
accounting analysis, financial analysis, and the forecasting portion of prospective analysis. They are less likely to be
interested in formally valuing a prospective client.

APPLICATION OF THE FRAMEWORK TO DECISION CONTEXTS

The next section of the book shows how our business analysis and valuation framework can be applied to a variety
of decision contexts:
●● Securities analysis (Chapter 9)
●● Credit analysis and distress prediction (Chapter 10)
●● Merger and acquisition analysis (Chapter 11)
For each of these topics we present an overview to provide a foundation for the class discussions. Where possible
we discuss relevant institutional details and the results of academic research that are useful in applying the analysis
concepts developed earlier in the book. For example, the chapter on credit analysis shows how banks and rating
agencies use financial statement data to develop analysis for lending decisions and to rate public debt issues. This
chapter also presents academic research on how to determine whether a company is financially distressed.

Using the book

We designed the book so that it is flexible for courses in financial statement analysis for a variety of student audiences –
MBA students, Masters in Accounting or Finance students, Executive Program participants, and undergraduates in
accounting or finance. Depending upon the audience, the instructor can vary the manner in which the conceptual
materials in the chapters, end-of-chapter questions, and case examples are used. To get the most out of the book,
students should have completed basic courses in financial accounting, finance, and either business strategy or busi-
ness economics. The text provides a concise overview of some of these topics, primarily as background for preparing
the cases. But it would probably be difficult for students with no prior knowledge in these fields to use the chapters
as stand-alone coverage of them.
If the book is used for students with prior working experience or for executives, the instructor can use almost a
pure case approach, adding relevant lecture sections as needed. When teaching students with little work experience,
a lecture class can be presented first, followed by an appropriate case or other assignment material. It is also possible
to use the book primarily for a lecture course and include some of the short or long cases as in-class illustrations of
the concepts discussed in the book. Alternatively, lectures can be used as a follow-up to cases to more clearly lay out
the conceptual issues raised in the case discussions. This may be appropriate when the book is used in undergradu-
ate capstone courses. In such a context, cases can be used in course projects that can be assigned to student teams.

Companion website
A companion website accompanies this book. This website contains the following valuable material for instructors
and students:
●● Instructions for how to easily produce standardized financial statements in Excel.
●● Spreadsheets containing: (1) the reported and standardized financial statements of Hennes & Mauritz (H&M)
and Inditex; (2) calculations of H&M’s and Inditex’s ratios (presented in Chapter 5); (3) H&M’s forecasted

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
 Preface xi

financial statements (presented in Chapter 6); and (4) valuations of H&M’s shares (presented in Chapter 8).
Using these spreadsheets students can easily replicate the analyses presented in Chapters 5 through 8 and
perform “what-if ” analyses – i.e., to find out how the reported numbers change as a result of changes to the
standardized statements or forecasting assumptions.
●● Spreadsheets containing case material.
●● Answers to the discussion questions and case instructions (for instructors only).
●● A complete set of lecture slides (for instructors only).
Accompanying teaching notes to some of the case studies can be found at [Link] or www.
[Link]. Lecturers are able to register to access the teaching notes and other relevant information.

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Acknowledgements

W e thank the following colleagues who gave us

feedback as we wrote this and the previous IFRS
Standards edition:
●● Cornelia Neff, Professor of Finance and
Management Accounting, University of Applied
Sciences Ravens-burg-Weingarten, Germany
●● Bartlomiej Nita, Associate Professor, Wroclaw
●● Constantinos Adamides, Lecturer, University of
University of Economics
Nicosia
●● Nikola Petrovic, Lecturer in Accounting, University
●● Tony Appleyard, Professor of Accounting and
of Bristol
Finance, Newcastle University
●● Roswitha Prassl, Teaching and Research Associate,
●● Professor Chelley-Steeley, Professor of Finance,
Vienna University for Economics and Business
Aston Business School
Administration
●● Rick Cuijpers, Assistant Professor, Maastricht
●● Bill Rees, Professor of Financial Analysis,
University School of Business and Economics
Edinburgh University
●● Christina Dargenidou, Professor, University of
●● Matthias Schmidt, Professor for Business
Exeter
Administration, Leipzig University
●● Dominic Detzen, Assistant Professor, Vrije
●● Harri Seppänen, Assistant Professor, Aalto
University
University School of Economics
●● Karl-Hermann Fischer, Lecturer and Associate
●● Yun Shen, Lecturer in Accounting, University of
Researcher, Goethe University Frankfurt
Bath
●● Zhan Gao, Lecturer in Accounting, Lancaster
●● Radha Shiwakoti, Lecturer, University of Kent
University
●● Ana Simpson, Lecturer, London School of
●● Stefano Gatti, Associate Professor of Finance,
Economics
Bocconi University Milan
●● Nicos Sykianakis, Assistant Professor, TEI of Piraeus
●● Frøystein Gjesdal, Professor, Norwegian School of
●● Isaac Tabner, Lecturer in Finance, University of
Economics
Stirling
●● Igor Goncharov, Professor, WHU Business School
●● Jon Tucker, Professor and Centre Director, Centre
●● Aditi Gupta, Lecturer, King’s College London
for Global Finance, University of the West of
●● Shahed Imam, Associate Professor, Warwick
England
Business School
●● Birgit Wolf, Professor of Managerial Economics,
●● Otto Janschek, Assistant Professor, WU Vienna
Touro College Berlin
●● Marcus Kliaras, Banking and Finance Lecturer,
●● Jessica Yang, Senior Lecturer in Accounting,
University of Applied Sciences, BFI, Vienna
University of East London
●● Gianluca Meloni, Clinical Professor – Accounting
Department, Bocconi University We are also very grateful to the publishing team
●● Sascha Moells, Professsor in Financial Accounting at Cengage Learning for their help and assistance
and Corporate Valuation, Philipps-University of throughout the production of this edition.
Marburg, Germany The Publisher would like to thank all parties who
●● Jon Mugabi, Lecturer in Finance and Accounting, gave permission for the reproduction of case studies.
The Hague University All cases have been individually credited.

xii

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 Authors

KRISHNA G. PALEPU is the Ross Graham Walker Professor of Business Administration and Senior Advisor to the
President of Harvard University. During the past 25 years, Professor Palepu’s research has focused on corporate
strategy, governance, and disclosure. Professor Palepu is the winner of the American Accounting Association’s
Notable Contributions to Accounting Literature Award (in 1999) and the Wildman Award (in 1997).

PAUL M. HEALY is the James R. Williston Professor of Business Administration and Senior Associate Dean for Faculty
Development at the Harvard Business School. Professor Healy’s research has focused on corporate governance and
disclosure, mergers and acquisitions, earnings management, and management compensation. He has previously
worked at the MIT Sloan School of Management, ICI Ltd, and Arthur Young in New Zealand. Professor Healy
has won the Notable Contributions to Accounting Literature Award (in 1990 and 1999) and the Wild-man Award
(in 1997) for contributions to practice.

ERIK PEEK is Professor of Business Analysis and Valuation at Rotterdam School of Management, Erasmus University,
the Netherlands. Prior to joining RSM Erasmus University he has been an Associate Professor at Maastricht
University and a Visiting Associate Professor at the Wharton School of the University of Pennsylvania. Professor
Peek is a CFA charterholder and holds a PhD from the VU University Amsterdam. His research has focused on
international accounting, financial analysis and valuation, and earnings management.

xiii

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 Framework

PART I
1 A framework for business analysis and valuation using financial statements

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1 Avaluation
framework for business analysis and
using financial statements
This chapter outlines a comprehensive framework for financial statement analysis. Because financial state-
ments provide the most widely available data on public corporations’ economic activities, investors and other
stakeholders rely on financial reports to assess the plans and performance of firms and corporate managers.
A variety of questions can be addressed by business analysis using financial statements, as shown in the
following examples:
●● A security analyst may be interested in asking: “How well is the firm I am following performing? Did
the firm meet my performance expectations? If not, why not? What is the value of the firm’s stock given
my assessment of the firm’s current and future performance?”
●● A loan officer may need to ask: “What is the credit risk involved in lending a certain amount of money
to this firm? How well is the firm managing its liquidity and solvency? What is the firm’s business risk?
What is the additional risk created by the firm’s financing and dividend policies?”
●● A management consultant might ask: “What is the structure of the industry in which the firm is operat-
ing? What are the strategies pursued by various players in the industry? What is the relative performance
of different firms in the industry?”
●● A corporate manager may ask: “Is my firm properly valued by investors? Is our investor communication
program adequate to facilitate this process?”
●● A corporate manager could ask: “Is this firm a potential takeover target? How much value can be added
if we acquire this firm? How can we finance the acquisition?”
●● An independent auditor would want to ask: “Are the accounting policies and accrual estimates in this
company’s financial statements consistent with my understanding of this business and its recent perfor-
mance? Do these financial reports communicate the current status and significant risks of the business?”
In almost all countries in the world today, capital markets play an important role in channeling financial
resources from savers to business enterprises that need capital. Financial statement analysis is a valuable activity
when managers have complete information on a firm’s strategies, and a variety of institutional factors make it
unlikely that they fully disclose this information to suppliers of capital. In this setting, outside analysts attempt
to create “inside information” from analyzing financial statement data, thereby gaining valuable insights about
the firm’s current performance and future prospects.
To understand the contribution that financial statement analysis can make, it is important to understand the
role of financial reporting in the functioning of capital markets and the institutional forces that shape financial
statements. Therefore we present first a brief description of these forces; then we discuss the steps that an analyst
must perform to extract information from financial statements and provide valuable forecasts.

The role of financial reporting in capital markets

A critical challenge for any economy is the allocation of savings to investment opportunities. Economies that
do this well can exploit new business ideas to spur innovation and create jobs and wealth at a rapid pace.
In contrast, economies that manage this process poorly dissipate their wealth and fail to support business
opportunities.

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 Chapter 1 A framework for business analysis and valuation using financial statements 3

FIGURE 1.1 Capital markets

Savings

Financial Information
intermediaries intermediaries

Business
ideas

Figure 1.1 provides a schematic representation of how capital markets typically work. Savings in any econ-
omy are widely distributed among households. There are usually many new entrepreneurs and existing compa-
nies that would like to attract these savings to fund their business ideas. While both savers and entrepreneurs
would like to do business with each other, matching savings to business investment opportunities through the
use of capital markets – funding business ideas with the highest prospects first – is complicated for at least
three reasons:
●● Information asymmetry between savers and entrepreneurs. Entrepreneurs typically have better
­information than savers on the value of business investment opportunities.
●● Potentially conflicting interests – credibility problems. Communication by entrepreneurs to savers is
not completely credible because savers know that entrepreneurs have an incentive to inflate the value of
their ideas.
●● Expertise asymmetry. Savers generally lack the financial sophistication needed to analyze and
­differentiate between the various business opportunities.
The information and incentive issues lead to what economists call the lemons problem, which can potentially
break down the functioning of the capital market.1 It works like this. Consider a situation where half the busi-
ness ideas are “good” and the other half are “bad.” If investors cannot distinguish between the two types of
business ideas, entrepreneurs with “bad” ideas will try to claim that their ideas are as valuable as the “good”
ideas. Realizing this possibility, investors value both good and bad ideas at an average level. Unfortunately,
this penalizes good ideas, and entrepreneurs with good ideas find the terms on which they can get financing
to be unattractive. As these entrepreneurs leave the capital market, the proportion of bad ideas in the market
increases. Over time, bad ideas “crowd out” good ideas, and investors lose confidence in this market.
The emergence of intermediaries can prevent such a market breakdown. Intermediaries are like a car
mechanic who provides an independent certification of a used car’s quality to help a buyer and seller agree on
a price. There are two types of intermediaries in the capital markets. Financial intermediaries, such as venture
capital firms, banks, collective investment funds, pension funds, and insurance companies, focus on aggregating
funds from individual investors and analyzing different investment alternatives to make investment decisions.
Information intermediaries, such as auditors, financial analysts, credit-rating agencies, and the financial press,
focus on providing or assuring information to investors (and to financial intermediaries who represent them)
on the quality of various business investment opportunities. Both these types of intermediaries add value by
helping investors distinguish “good” investment opportunities from the “bad” ones.
The relative importance of financial intermediaries and information intermediaries varies from country to
country for historical reasons. In countries where individual investors traditionally have had strong legal rights
to discipline entrepreneurs who invest in “bad” business ideas, such as in the UK, individual investors have

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4 PART I Framework

been more inclined to make their own investment decisions. In these countries, the funds that entrepreneurs
attract may come from a widely dispersed group of individual investors and be channeled through public stock
exchanges. Information intermediaries consequently play an important role in supplying individual investors
with the information that they need to distinguish between “good” and “bad” business ideas. In contrast, in
countries where individual investors traditionally have had weak legal rights to discipline entrepreneurs, such
as in many Continental European countries, individual investors have been more inclined to rely on the help
of financial intermediaries. In these countries, financial intermediaries, such as banks, tend to supply most of
the funds to entrepreneurs and can get privileged access to entrepreneurs’ private information.
Over the past decade, many countries in Europe have been moving towards a model of strong legal ­protection
of investors’ rights to discipline entrepreneurs and well-developed stock exchanges. In this model, financial
reporting plays a critical role in the functioning of both the information intermediaries and the financial
intermediaries. Information intermediaries add value either by enhancing the credibility of financial reports
(as auditors do) or by analyzing the information in the financial statements (as analysts and rating agencies do).
Financial intermediaries rely on the information in the financial statements to analyze investment opportunities
and supplement this information with other sources of information.
Ideally, the various intermediaries serve as a system of checks and balances to ensure the efficient functioning
of the capital markets system. However, this is not always the case as on occasion the intermediaries tend to
mutually reinforce rather than counterbalance each other. A number of problems can arise as a result of incen-
tive issues, governance issues within the intermediary organizations themselves, and conflicts of interest, as
evidenced by accounting scandals at companies such as Carillion, Olympus, Steinhoff, and Tesco. However, in
general this market mechanism functions efficiently, and prices reflect all available information on a particular
investment. Despite this overall market efficiency, individual securities may still be temporarily mispriced,
thereby justifying the need for financial statement analysis.
In the following section, we discuss key aspects of the financial reporting system design that enable it to play
effectively this vital role in the functioning of the capital markets.

From business activities to financial statements

Corporate managers are responsible for acquiring physical and financial resources from the firm’s environ-
ment and using them to create value for the firm’s investors. Value is created when the firm earns a return on
its investment in excess of the return required by its capital suppliers. Managers formulate business strate-
gies to achieve this goal, and they implement them through business activities. A firm’s business activities
are influenced by its economic environment and its business strategy. The economic environment includes
the firm’s industry, its input and output markets, and the regulations under which the firm operates. The
firm’s business strategy determines how the firm positions itself in its environment to achieve a competitive
advantage.
As shown in Figure 1.2, a firm’s financial statements summarize the economic consequences of its business
activities. The firm’s business activities in any time period are too numerous to be reported individually to
outsiders. Further, some of the activities undertaken by the firm are proprietary in nature, and disclosing
these activities in detail could be a detriment to the firm’s competitive position. The firm’s accounting system
provides a mechanism through which business activities are selected, measured, and aggregated into financial
statement data.
On a periodic basis, firms typically produce five financial reports:
1 An income statement that describes the operating performance during a time period.
2 A balance sheet that states the firm’s assets and how they are financed.2
3 A cash flow statement that summarizes the cash flows of the firm.

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 Chapter 1 A framework for business analysis and valuation using financial statements 5

4 A statement of other comprehensive income that outlines the sources of changes in equity that are (a) not
the result of transactions with the owners of the firm and (b) not included in the income statement.3
5 A statement of changes in equity that summarizes all sources of changes in equity during the period
between two consecutive balance sheets, consisting of (a) total comprehensive income – being the sum of
profit or loss [item 1] and other comprehensive income [item 4] – and (b) the financial effects of transac-
tions with the owners of the firm.
These statements are accompanied by notes that provide additional details on the financial statement line
items, as well as by management’s narrative discussion of the firm’s activities, performance, and risks in the
­Management Commentary section.4

FIGURE 1.2 From business activities to financial statements

Business environment Business strategy

Labor markets Scope of business:
Capital markets Business activities Degree of diversification
Product markets: Operating activities Type of diversification
Suppliers Investment activities Competitive positioning:
Customers Financing activities Cost leadership
Competitors Differentiation
Business regulations Key success factors and risks

Accounting environment Accounting system Accounting strategy

Capital market structure Measure and report Choice of accounting
Contracting and governance economic consequences policies
Accounting conventions and of business activities Choice of accounting
regulations estimates
Tax and financial accounting Choice of reporting format
linkages Choice of supplementary
Third-party auditing disclosures
Legal system for accounting Financial statements
disputes Managers’ superior
information on business
activities
Estimation errors
Distortions from managers’
accounting choices

Influences of the accounting system on information quality

Intermediaries using financial statement data to do business analysis have to be aware that financial reports are
influenced both by the firm’s business activities and by its accounting system. A key aspect of financial state-
ment analysis therefore involves understanding the influence of the accounting system on the quality of the
financial statement data being used in the analysis. The institutional features of accounting systems discussed
next determine the extent of that influence.

FEATURE 1: ACCRUAL ACCOUNTING

One of the fundamental features of corporate financial reports is that they are prepared using accrual rather
than cash accounting. Unlike cash accounting, accrual accounting distinguishes between the recording of costs
or benefits associated with economic activities and the actual payment or receipt of cash. Profit or loss is the

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6 PART I Framework

primary periodic performance index under accrual accounting. To compute profit or loss, the effects of eco-
nomic transactions are recorded on the basis of expected, not necessarily actual, cash receipts and payments.
Expected cash receipts from the delivery of products or services are recognized as revenues, and expected cash
outflows associated with these revenues are recognized as expenses. Timing differences between the moment of
recording costs or benefits and the moment of experiencing cash inflows or outflows result in the recognition
of assets and liabilities on the balance sheet.
While many rules and conventions govern a firm’s preparation of financial statements, only a few conceptual
building blocks form the foundation of accrual accounting. Starting from the balance sheet, the principles that
define a firm’s assets, liabilities, and equity are as follows:
●● Assets are economic resources controlled by a firm that (a) have the potential to produce future economic
benefits and (b) are measurable with a reasonable degree of certainty. An example of an asset is a firm’s
inventories that will produce economic benefits once sold and delivered to the firm’s customers.
●● Liabilities are economic obligations of a firm that (a) arise from benefits received in the past, (b) have the
potential of being required to be met, and (c) cannot be feasibly avoided by the firm. Examples of liabili-
ties are bonds or bank loans that must be settled in cash or performance obligations that must be settled
by providing services to a customer.
●● Equity is the difference between a firm’s assets and its liabilities.
The definitions of assets, liabilities, and equity lead to the fundamental relationship that governs a firm’s bal-
ance sheet:
Assets 5 Liabilities 1 Equity

The following definitions are critical to the (comprehensive) income statement, which summarizes a firm’s
income and expenses:5

●● Income or revenue consists of economic resources earned (or increases in assets that affect equity) and
performance obligations settled (or decreases in liabilities that affect equity) during a time period. Revenue
recognition is governed by the realization principle, which proposes that revenues should be recognized
when (a) the firm has provided all, or substantially all, the goods or services to be delivered to the customer
and (b) the customer has paid cash or is expected to pay cash with a reasonable degree of certainty.
●● Expenses are economic resources used up (or decreases in assets that affect equity) and economic
­obligations created (or increases in liabilities that affect equity) during a time period.
●● Profit or loss is the difference between a firm’s income and expenses in a time period. The following
­fundamental relationship is therefore reflected in a firm’s income statement:
Profit or loss 5 Income 2 Expenses

Note from the preceding definitions that the recognition of income and expenses depends on a firm’s mea-
surement of its assets and liabilities. A consistent application of the principles that define assets and liabilities
implies that associated elements of income and expenses are recognized in the income statement in the same
time period – a process that is also referred to as matching of income and expenses. For example, after a firm
has sold and delivered goods to a customer, an increase in the asset “trade receivables” combined with a simul-
taneous decrease in the asset “inventories” lead to the recognition of associated income and expense in the
same time period.
Remeasurements of assets or liabilities may also result in the recognition of income or expense items that
are not related to the firm’s current economic activities. For instance, when a firm holds inventories that have
suddenly become obsolete, writing down the value of such assets will cause the recognition of an expense item
that is unrelated to the firm’s current economic transactions. In sum, expenses are (a) costs directly associated
with revenues recognized in the same period (such as the cost of inventory sold), or (b) costs associated with

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 Pharmacy - Term Paper
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Results 1: Interdisciplinary approaches

Learning Objective 1: Key terms and definitions
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Learning Objective 2: Fundamental concepts and principles
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 2: Diagram/Chart/Graph]
Learning Objective 3: Assessment criteria and rubrics
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Learning Objective 4: Literature review and discussion
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Learning Objective 5: Research findings and conclusions
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Historical development and evolution
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Critical analysis and evaluation
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Key Concept: Study tips and learning strategies
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 8: Diagram/Chart/Graph]
Example 8: Fundamental concepts and principles
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Definition: Statistical analysis and interpretation
• Problem-solving strategies and techniques
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Section 2: Fundamental concepts and principles
Important: Ethical considerations and implications
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Research findings and conclusions
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 12: Diagram/Chart/Graph]
Definition: Learning outcomes and objectives
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 13: Comparative analysis and synthesis
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Best practices and recommendations
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Remember: Literature review and discussion
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Example 16: Current trends and future directions
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Important: Comparative analysis and synthesis
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Note: Assessment criteria and rubrics
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Interdisciplinary approaches
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 20: Diagram/Chart/Graph]
Methodology 3: Study tips and learning strategies
Definition: Statistical analysis and interpretation
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Critical analysis and evaluation
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 22: Statistical analysis and interpretation
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 23: Diagram/Chart/Graph]
Definition: Learning outcomes and objectives
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Research findings and conclusions
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Important: Case studies and real-world applications
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Key Concept: Study tips and learning strategies
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 27: Current trends and future directions
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Historical development and evolution
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 29: Diagram/Chart/Graph]
Note: Historical development and evolution
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
[Figure 30: Diagram/Chart/Graph]
Test 4: Fundamental concepts and principles
Definition: Current trends and future directions
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Important: Experimental procedures and results
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Practice Problem 32: Interdisciplinary approaches
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Practice Problem 33: Comparative analysis and synthesis
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Practical applications and examples
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Key Concept: Fundamental concepts and principles
• Problem-solving strategies and techniques
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Statistical analysis and interpretation
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Key terms and definitions
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 38: Diagram/Chart/Graph]
Key Concept: Interdisciplinary approaches
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 39: Diagram/Chart/Graph]
Note: Theoretical framework and methodology
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Lesson 5: Case studies and real-world applications
Important: Statistical analysis and interpretation
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 41: Fundamental concepts and principles
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Practice Problem 42: Fundamental concepts and principles
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 43: Best practices and recommendations
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 44: Study tips and learning strategies
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Definition: Assessment criteria and rubrics
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Note: Study tips and learning strategies
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Remember: Fundamental concepts and principles
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 48: Current trends and future directions
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
[Figure 49: Diagram/Chart/Graph]
Note: Comparative analysis and synthesis
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice 6: Current trends and future directions
Example 50: Interdisciplinary approaches
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 51: Comparative analysis and synthesis
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Remember: Practical applications and examples
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Note: Assessment criteria and rubrics
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Remember: Best practices and recommendations
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Experimental procedures and results
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 56: Diagram/Chart/Graph]
Key Concept: Study tips and learning strategies
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Problem-solving strategies and techniques
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Learning outcomes and objectives
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 59: Research findings and conclusions
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Appendix 7: Case studies and real-world applications
Remember: Best practices and recommendations
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Note: Literature review and discussion
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Problem-solving strategies and techniques
• Problem-solving strategies and techniques
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 63: Diagram/Chart/Graph]
Example 63: Research findings and conclusions
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Remember: Problem-solving strategies and techniques
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 65: Case studies and real-world applications
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
[Figure 66: Diagram/Chart/Graph]
Key Concept: Statistical analysis and interpretation
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Best practices and recommendations
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Example 68: Experimental procedures and results
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Important: Interdisciplinary approaches
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Abstract 8: Problem-solving strategies and techniques
Important: Assessment criteria and rubrics
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Fundamental concepts and principles
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Remember: Current trends and future directions
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 73: Research findings and conclusions
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 74: Diagram/Chart/Graph]
Key Concept: Research findings and conclusions
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Assessment criteria and rubrics
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Interdisciplinary approaches
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Example 77: Current trends and future directions
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Important: Research findings and conclusions
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Note: Current trends and future directions
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
References 9: Fundamental concepts and principles
Important: Research findings and conclusions
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Example 81: Learning outcomes and objectives
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Fundamental concepts and principles
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 83: Critical analysis and evaluation
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Remember: Case studies and real-world applications
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 85: Ethical considerations and implications
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Remember: Statistical analysis and interpretation
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 87: Historical development and evolution
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Important: Best practices and recommendations
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Comparative analysis and synthesis
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Lesson 10: Literature review and discussion
Practice Problem 90: Case studies and real-world applications
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Critical analysis and evaluation
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Example 92: Ethical considerations and implications
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Study tips and learning strategies
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Statistical analysis and interpretation
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Fundamental concepts and principles
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 96: Research findings and conclusions
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Practice Problem 97: Experimental procedures and results
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 98: Assessment criteria and rubrics
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Important: Research findings and conclusions
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Topic 11: Key terms and definitions
Practice Problem 100: Problem-solving strategies and techniques
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Practical applications and examples
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Experimental procedures and results
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Note: Interdisciplinary approaches
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Case studies and real-world applications
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Example 105: Statistical analysis and interpretation
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 106: Diagram/Chart/Graph]
Practice Problem 106: Current trends and future directions
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Example 107: Experimental procedures and results
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 108: Theoretical framework and methodology
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Note: Best practices and recommendations
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Unit 12: Comparative analysis and synthesis
Note: Research findings and conclusions
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Practice Problem 111: Best practices and recommendations
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Definition: Case studies and real-world applications
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Experimental procedures and results
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Key terms and definitions
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Historical development and evolution
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 116: Statistical analysis and interpretation
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 117: Diagram/Chart/Graph]
Practice Problem 117: Historical development and evolution
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Remember: Experimental procedures and results
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Key Concept: Learning outcomes and objectives
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Part 13: Problem-solving strategies and techniques
Important: Key terms and definitions
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 121: Diagram/Chart/Graph]
Definition: Key terms and definitions
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Key Concept: Ethical considerations and implications
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 123: Diagram/Chart/Graph]
Example 123: Case studies and real-world applications
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 124: Key terms and definitions
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Statistical analysis and interpretation
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Fundamental concepts and principles
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 127: Diagram/Chart/Graph]
Note: Current trends and future directions
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
[Figure 128: Diagram/Chart/Graph]
Practice Problem 128: Practical applications and examples
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Example 129: Study tips and learning strategies
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Test 14: Study tips and learning strategies
Definition: Practical applications and examples
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Assessment criteria and rubrics
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 132: Diagram/Chart/Graph]
Example 132: Problem-solving strategies and techniques
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Note: Best practices and recommendations
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Theoretical framework and methodology
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Remember: Comparative analysis and synthesis
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Critical analysis and evaluation
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 137: Statistical analysis and interpretation
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Important: Assessment criteria and rubrics
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Key Concept: Critical analysis and evaluation
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Part 15: Historical development and evolution
Note: Case studies and real-world applications
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 141: Diagram/Chart/Graph]
Example 141: Study tips and learning strategies
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Note: Problem-solving strategies and techniques
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 143: Diagram/Chart/Graph]
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