4.5.

Profi tability Ratios 291

4.
CHAPTER 9
Financial Statement Analysis: Applications 349
Learning Outcomes 349
1. Introduction 350
2. Application: Evaluating Past Financial Performance 351
3. Application: Projecting Future Financial Performance 356
3.1. Projecting Performance: An Input to Market-Based Valuation 357
3.2. Projecting Multiple-Period Performance 360
4. Application: Assessing Credit Risk 364
5. Application: Screening for Potential Equity Investments 367
6. Analyst Adjustments to Reported Financials 371
6.1. A Framework for Analyst Adjustments 371
6.2. Analyst Adjustments Related to Investments 371
6.3. Analyst Adjustments Related to Inventory 373
6.4. Analyst Adjustments Related to Property, Plant, and Equipment 375
6.5. Analyst Adjustments Related to Goodwill 376
6.6. Analyst Adjustments Related to Off-Balance-Sheet Financing 378
7. Summary 385
Practice Problems 386
CHAPTER 10
Inventories 389
Learning Outcomes 389
1. Introduction 390
2. Inventory Cost and Inventory Accounting Methods 390
2.1. Determination of Inventory Cost 391
2.2. Declines in Inventory Value 392
2.3. Inventory Accounting Methods 393
2.4. Comparison of Inventory Accounting Methods 395
3. Financial Analysis of Inventories 395
3.1. Inventory Ratios 396
3.2. Financial Analysis Illustration 396
4. LIFO Accounting Method Under U.S. GAAP 403
4.1. The LIFO Method 403
4.2. LIFO Reserve 405
4.3. LIFO Liquidations 411
4.4. Inventory Financial Note Disclosures 413
5. Effects of Inventory Method Choice 413
5.1. Financial Statement Effects of Using LIFO 414
5.2. Inventory Method Changes 414
6. Summary 415
Practice Problems 416
CHAPTER 11
Long-Lived Assets