Ration Analysis and Equity Valuation

Questions: 1. What is the research question of interest to the authors of the paper? 2. Is this an interesting question? Why? 3. Why is this question related to or of interest to Accounting? 4. What is the source of tension in the paper that requires research? 5. In what setting is this question examined? 6. What does the paper find? 7. What does the paper conclude based on its findings? 8. How convincing is the evidence presented in the paper? How valid are the results? 9. How does this paper contribute to the literature, and to our knowledge? 10. What are the implications of this paper? Answers: 1. Ratio analysis and equity valuation are two of the major terms used in the system of fundamental analysis. The research question that has been undertaken is how the equity value is derived from the financial statements. This paper is based on the current research that has been undertaken and sheds light on the process of financial statement analysis that is being undertaken for the purpose of equity valuation. 2. Financial statement analysis is an assessment of the future course of action with the help of ratio that also helps in knowing the payoffs (Abarbanell Bernard, 2000). The analysis of financial statements is well defined by the ratios computation. In order to project in a better fashion, documentation of ratio is done. The recent research is given a new level that is of product design through this paper. The paper sheds light on the research that has been undertaken in the current scenario that deals with the fact that how financial statements inform about the equity value. A structural approach to financial statement analysis is done for the valuation of the equity (Feltham Abarbanell Bernard, 2000). The structure enables to not only trace the ratios, but also provide a way of setting the analysis task. 3. The article clearly defines the utility of research when it comes to influencing the practice. Theory is admired when it comes to utilization and delivery. The theory must be helpful in achieving significant result. Nevertheless, the research in finance has not yield any fruitful result. With the due passage of time, there have been various efforts in pricing equity and it is noted that the valuation has not progressed much beyond the dividend discount model (Fairfield et. al, 1996). Problems have been encountered yet the researchers have made progress. The main aim of the paper is to carry the current research to the stage of product design. 4. Many innovations have been traced with the help of article. The discussion of the drivers of the financial statements is a major attraction. It is linked to the economic factors. The article highlights the innovations that are made in this field. 5. The paper has established a structured financial statement analysis that helps in the progress of forecasting and valuation. The assessment considers a view of the profitability and the growth analysis. The profitability analysis stretches over the traditional analysis; the analysis of growth supports it. It is well established that profitability, as well as growth drives the value of equity. From the analysis, it is clear that it is being guided by the residual earnings valuation model, but fits in interpretation of the free cash flows, as well as dividend if other methods are implemented. 6. The main aim of the paper rests on forecasting and the financial statement analysis is shown in a better fashion. Moreover, there is a stress on the ratios as they are considered the drivers when it comes to residual earnings, free cash flows and even dividends (Ohlson, 1995). Moreover, there is a strong focus on the process of forecasting and the descriptions are termed as inputs to it. 7. The Residual Earnings Valuation Model has been deeply emphasized. This model has been the main model that redefines the non-controversial dividend discount model. This model is helpful in the manner that it is applicable to the valuation of an asset, but the focus always remains on the common equity (Brief Lawson, 1992). The concept has been well drafted with the help of formulas. The focus of the article remained entirely on the model and its application. Forecasting has been provided due emphasis and it comes to the forefront that the analysis should be backed up with the criteria of predictive ability. 8. The analysis helps in the development of accounting-based valuation models that is far ahead than that of earnings and book values. It also guides the detail of capital market regression that helps in conducting empirical tests of information content, as well as accounting-based valuation. 9. The paper highly document typical values for ratios and certain well-designed pattern for ratios during the specified time span. The general descriptions are benchmarks that lead to forecasting ((Nissim H.Penham, 2001). The overall specification of the accounting data is central tendency. Accounting research is vital and assesses the content of information. The paper establishes practical significance. It also leads to future research. The empirical analysis is descriptive in nature and in the future, it will help to better forecasting modelling. 10. The main implication of the paper is the merging of ratio analysis with the valuation analysis that provides a strong fundamental analysis. Moreover, the analysis is concerned with the comprehensive income and a forecasting perspective is taken (Nissim H.Penham, 2001). When profitability analysis is complemented with an analysis, it provides solidity. References Abarbanell, J. S., and Bernard, V. L 2000, Is the U.S. Stock Market Myopic?, Journal of Accounting Research, no. 38, pp. 221243. Brief, R. P., and Lawson, R. A 1992, The Role of the Accounting Rate of Return in Financial Statement Analysis, The Accounting Review, no. 67, pp. 411426. Brown, S. J., Goetzmann, W. N and Ross, S. A 1995, Survival, Journal of Finance, no. 50, pp. 853873. Fairfield, P. M., Sweeney, R. J and Yohn, T. L 1996, Accounting Classification and the Predictive Content of Earnings, The Accounting Review, no. 71, pp. 337355. Ohlson, J. A. 1995, Earnings, Book Values, and Dividends in Equity Valuation, Contemporary Accounting Research, no. 11, pp. 661687. Nissim, Doron and H.Penham, Stephen 2001, Ration Analysis and Equity Valuation: From Research to Practice, Review of Accounting Studies, no. 6, pp. 109154.