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SUMMARY OF KEY FINANCIAL STATEMENT RATIOS
(Indicates Page in Text Where Ratio Is Initially Discussed)
PROFITABILITY RATIOS
Return on Assets (ROA)
Net Income Attributable to Common Shareholders þ ð1 � Tax RateÞðInterest ExpenseÞ þ Noncontrolling Interest in Earnings
Average Total Assets
(Page 201)
¼
Profit Margin for ROA
Net Income Attributable to Common Shareholders þ ð1 � Tax RateÞðInterest ExpenseÞ þ Noncontrolling Interest in Earnings
¼
Sales
(Page 206)
Sales
Total Assets Turnover ¼
Average
Total Assets
(Page 206)
Return on Common Equity (ROCE)
Net Income � Noncontrolling Interest in Earnings � Preferred Stock Dividends
Average Common Shareholders’ Equity
(Page 207)
¼
Profit Margin for ROCE ¼
(Page 213)
Net Income � Noncontrolling Interest in Earnings � Preferred Stock Dividends
Sales
Average Total Assets
Capital Structure Leverage ¼
Average Common Shareholders’ Equity
(Page 213)
FINANCIAL FLEXIBILITY
ROCE ¼ Operating ROA þ (Leverage 3 Spread)
(Page 288)
Operating ROA ¼
(Page 288)
Net Income Attributable to Common Shareholders þ ð1 � Tax RateÞðInterest ExpenseÞ þ Noncontrolling Interest in Earnings
Average Net Operating Assets
Average Financing Obligations
Leverage ¼
Average
Common Shareholders’ Equity
(Page 292)
Spread ¼ Operating ROA � Net Borrowing Rate
(Page 292)
Net Borrowing Rate ¼
(Page 292)
Net Financing Expense (After Tax)
Average Financing Obligations
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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.
RISK RATIOS
Short-Term Liquidity Risk
Current Assets
Current Ratio ¼
Current Liabilities
(Page 295)
Quick Ratio ¼
(Page 296)
Cash and Cash Equivalents þ Short-Term Investments þ Accounts Receivable
Current Liabilities
Cash Flow from Operations
Operating Cash Flow to Current Liabilities Ratio ¼
Average Current Liabilities
(Page 297)
Sales
Accounts Receivable Turnover ¼
Average
Accounts
Receivable
(Page 297)
Cost of Goods Sold
Inventory Turnover ¼
Average
Inventories
(Page 297)
Purchases
Accounts Payable Turnover ¼
Average
Accounts Payable
(Page 297)
Long-Term Solvency Risk
Total Liabilities
Liabilities to Assets Ratio ¼
Total Assets
(Page 301)
Total Liabilities
Liabilities to Shareholders’ Equity Ratio ¼
Total
Shareholders’ Equity
(Page 301)
Long-Term Debt
Long-Term Debt to Long-Term Capital Ratio ¼
Long-Term Debt þ Total Shareholders’ Equity
(Page 301)
Long-Term Debt
Long-Term Debt to Shareholders’ Equity Ratio ¼
Total
Shareholders’ Equity
(Page 301)
Interest Coverage Ratio (Net Income Basis)
Net Income þ Interest Expense þ Income Tax Expense þ Net Income Attributable to Noncontrolling Interests
¼
Interest Expense
(Page 303)
Interest Coverage Ratio (Cash Flow Basis)
Cash Flow from Operations þ Cash Payments for Interest (including imputed interest) þ Cash Payments for Income Taxes
¼
Cash Payments for Interest
(Page 303)
Operating Cash Flow to Total Liabilities Ratio ¼
(Page 304)
Cash Flow from Operations
Average Total Liabilities
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10E
Financial Reporting,
Financial Statement Analysis,
and Valuation
A Strategic Perspective
James M. Wahlen
Professor of Accounting
James R. Hodge Chair of Excellence
Kelley School of Business
Indiana University
Stephen P. Baginski
Professor of Accounting
Herbert E. Miller Chair in Financial Accounting
J.M. Tull School of Accounting
Terry College of Business
The University of Georgia
Mark T. Bradshaw
Professor of Accounting
Chair, Department of Accounting
Carroll School of Management
Boston College
Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States
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Financial Reporting, Financial Statement
Analysis, and Valuation, 10e
James Wahlen, Stephen Baginski, Mark
Bradshaw
© 2023, 2018, 2015 Cengage Learning, Inc.
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For our students,
with thanks for permitting us to take the journey with you
For Clyde Stickney and Paul Brown,
with thanks for allowing us the privilege to carry on their legacy of teaching
through this book
For our families, with love,
Debbie, Jessica and Ailsa, Jaymie, Aaron and Esther, Lynn, Drew, Rachel, Sophia, Lily,
and Ella, Marie and Charlie, Kim, Ben, and Lucy
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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
The process of financial reporting, financial statement analysis, and valuation helps investors and
analysts understand a firm’s profitability, risk, and growth; use that information to forecast future
profitability, risk, and growth; and ultimately to value the firm, enabling intelligent investment
decisions. This process is central to the role of accounting, financial reporting, capital markets,
investments, portfolio management, and corporate management in the world economy. When
conducted with care and integrity, financial statement analysis and valuation are fascinating and
rewarding activities that can create tremendous value for society. However, as past financial crises in our capital markets reveal, when financial statement analysis and valuation are conducted
carelessly or without integrity, they can create enormous loss of value in the capital markets and
trigger deep recession in even the most powerful economies in the world. The stakes are high.
Given the profound importance of financial reporting, financial statement analysis, and valuation, and given changing accounting rules and enhanced regulations in the capital markets, this
textbook provides you with a principled and disciplined approach for analysis and valuation.
This textbook explains and demonstrates a thoughtful and thorough six-step framework you can
use for financial statement analysis and valuation. You should begin an effective analysis of a set
of financial statements with an evaluation of (1) the economic characteristics and competitive
conditions of the industries in which a firm competes and (2) the particular strategies the firm
executes to compete in each of these industries. Your analysis should then move to (3) assessing
how well the firm’s financial statements reflect the economic effects of the firm’s strategic decisions and actions. Your assessment requires an understanding of the accounting principles and
methods used to create the financial statements, the relevant and reliable information that the
financial statements provide, and the appropriate adjustments that you might make to improve
the quality of that information. Note that, in this text, we help you embrace financial reporting and financial statement analysis based on U.S. Generally Accepted Accounting Principles
(GAAP) as well as International Financial Reporting Standards (IFRS) used by companies in
many of the world’s strongest economies, including the European Union, the United Kingdom,
Japan, and Canada. Next, you should (4) assess the profitability, risk, and growth of the firm using
financial statement ratios and other analytical tools and then (5) forecast the firm’s future profitability, risk, and growth, incorporating information about expected changes in the economics of
the industry and the firm’s strategies. Finally, you can (6) value the firm using various valuation
methods, making an investment decision by comparing likely ranges of your value estimate to the
observed market value. This six-step process forms the conceptual and pedagogical framework
for this book, and it is a principled and disciplined approach you can use for intelligent analysis
and valuation decisions.
All textbooks on financial statement analysis include step (4), assessing the profitability, risk,
and growth of a company. Textbooks differ, however, with respect to their emphases on the other
five steps. Consider the following depiction of these steps.
(5) Forecasts of Future Profitability, Risk, and Growth
and
(6) Valuation of Firms
(4) Assessment
of Profitability,
Risk, and Growth
(1) Industry Economics
and
(2) Business Strategy
(3) Accounting Principles
and Quality of
Accounting Information
iv
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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
Our view is that these six steps must form an integrated approach for effective and complete
financial statement analysis. We have therefore structured and developed this book to provide balanced, integrated coverage of all six elements. We sequence our study by beginning with industry
economics and firm strategy, moving to a general consideration of GAAP and IFRS and the quality
of accounting information, and providing a structure and tools for the analysis of profitability, risk,
and growth. We then examine specific accounting issues and the determinants of accounting quality and conclude with forecasting and valuation. We anchor each step in the sequence on the firm’s
profitability, risk, and growth, which are the fundamental drivers of value. We continually relate
each part to those preceding and following it to maintain this balanced, integrated perspective.
The premise of this book is that you will learn financial statement analysis most effectively
by performing the analysis on actual companies. The book’s narrative sets forth the important
concepts and analytical tools and demonstrates their application using the financial statements of
Clorox. Each chapter contains a set of questions, exercises, problems, and cases based primarily
on financial statement data of actual companies. Each chapter also contains an integrative case
involving Walmart so you can apply the tools and methods throughout the text. A financial
statement analysis package (FSAP) is available to aid you in your analytical tasks (discussed later).
Some of the Highlights of This Edition
In the 10th edition, the author team of James Wahlen, Stephen Baginski, and Mark Bradshaw
continues to improve on the foundations established by Clyde Stickney and Paul Brown. Clyde
Stickney, the original author of the first three editions of this book and coauthor of the fourth,
fifth, and sixth editions, is enjoying his well-earned retirement. Paul Brown, a coauthor of the
fourth, fifth, and sixth editions, recently announced his retirement as the president of M
­ onmouth
University. Jim, Steve, and Mark are internationally recognized research scholars and award-­
winning teachers in accounting, financial statement analysis, and valuation. They continue to
bring many fresh new ideas and insights to produce a new edition with a strong focus on thoughtful and disciplined fundamental analysis, a broad and deep coverage of accounting issues including IFRS, and expanded analysis of companies within a global economic environment.
The next section highlights the content of each chapter. Listed below are some of the major
highlights in this edition that impact all chapters or groups of chapters.
1. As in prior editions, the 10th edition uses a “golden thread” case company in each chapter.
We now illustrate and highlight each step of the analysis in each chapter using the financial statements of Clorox. The financial statements and disclosures of Clorox provide
an excellent setting for teaching financial statements analysis because most students
are familiar with the company; it has an effective strategy; and it has many important
accounting, analysis, and valuation issues. In the material at the end of each chapter, we
also use Walmart as a “golden thread” case company.
2. The exposition of each chapter has been further streamlined. Known for being a wellwritten, accessible text, this edition presents each chapter in more concise, direct discussion, so you can get the key insights quickly and efficiently. To achieve the streamlining,
some highly technical (mainly accounting-related) material has been moved to online
appendices that students may access at www.cengagebrain.com.
3. Many chapters include quick checks, so you can be sure you have obtained the key insights
from reading each section. In addition, each section and each of the end-of-chapter questions, exercises, problems, and cases is cross-referenced to learning objectives, so you
can be sure that you can implement the critical skills and techniques associated with each
of the learning objectives.
4. The chapters on profitability analysis (Chapter 4) and risk analysis (Chapter 5) continue
to provide disaggregation of return on common equity into profitability, efficiency, and
leverage, as well as an alternative partition into operating versus financing components.
5. The book’s companion website, www.cengagebrain.com, contains an updated Appendix D
with descriptive statistics on 20 commonly used financial ratios computed over the past
10 years for 48 industries. These ratios data enable you to benchmark your analyses and
forecasts against industry averages.
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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.
v
vi
Preface
6. The chapters on accounting quality continue to provide broad coverage of a­ ccounting
for financing, investing, and operating activities. Chapter 6 discusses the determinants of accounting quality, how to evaluate accounting quality, and how to adjust
reported earnings and financial statements to cleanse low-quality accounting items.
Then the discussion proceeds across the primary business activities of firms in the
natural sequence in which the activities occur—raising financial capital, investing that
capital in productive assets, and operating the business. Chapter 7 discusses accounting for financing activities. ­Chapter 8 describes accounting for investing activities, and
Chapter 9 deals with accounting for operating activities. Detailed examples of foreign
currency translation and accounting for various hedging activities have been moved to
online appendices.
7. The chapters on accounting quality continue to provide more in-depth analyses of both
balance sheet and income statement quality.
8. Each chapter includes relevant discussion of current U.S. GAAP and IFRS, how U.S.
GAAP compares to IFRS, and how you should deal with such differences in financial
statement analysis. New material includes recent major changes in accounting standards dealing with revenue recognition, leasing, and investments in securities. Endof-chapter materials contain many problems and cases involving non-U.S. companies,
with application of financial statement analysis techniques to IFRS-based financial
statements.
9. Each chapter provides references to specific standards in U.S. GAAP using the FASB
Codification system.
10. The chapters provide a number of relevant insights from empirical accounting research,
pertinent to financial statement analysis and valuation.
11. The end-of-chapter material for each chapter contains portions of an updated, integrative
case applying the concepts and tools discussed in that chapter to Walmart.
12. Each chapter contains new or substantially revised and updated end-of-chapter material, including new problems and cases. This material is relevant, real-world, and written
for maximum learning value.
13. The Financial Statement Analysis Package (FSAP) available with this book has been made
more user-friendly.
Overview of the Text
This section briefly describes the content and highlights of each chapter.
Chapter 1—Overview of Financial Reporting, Financial Statement Analysis, and Valuation. This chapter introduces you to the six interrelated sequential steps in financial statement
analysis that serve as the organization structure for this book. It presents you with several frameworks for understanding the industry economics and business strategy of a firm and applies them
to Clorox. It also reviews the purpose, underlying concepts, and content of each of the three
principal financial statements, including those of non-U.S. companies reporting using IFRS.
This chapter also provides the rationale for analyzing financial statements in capital market
settings, including showing you some very compelling results from an empirical study of the
association between unexpected earnings and market-adjusted stock returns as well as empirical
results showing that fundamental analysis can help investors generate above-market returns. Our
examination of the course syllabi of users of the previous edition indicated that most courses
require students to engage in such a project. This appendix guides you in how to proceed, where
to get information, and so on.
In addition to the new integrative case involving Walmart, the chapter includes an updated
version of a case involving Nike.
Chapter 2—Asset and Liability Valuation and Income Recognition. This chapter covers
three topics we believe you need to review from previous courses before delving into the more
complex topics in this book.
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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.
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Preface
■■ First, we discuss the link between the valuation of assets and liabilities on the balance
sheet and the measurement of income. We believe that you will understand topics such as
revenue recognition and accounting for marketable securities, derivatives, pensions, and
other topics more easily when you examine them with an appreciation for the inherent
trade-off of a balance sheet versus income statement perspective. This chapter also reviews
the trade-offs faced by accounting standard setters, regulators, and corporate managers
who attempt to simultaneously provide both reliable and relevant financial statement
information. We also examine whether firms should recognize value changes immediately in net income or delay their recognition, sending them temporarily through other
comprehensive income.
■■ Second, we present a framework for analyzing the dual effects of economic transactions
and other events on the financial statements. This framework relies on the balance sheet
equation to trace these effects through the financial statements. Even students who are
well grounded in double-entry accounting find this framework helpful in visually identifying the effects of various complex business transactions, such as corporate acquisitions,
derivatives, and leases. We use this framework in subsequent chapters to present and
analyze transactions, as we discuss various GAAP and IFRS topics.
ABEG5
LBEG
1ΔA
1ΔL
AEND5
LEND
1
CCBEG
1
CCEND
1
1OCI
1ΔStock
1
AOCIBEG
1
AOCIEND
REBEG
1NI
D
1
REEND
[BEG = Beginning, END = End, A=Assets, L=Liabilities, CC=Contributed Capital, AOCI=Accumulated Other Comprehensive Income, RE=Retained Earnings, Stock=Common and Preferred Capital Stock Accounts, OCI=Other
Comprehensive Income, NI=Net Income, and D=Dividends.]
■■ Third, we discuss the measurement of income tax expense, particularly with regard to the
treatment of temporary differences between book income and taxable income. Virtually
every business transaction has income tax consequences, and it is crucial that you grasp
the information conveyed in income tax disclosures.
The end-of-chapter materials include various asset and liability valuation problems involving
Biosante Pharmaceuticals, Prepaid Legal Services, and Nike, as well as the integrative case
involving Walmart.
Chapter 3—Income Flows versus Cash Flows: Understanding the Statement of Cash Flows.
Chapter 3 reviews the statement of cash flows and presents a model for relating the cash flows
from operating, investing, and financing activities to a firm’s position in its life cycle. The chapter
demonstrates procedures you can use to prepare the statement of cash flows when a firm provides
no cash flow information. The chapter also provides new insights that place particular emphasis
on how you should use information in the statement of cash flows to assess earnings quality.
The end-of-chapter materials utilize cash flow and earnings data for a number of companies
including Tesla, Amazon, Kroger, Coca-Cola, Texas Instruments, Sirius XM Radio, Apollo
Group, and AerLingus. A case (Prime Contractors) illustrates the relation between earnings and
cash flows as a firm experiences profitable and unprofitable operations and changes its business
strategy. The classic W. T. Grant case illustrating the use of earnings and cash flow information
to assess solvency risk and avoid bankruptcy has been moved to an online appendix.
Chapter 4—Profitability Analysis. This chapter discusses the concepts and tools for analyzing a firm’s profitability, integrating industry economic and strategic factors that affect the
interpretation of financial ratios. It applies these concepts and tools to the analysis of the profitability of Clorox. The analysis of profitability centers on the rate of return on assets and its disaggregated components, the rate of return on common shareholders’ equity and its disaggregated
components, and earnings per share. The chapter contains a section on alternative profitability
measures, including a discussion of “street earnings.” This chapter also considers analytical tools
unique to certain industries, such as airlines, service firms, retailers, and technology firms.
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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.
vii
viii
Preface
A number of problems and exercises at the end of the chapter cover profitability analyses for
companies such as Nucor Steel, Hershey, Microsoft, Oracle, Dell, Sun Microsystems, Texas
Instruments, Hewlett Packard, Georgia Pacific, General Mills, Abercrombie & Fitch, Hasbro,
and many others. The integrative case examines Walmart’s profitability.
Chapter 5—Risk Analysis. This chapter begins with a discussion of recently required disclosures on the extent to which firms are subject to various types of risk, including unexpected
changes in commodity prices, exchange rates, and interest rates and how firms manage these
risks. The chapter provides new insights and discussion about the benefits and dangers associated with financial flexibility and the use of leverage. This edition shows you how to decompose
return on common equity into components that highlight the contribution of the inherent profitability of the firm’s assets and the contribution from the strategic use of leverage to enhance the
returns to common equity investors. The chapter provides you an approach to in-depth financial
statement analysis of various risks associated with leverage, including short-term liquidity risk,
long-term solvency risk, credit risk, bankruptcy risk, and systematic and firm-specific market
risk. This chapter also describes and illustrates the calculation and interpretation of risk ratios
and applies them to the financial statements of Clorox, focusing on both short-term liquidity risk
and long-term solvency risk. We also explore credit risk and bankruptcy risk in greater depth.
A unique feature of the problems in Chapters 4 and 5 is the linking of the analysis of several
companies across the two chapters, including problems involving Hasbro, Abercrombie & Fitch,
and Walmart. In addition, other problems focus on risk-related issues for companies like CocaCola, Delta Air Lines, VF Corporation, Best Buy, Circuit City, Whole Foods, The Tribune
Company, and The Washington Post. Chapter-ending cases involve risk analysis for Walmart
and classic cases on credit risk analysis (Massachusetts Stove Company) and bankruptcy prediction (Fly-By-Night International Group).
Chapter 6—Accounting Quality. This chapter provides an expanded discussion of the quality
of income statement and balance sheet information, emphasizing faithful representation of relevant and substantive economic content as the key characteristics of high quality, useful accounting information. The chapter also alerts you to the conditions under which managers might likely
engage in earnings management. The discussion provides a framework for accounting quality
analysis, which is used in the discussions of various accounting issues in Chapters 7 through 9.
We consider several financial reporting topics that primarily affect the persistence of earnings,
including gains and losses from discontinued operations, changes in accounting principles, other
comprehensive income items, impairment losses, restructuring charges, changes in estimates,
and gains and losses from peripheral activities. The chapter concludes with an assessment of
accounting quality by separating accruals and cash flows and an illustration of Beneish’s (1999)
multivariate model for identifying potential financial statement manipulators.
Chapter-ending materials include problems involving Nestlé, Checkpoint Systems, Rock of
Ages, Vulcan Materials, Northrop Grumman, Intel, Enron, Socket Mobile, Harley-Davidson,
Chipotle, and Sunbeam. End-of-chapter materials also include an integrative case involving the
analysis of Walmart’s accounting quality.
Chapter 7—Financing Activities. This chapter has been structured along with Chapters 8
and 9 to discuss accounting issues in their natural sequence—raising financial capital, investing
the capital in productive assets, and then managing the operations of the business. Chapter 7
discusses the accounting principles and practices under U.S. GAAP and IFRS associated with
firms’ financing activities. The chapter begins by describing the financial statement reporting of
capital investments by owners (equity issues) and distributions to owners (dividends and share
repurchases), and the accounting for equity issued to compensate employees (stock options, stock
appreciation rights, and restricted stock). The chapter demonstrates how shareholders’ equity
reflects the effects of transactions with non-owners that flow through the income statement (net
income) and those that do not (other comprehensive income). The chapter then describes the
financial reporting for long-term debt (bonds, notes payable, operating and finance lease liabilities, and troubled debt), hybrid securities (convertible bonds, preferred stock), and derivatives
used to hedge interest rate risk (an online appendix provides specific examples of accounting for
interest rate swaps). Throughout the chapter, we highlight the differences between U.S. GAAP
and IFRS in the area of equity and debt financing.
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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
In addition to various questions and exercises, the end-of-chapter material includes problems probing accounting for various financing alternatives, Ford Motor Credit’s securitization
of receivables, and stock-based compensation at Coca-Cola and Eli Lilly. End-of-chapter cases
include the integrative case involving Walmart and a case on stock compensation at Oracle.
Chapter 8—Investing Activities. This chapter discusses various accounting principles and
methods under U.S. GAAP and IFRS associated with a firm’s investments in long-lived tangible
assets, intangible assets, and financial instruments. The chapter demonstrates the accounting
for a firm’s investments in tangible productive assets including property, plant, and equipment,
including the initial decision to capitalize or expense and the use of choices and estimates to allocate costs through the depreciation process. The chapter demonstrates alternative ways that firms
account for intangible assets, highlighting research and development expenditures, software
development expenditures, and goodwill, including the exercise of judgment in the allocation of
costs through the amortization process. The chapter reviews and applies the rules for evaluating
the impairment of different categories of long-lived assets, including goodwill. The chapter then
describes accounting and financial reporting of intercorporate investments in securities (trading
securities, available-for-sale securities, held-to-maturity securities, and noncontrolled affiliates)
and corporate acquisitions. The chapter reviews accounting for variable-interest entities, including the requirement to consolidate them with the firm identified as the primary beneficiary.
Finally, an online appendix to the chapter addresses foreign investments by preparing a set of
translated financial statements using the all-current method and the monetary/nonmonetary
method and describing the conditions under which each method best portrays the operating
relationship between a U.S. parent firm and its foreign subsidiary.
The end-of-chapter questions, exercises, problems, and cases include a problem involving
Molson Coors Brewing Company and its variable interest entities, an integrative application of
the chapter topics to Walmart, and a case involving Disney’s acquisition of Marvel Entertainment.
Chapter 9—Operating Activities. Chapter 9 discusses how financial statements prepared
under U.S. GAAP or IFRS capture and report the firm’s operating activities. The chapter opens
with a discussion of how financial accounting measures and reports the revenues and expenses
generated by a firm’s operating activities, as well as the related assets, liabilities, and cash flows.
This discussion reviews the criteria for recognizing revenue and expenses under the accrual basis
of accounting and applies these criteria to various types of businesses. The revenue recognition
discussion is based on the new revenue recognition standard. The chapter analyzes and interprets the effects of FIFO versus LIFO on financial statements and demonstrates how to convert
the statements of a firm from a LIFO to a FIFO basis. The chapter identifies the working capital
investments created by operating activities and the financial statement effects of credit policy and
credit risk. The chapter also shows how to use the financial statement and note information for
corporate income taxes to analyze the firm’s tax strategies, pensions, and other post-employment
benefits obligations using footnote disclosures from Clorox’s Form 10-K. The chapter provides a
discussion of how a firm uses derivative instruments to hedge the risk associated with commodities and with operating transactions denominated in foreign currency, and an online appendix
provides specific examples to illustrate hedge accounting.
The end-of-chapter problems and exercises examine revenue and expense recognition for a
wide variety of operating activities, including revenues for software, consulting, transportation,
construction, manufacturing, and others. End-of-chapter problems also involve Coca-Cola’s tax
notes and pension disclosures and include the integrative Walmart case.
Chapter 10—Forecasting Financial Statements. This chapter describes and illustrates the procedures you should use in preparing forecasted financial statements. This material plays a central role
in the valuation of companies, discussed throughout Chapters 11 through 14. The chapter begins
by giving you an overview of forecasting and the importance of creating integrated and articulated
financial statement forecasts. It then demonstrates the preparation of projected financial statements
for Clorox. The chapter also demonstrates how to get forecasted balance sheets to balance and how
to compute implied statements of cash flows from forecasts of balance sheets and income statements.
The chapter also discusses forecast shortcuts analysts sometimes take, and when such forecasts are
reliable and when they are not. The Forecast and Forecast Development spreadsheets within FSAP
provide templates you can use to develop and build your own financial statement forecasts.
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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.
ix
x
Preface
Short end-of-chapter problems illustrate techniques for projecting key accounts for firms like
Home Depot, Intel, Hasbro, and Barnes and Noble, determining the cost structure of firms like
Nucor Steel and Sony, and dealing with irregular changes in accounts. Longer problems and
cases include the integrative Walmart case and a classic case involving the projection of financial
statements to assist the Massachusetts Stove Company in its strategic decision to add gas stoves to
its wood stove line. The problems and cases specify the assumptions you should make to illustrate
the preparation procedure. We link and use these longer problems and cases in later chapters that
rely on these financial statement forecasts in determining share value estimates for these firms.
Chapter 11—Risk-Adjusted Expected Rates of Return and the Dividends Valuation
Approach. Chapters 11 through 14 form a unit in which we demonstrate various approaches to
valuing a firm. Chapter 11 focuses on fundamental issues of valuation that you will apply in all
of the valuation chapters. This chapter provides you with a discussion of the measurement of
the cost of debt and equity capital and the weighted average cost of capital, as well as the dividends-based valuation approach. The chapter also discusses various issues of valuation, including forecasting horizons, projecting long-run continuing dividends, and computing continuing
(sometimes called terminal) value. The chapter describes and illustrates the internal consistency
in valuing firms using dividends, free cash flows, or earnings. We place particular emphasis on
helping you understand that the different approaches to valuation are simply differences in perspective (dividends capture wealth distribution, free cash flows capture wealth realization in cash,
and earnings represent wealth creation), and that these approaches should produce internally
consistent estimates of value. In this chapter we demonstrate the cost-of-capital measurements
and the dividends-based valuation approach for Clorox, using the forecasted amounts from
Clorox financial statements discussed in Chapter 10. The chapter also presents techniques for
assessing the sensitivity of value estimates, varying key assumptions such as the cost of capital
and long-term growth rate. The chapter also discusses and illustrates the cost-of-capital computations and dividends valuation model computations within the Valuation spreadsheet in FSAP.
This spreadsheet takes the forecast amounts from the Forecast spreadsheet and other relevant
information and values the firm using the various valuation methods discussed in Chapters 11
through 14.
End-of-chapter material includes the computation of costs of capital across different industries and companies, including Whirlpool, IBM, and Target Stores, as well as short dividends
valuation problems for companies like Royal Dutch Shell. Cases involve computing costs of
capital and dividends-based valuation of Walmart, and Massachusetts Stove Company from
financial statement forecasts developed in Chapter 10’s problems and cases.
Chapter 12—Valuation: Cash-Flow Based Approaches. Chapter 12 focuses on valuation
using the present value of free cash flows. This chapter distinguishes valuation using free cash
flows to all debt and equity stakeholders and valuation using free cash flows to common equity
shareholders and the settings where one or the other measure of free cash flows is appropriate
for valuation. The chapter also considers and applies techniques for projecting free cash flows
and measuring the continuing value after the forecast horizon. The chapter applies both of the
discounted free cash flows valuation methods to Clorox, demonstrating how to use the forecasted
amounts from Clorox’s projected financial statements (discussed in Chapter 10) to measure
the free cash flows to all debt and equity stakeholders, as well as the free cash flows to common
equity. The chapter also presents techniques for assessing the sensitivity of value estimates, varying key assumptions such as the costs of capital and long-term growth rates. The chapter also
explains and demonstrates the consistency of valuation estimates across different approaches and
shows that the dividends approach in Chapter 11 and the free cash flows approaches in Chapter
12 should and do lead to identical value estimates for Clorox. The Valuation spreadsheet in FSAP
uses projected amounts from the Forecast spreadsheet and other relevant information and values
the firm using both of the free cash flows valuation approaches.
Updated shorter problem material asks you to compute free cash flows from financial statement data for companies like 3M and Dick’s Sporting Goods. Problem material also includes
using free cash flows to value firms in leveraged buyout transactions, such as May Depart­ ongers and cases
ment Stores, Experian Information Solutions, and Wedgewood Products. L
material include the valuation of Walmart, Coca-Cola, and Massachusetts Stove Company.
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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
The chapter also introduces the Holmes Corporation case, which is an integrated case r­ elevant
for Chapters 10 through 13 in which you select forecast assumptions, prepare projected
financial statements, and value the firm using the various methods discussed in Chapters
11 through 13. This case can be analyzed in stages with each chapter or as an integrated case
after Chapter 13.
Chapter 13—Valuation: Earnings-Based Approaches. Chapter 13 emphasizes the role of
accounting earnings in valuation, focusing on valuation methods using the residual income
approach. The residual income approach uses the ability of a firm to generate income in excess of
the cost of capital as the principal driver of a firm’s value in excess of its book value. We apply the
residual income valuation method to the forecasted amounts for Clorox from Chapter 10. The
chapter also demonstrates that the dividends valuation methods, the free cash flows valuation
methods, and the residual income valuation methods are consistent with a fundamental valuation approach. In the chapter we explain and demonstrate that these approaches yield identical
estimates of value for Clorox. The Valuation spreadsheet in FSAP includes valuation models that
use the residual income valuation method.
End-of-chapter materials include various problems involving computing residual income
across different firms, including Abbott Labs, IBM, Target Stores, Microsoft, Intel, Dell, Southwest Airlines, Kroger, and Yum! Brands. Longer problems also involve the valuation of other
firms such as Steak ‘n Shake in which you are given the needed financial statement information.
Longer problems and cases enable you to apply the residual income approach to Coca-Cola,
Walmart, and Massachusetts Stove Company, considered in Chapters 10 through 12.
Chapter 14—Valuation: Market-Based Approaches. Chapter 14 demonstrates how to analyze and use the information in market value. In particular, the chapter describes and applies
market-based valuation multiples, including the market-to-book ratio, the price-to-earnings
ratio, and the price-earnings-growth ratio. The chapter illustrates the theoretical and conceptual
approaches to market multiples and contrasts them with the practical approaches to market multiples. The chapter demonstrates how the market-to-book ratio is consistent with residual ROCE
valuation and the residual income model discussed in Chapter 13. The chapter also describes the
factors that drive market multiples, so you can adjust multiples appropriately to reflect differences
in profitability, growth, and risk across comparable firms. An applied analysis demonstrates how
you can reverse engineer a firm’s stock price to infer the valuation assumptions that the stock
market appears to be making. We apply all of these valuation methods to Clorox. The chapter
concludes with a discussion of the role of market efficiency, as well as striking evidence on using
earnings surprises to pick stocks and form portfolios (the Bernard and Thomas post-earnings
announcement drift anomaly) as well as using value-to-price ratios to form portfolios (the Frankel and Lee investment strategy), both of which appear to help investors generate significant
above-market returns.
End-of-chapter materials include problems involving computing and interpreting marketto-book ratios for pharmaceutical companies, Enron, Coca-Cola, and Steak ‘n Shake and the
integrative case involving Walmart.
Appendices. Appendix A includes the financial statements and notes for Clorox used in the
illustrations throughout the book. Appendix B, available at www.cengagebrain.com, provides
the Clorox management’s discussion and analysis of operations, which we use when interpreting Clorox financial ratios and in our financial statement projections. Appendix C presents the
output from FSAP for Clorox, including the Data spreadsheet, the Analysis spreadsheet (profitability, growth, and risk ratio analyses), the Forecasts and Forecast Development spreadsheets,
and the Valuations spreadsheet. Appendix D, also available online, provides descriptive statistics
on 20 financial statement ratios across 48 industries over the years 2010 to 2019.
Chapter Sequence and Structure
Our own experience and discussions with other professors suggest there are various
approaches to teaching a financial statement analysis course, each of which works well in
particular settings. We have therefore designed this book for flexibility with respect to the
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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.
xi
Exploring the Variety of Random
Documents with Different Content
You make your deposit, the blue,
You take up your share, the
white.
You turn up the white foam with
the paddle,
Within and without the canoe.
The going forth of the canoe is
in jerks,
It is agitated, it shakes.
The men fall on the canoe,
The bailing cups are knocked
about,
The ohia [mast] rattles;
The lauhala [sail] is breaking,
The opponent of the wind;
The bow of the canoe is filled
with water,
Who is at the bow?
Ia kulanalana ia naueue,
Ia hina kanaka i luna o ka waa,
Ia koeleele ka liu
Ia nakeke ka ohia,
Ia papaina ka lauhala,
Ka hoapaio o ka makani;
Ka ihu o ka waa piha i ke kai,
Owai ma ka ihu?
Pakaa then said to his son
Kuapakaa: “Lapakahoe is my
younger brother, he is your
uncle.” The boy then called out
each of the men of
Keawenuiaumi by name, thinking
this would induce them to land.
The boy called as follows:
Ia wa olelo aku o Pakaa i ke keiki
ia Kuapakaa: “O ko’u kaikaina o
Lapakahoe, he makuakane ia
nou.” Alaila, kahea pakahi aku la
keia i na kanaka o ka waa o ke
’lii o Keawenuiaumi, no ka
manao o ke keiki, o ia ka mea e
pae ai. Alaila, kahea aku la ia ma
na inoa penei:
THE NAMES OF THE MEN.
KA INOA O NA KANAKA.
Lapakahoe, who next?
Lapakahoe, owai mai?
Hookahikuamoo, who next?
Alapanaiwi, who next?
Limakainui, who next?
Kamahuakoaie, who next?
Kipukohola, who next?
Kaili, the god, who next?
Kuanaepa, who next?
Nohoanaepa, who next? [106]
Kauwilaakahoe, who next?
Kaneheakapoohiwi, who next?
Kahaluluakoaie, who next?
Mokukaiakapahi, who next?
Ahuakaiaiwa, who next?
Uluakamoanaiakaiehu, who
next?
Owakahoealima, who next?
Halawaimekamakani, who next?
Hamamakawahaokaale, who
next?
Uakukalailalo, who next?
Uahaihaikaka, who next?
Uanahaekaie, who next?
Oiukamaewa, who next?
Okioikekahuna, who next?
Okahikuokamoku, who next?
Keawenuiaumi, who next?
Hookahikuamoo, owai mai?
Alapanaiwi, owai mai?
Limakainui, owai mai?
Kamahuakoaie, owai mai?
Kipukohola, owai mai?
Kaili ke ’kua, owai mai?
Kuanaepa, owai mai?
Nohoanaepa, owai mai? [107]
Kauwilaakahoe, owai mai?
Kaneheakapoohiwi, owai mai?
Kahaluluakoaie, owai mai?
Mokukaiakapahi, owai mai?
Ahuakaiaiwa, owai mai?
Uluakamoanaiakaiehu, owai mai?
Owakahoealima, owai mai?
Halawaimekamakani, owai mai?
Hamamakawahaokaale, owai
mai?
Uakukalailalo, owai mai?
Uahaihaikaka, owai mai?
Uanahaekaie, owai mai?
Oiukamaewa, owai mai?
Okioikekahuna, owai mai?
Okahikuokamoku, owai mai?
Keawenuiaumi, owai mai?
After Kuapakaa had called out
the names of the men who sat
singly, he then called out those
who sat two 27 in a seat:
Pau ke kehea ana a Kuapakaa i
na kanaka pakahi, kahea hou
keia i na kanaka palua o ka waa,
ma na inoa:
Nanaimua, Nanaihope, who
next?
Neneimua, Neneihope, who
next?
Kahaneeaku, Kahaneemai, who
next?
Ku,—Ka, who next?
Kapalikua, Kapalialo, who next?
Kapohina, Kapoae, who next?
Kaukaiwa, Lamakani, who next?
Puupuukoa, Kainei, who next?
Koaloa, Koapoko, who next?
Hulihana, Hulilawa, who next?
Pulale, Makaukau, who next?
Kuia, Lou, who next?
Hookeleihilo, Hookeleipuna, 28
who next?
While Kuapakaa was calling the
names of the men, the double
canoe of the king,
Keawenuiaumi, gradually drew
away from their sight. When the
double canoe was away off, so
that it appeared but a mere
speck, Pakaa said to the boy:
“Uncover the wind calabash,
Laamaomao.” Kuapakaa then
uncovered the wind calabash
and the storm in all its fury came
NA KANAKA PALUA O KA WAA.
Nanaimua, Nanaihope, owai
mai?
Neneimua, Neneihope, owai
mai?
Kahaneeaku, Kahaneemai, owai
mai?
Ku,—Ka, owai mai?
Kapalikua, Kapalialo, owai mai?
Kapohina, Kapoae, owai mai?
Kaukaiwa, Lamakani, owai mai?
Puupuukoa, Kainei, owai mai?
Koaloa, Koapoko, owai mai?
Hulihana, Hulilawa, owai mai?
Pulale, Makaukau, owai mai?
O Kuia, o Lou, owai mai?
Hookeleihilo, Hookeleipuna, owai
mai?
Ia Kuapakaa e kahea ana i na
inoa, ia manawa i nalowale ai ka
waa o ke ’lii o Keawenuiaumi,
mai ko laua mau maka aku. A ike
laua, ua koliuliu puaiki, na waa o
Keawenuiaumi, i aku la o Pakaa i
ke keiki, ia Kuapakaa: “Wehe ia
ka ipumakani a Laamaomao.” A
wehe ae la o Kuapakaa i ka
ipumakani, ia wa huai ka ino,
aole o kana mai, loaa mai la na
waa mua i ka lae o Kalaau, ko na
up. The front canoes were
caught by the waves and wind
from the Kalaau point; being
those that contained the chiefs
and the men. When the large
canoes saw that the small
canoes were swamped, the large
ones went to their rescue, but
they too were swamped. The
waves became larger and larger
and they beat from all sides. The
wind and the storm swept along
until the canoe of Keawenuiaumi
was met and it too was
swamped. Keawenuiaumi then
said to the priest, the prophet
and the sailing masters: “How
strange this is! The boy’s every
word has [108]come true. When
the boy said this was a stormy
day, you all contradicted him,
saying this was a pleasant day;
but here we are nigh unto death.
I questioned you several times
about the matter, to make sure
that you were right; but you all
denied it.”
’lii a me na kanaka. Ike na waa
nui i ka make o na waa liilii, kii
aku hoolana, paupu i ka make.
Kupikipikio ka ale, ma o a ma o,
hele mai la ka makani a loaa na
waa o Keawenuiaumi, make iho
la. Olelo aku o
[109]Keawenuiaumi i ke kahuna,
ke kilo, na hookele: “Kupanaha,
he mea kau a hala ae ka olelo a
ke keiki, ka olelo ana mai nei no
a ke keiki, he la ino keia, he
malie wale no ia oukou. A laa ka
make o kakou, nui kuu ninau
ana ia oukou, no ko oukou ike,
he hoole ka oukou.”
CHAPTER III.
MOKUNA III.
The Swamping of the Canoes.—They
Return and Land on Molokai.—The
King Is Given Dry Kapa and Malo, as
Also Awa and Food.—Delayed by the
Storm, the Party Is Provided With
Food.—After Four Months, They
Prepare to Embark.
Ka Make ana o na Waa.—Hoi Lakou a
Pae ma Molokai.—Haawiia ke Alii ke
Kapa a me ka Malo Maloo, pela nohoi
me ka Awa a me ka Ai.—No ka Noho
ana o ka Huakai i ka Ino, ua Haawi ia
me ka Ai.—Mahope mai o na Mahina
Eha, Liuliu Lakou e Holo.
The double canoe of
Keawenuiaumi was swamped as
well as all the others, not one
was saved. The people suffered
a terrible cold and many of their
things were lost; the food, the
fish and meat, their apparel and
everything else. At this, the king
wept in his agony and suffered
severely from cold, he then said:
“This is the very reason why I
am in search of my servant
Pakaa, because you are not
equal to the occasion; you are
without knowledge and do not
know how to tell the future. My
buttocks were never wet when
Pakaa was my sailing master;
but since I have taken you, they
have become wet.”
Poho iho la na waa o
Keawenuiaumi, aole kekahi waa i
koe, nui ke koekoe, nui na mea i
lilo aku, ka ai, ka ia, ke kapa, na
mea a pau loa. Uwe iho la ke ’lii i
ke anuanu a me ke koekoe, a
olelo aku la: “Oia kuu mea i imi
ai i kuu kauwa ia Pakaa, o ko
oukou hemahema, ike ole,
pololei ole ke olelo. He mau
papakole pulu ole keia i ke kai
ina o Pakaa ka hookele, ia oukou
iho nei pulu.”
When Pakaa saw that the wind
and the storm was in its fury, he
said to the boy: “Cover up the
wind calabash, for your master
may perish, as he is indeed
cold.” Kuapakaa then placed the
cover on the calabash,
Laamaomao, and the calm came
immediately and the canoes of
the king were saved.
Ike aku la o Pakaa i ka makani, a
me ka ino launa ole, i aku la ia i
ke keiki: “Poia iho ke poi o ka
ipu, o make auanei ko haku, eia
la ua anuanu.” Popoi iho la o
Kuapakaa i ke poi o Laamaomao,
a hikiwawe iho la ka malie ana, a
pakele ae la na waa o ke ’lii.
After the canoes had been
righted, the king gave his orders
to all the canoes, saying: “Let us
return, perchance the boy’s
canoe is still floating where we
left it. Should he invite us to land
we must obey.”
Ma keia pakele ana o ke ’lii, olelo
aku la ia i na waa a pau: “E hoi
kakou, malama ke lana ala no ka
waa o ke keiki, i olelo mai ia
kakou e pae, ae aku kakou e
pae, alaila pae kakou.”
After giving his orders the
several canoes turned about and
all returned, without maintaining
their order, for each was anxious
to get to the place where
Kuapakaa was floating. In this
return, the canoe of
Keawenuiaumi being the
swiftest, was the first to arrive at
the place where Kuapakaa was
waiting, while the others were
strung out behind.
Pau ka olelo ana a ke ’lii, hoe
kela waa keia waa, aia ka pono o
ka hiki i kahi o Kuapakaa e lana
ana. Ma keia hoe ana, oi aku la
ka holo o ko Keawenuiaumi waa,
i ko na waa e ae a hoea aku la ia
i ko Kuapakaa wahi e lana ana,
emi hope mai la na waa a pau
loa i hope.
When Kuapakaa saw the king’s
canoe, he said to Pakaa: “Here
comes the double canoe of my
master, Keawenuiaumi.” Pakaa
said to the boy: “When your
master arrives and should show
a willingness to land, say to him
that you wish to go in ahead a
little ways and wait for him, for
the passage way is crooked.” By
this Pakaa was anxious to keep
the canoe of Keawenuiaumi
behind them, for his men being
stronger, they would be able to
get to the landing first and in
that way Pakaa would be
recognized, so Pakaa thought
out a way to get out of the
difficulty, and made believe that
the way in was crooked. As the
canoe of Keawenuiaumi was
drawing near, Kuapakaa again
chanted, saying:
Ike aku la o Kuapakaa i ko ke ’lii
waa, olelo aku la ia ia Pakaa:
“Eia na waa o kuu haku o
Keawenuiaumi.” I aku o Pakaa i
ke keiki: “I hiki mai ko haku, a
ae i ka pae i anei, alaila, e olelo
aku oe, o kaua mua a kahi a
kaua e hoolana ai, alaila, kahea
mai. E olelo aku oe, he kekee ke
awa, e pae ai.” Ma keia olelo a
Pakaa, he olelo akamai loa,
manao o Pakaa, o kaa ka waa o
ke ’lii mamua, pae e i loko o ke
awa, no ka mea, he ikaika na
hoewaa o Keawenuiaumi. Ma ia
mea noonoo o Pakaa i mea e hiki
ai laua mamua, a ike ole ia kona
ano, i nalowale, nolaila, kona
kuhikuhi lalau ana, o loaa ia.
Alaila, paha hou o Kuapakaa,
penei:
Gently! Gently!
Comes the wind, the rain; the
isle is in darkness,
The master is on the edge of
disaster. [110]
The rain drove, the canoe rolled,
The sea is raging, the moi leap.
The inwards are retreating, the
waves are being fed,
Kiauau! Kiauau!
Makani ka ua, po ka moku,
Nihinihi ka haku, [111]
Kaa ka ua, kaa ka waa,
Ehuehu kai lele ka moi,
Hee loko ua ai ka ale,
Lele na ukana,
Hoaa i ke aloha o ke keiki,
Uwe i ke aloha o ka wahine,
The burden is cast away.
They look about in doubt for love
of the children,
They weep for the love of the
wife.
The seat is unsafe, insecure.
The dog barks at the sea,
It bites at the prow of the canoe.
The old companion is become
strained,
The new companion is become
separated,
The comradeship of the priest is
also parted,
He goes alone, he shudders,
He twists, he shivers,
The hairs on the temple are wet,
Ye stubborn sailors of the ocean,
’Tis the first cold day for the
king.
Say, Keawenuiaumi, come
ashore.
Noho inoino kulanalana,
Hae ka ilio i ke kai,
Nanahu i ka nuku o ka waa,
Hookoo ka pili mua,
Hele ka pili hope,
Kai ka pili a ke kahuna,
Kuouou, haalulu,
Pahili, haukeke,
Huhuluwi na hulu i ka maha,
E na holo moana hookuli,
Akahi la anuanu e ke ’lii.
E Keawenuiaumi, e pae.
Keawenuiaumi made reply: “Yes,
I will come ashore for your very
words have come true. I was
willing to land, but these fellows
were so learned. I thought they
were indeed learned, but I have
found that they are not.”
Kuapakaa said: “There, you have
faced disaster. Come ashore at
the boy’s landing.” The king then
I mai o Keawenuiaumi: “Ae, e
pae, he mea no kau a hala ko
olelo i i mai ai; ua ae no au e
pae, o ke akamai hoi o lakou nei,
kai no he ike io, aole ka!” I aku o
Kuapakaa: “Ike la i ka make, e
pae i ke awa o ke keiki.” Ae mai
ke ’lii: “Ae, e pae.” “Auhea oe e
ke ’lii, e hoolohe mai oe; o maua
ke holo e, a kahi e ani mai ai na
expressed his willingness to
land. Kuapakaa then said to the
king: “Say, listen to me; we will
go in first and when I beckon to
you, you may come, because the
passage way is crooked, and
furthermore the proper time for
making a landing is past. Had
you consented to make land at
my first invitation, we would
have had no trouble; for at that
time the tide was low and the
coral exposed; but now the tide
is high, so that the coral is
covered deep, and we will miss
our bearings if we go in
together.” To this, Keawenuiaumi
gave his consent, saying: “That
is well.”
lima, alaila, oukou holo ae, no ka
mea, he kekee ke awa e pae aku
ai o uka, ua hala no hoi ka wa
pono e pae ai. No ka mea, ina
oukou i ae mua e pae, alaila, o
ka wa hohonu ole ia o ke kai,
aole e nalo ke akoakoa. I keia
wa, ua nalowale na pukoakoa no
ka hohonu o ke kai, nolaila, hu
hewa kakou ke holo pu.” Ma keia
olelo a Kuapakaa, ae mai o
Keawenuiaumi: “Ae, ua pono ia.”
Pakaa and his son therefore
entered the passageway first,
and when they stopped they
beckoned to the king’s canoe as
well as the others to come in.
This zigzag was continued until
they were almost in, when Pakaa
said to the boy: “Say, let us
paddle in; you must exert all
your strength, that we may land
before the others.” With this the
two worked with all their might
and made land before the
Holo mua aku la o Pakaa ma
mamua, a kahi e lana ai, alaila
kahea mai i ko ke ’lii mau waa, a
me na waa e ae. Pela no ka holo
ana, i o ianei, e hookekee ai, a
kokoke loa e pae i uka olelo aku
o Pakaa i ke keiki: “E, e hoe
kaua, e hoe oe a ikaika loa, i pae
kaua.” Ia laua i hoe ai, pae e aku
la ko laua waa i uka, lehei aku la
o Pakaa mai ka waa aku a
holokiki aku la a komo i ka hale
aipuupuu, oia ka hale a Pakaa i
others. Pakaa then jumped
ashore and ran into the house
reserved for the preparation of
food, thinking that in this house
he would be safe, for such
houses were never entered by
kings. When Pakaa jumped from
the canoe, Lapakahoe saw and
thought he recognized Pakaa by
the limp he made while running,
for his legs had been injured;
but he was not certain, believing
that Pakaa was in Kaula.
manao ai e nalo, no ka mea, he
hale komo ole ia e ke ’lii. Ma keia
lele ana o Pakaa, ua ike mai o
Lapakahoe, o Pakaa no; o kona
kumu i manao ai oia, o ka
hapeepee o ka hele, e onaha ai
na wawae, aole nae i hooiaio loa
no ka manao, aia no o Pakaa i
Kaula kahi i noho ai.
Late that afternoon, all the
canoes made land, including the
canoe of Keawenuiaumi, who
still sat on the platform and had
not come ashore, for the reason
that he did not have any clothes,
and no loin cloth, all having been
wet and the spare ones had all
been lost at sea. When
Kuapakaa saw his master sitting
there naked on the canoe, he
returned to the house and told
his father of what he had seen.
When Pakaa heard this, he took
out a loin cloth and gave it to
Kuapakaa, saying to the boy:
“You take [112]this loin cloth and
give it to your master, and the
loin cloth that is wet, you bring it
Ahiahi iho la, pau loa mai la na
waa i ka pae, a me ko
Keawenuiaumi, eia nae, o
Keawenuiaumi, i luna no ia o ka
pola o na waa kahi i kau ai, aole
i lele i uka, no ka mea, aohe
kapa, aohe malo, ua pau loa i ka
pulu, a ua pau loa i ka lilo i ke
kai. Ike aku la o Kuapakaa i kona
haku i ka noho wale mai i luna o
na waa, hoi aku la ia a olelo i
kona makuakane ia Pakaa. A
lohe o Pakaa, unuhi mai la ia i ka
malo a haawi aku la ia
Kuapakaa, [113]a olelo aku la: “E
lawe oe i keia malo a haawi aku i
ko haku, a o ka malo i pulu, o ia
kau e lawe mai, no ka mea, o
here, for you are privileged to
wear his loin cloth and he
yours.” 29
kona malo nau e hume, pela hoi
kou malo, nana e hume.”
Kuapakaa therefore took up the
loin cloth and returned to
Keawenuiaumi. When he came
to the king’s presence he said:
“Here is my loin cloth, you can
use it and let me take your wet
one.” Keawenuiaumi reached out
for the loin cloth and looked at
it, and saw that it looked like his
own, the kind he used to wear
when Pakaa had charge. At
seeing this, Keawenuiaumi said:
“Say, this loin cloth looks just like
my own.” Kuapakaa replied:
“This is my own loin cloth, but
you being the king, I give it to
you.” Kuapakaa then took the
wet one and returned to Pakaa,
who said to him: “Hang up your
master’s loin cloth over the door
way, so that the people will not
try to enter this house. You can
enter it and can go out, because
all the sacred things belonging to
your master are free to you.
When the king’s stewards come
for food you can hand it to them
from the inside of this house,
Lawe aku la o Kuapakaa i ka
malo a hiki i mua o
Keawenuiaumi: “Eia kuu wahi
malo nou, o ko malo pulu e
haawi mai oe ia’u.” Lalau mai la
o Keawenuiaumi i ka malo a
nana iho la, ua like loa me kona
malo i ko laua wa e noho ana me
Pakaa; i mai la o Keawenuiaumi:
“E, ua like loa no keia malo me
ko’u malo.” I aku o Kuapakaa:
“No’u no keia malo; o oe hoi na
e ke ’lii, nolaila, haawi aku la au
nou ia.” Hoi mai la o Kuapakaa
me ka malo pulu a mua o Pakaa,
i mai la o Pakaa: “Kau ia ae ka
malo o ko haku ma ka puka o ka
hale, i ole e komo mai na kanaka
i loko nei. O oe ka mea komo i
keia hale, a me ka puka i waho,
no ka mea, ua laa oe i ke kapa a
me ka malo o ko haku, i hele
mai na aipuupuu i ai, nau e
haawi aku maloko nei, ma waho
mai no lakou.” He hana maalea
keia a Pakaa.
while they stand outside.” This
was cunning of Pakaa. 30
When Kuapakaa looked and saw
that Keawenuiaumi was sitting
without any covering, he took
pity on him and so told Pakaa
about it. When Pakaa heard this
he took out a kapa from the
wind calabash, Laamaomao and
handed it to Kuapakaa, saying:
“You take this and give it to your
master. If he should say that it
looks like his, you tell him, that
this is your own kapa made by
your mother.” The name given to
such kapas was “ouholowai of
Laa.” 31 They were very sweet,
having been scented with the
fragrant shrubs and vines of Laa
and Puna, called the olapa, the
kupaoa, the mokihana, the
apiipii and others.
Nana aku la o Kuapakaa, o ka
noho wale mai o Keawenuiaumi
aohe kapa, aloha iho la ia, olelo
aku la ia Pakaa; a lohe o Pakaa,
unuhi mai la ia i ke kapa, i loko o
ka ipu o Laamaomao, a haawi
aku la ia Kuapakaa. Olelo aku la:
“E lawe oe i ke kapa a haawi aku
i ko haku, i olelo mai ko haku, ua
like me kona kapa, e olelo aku
oe, o kou kapa no keia a kou
makuahine i kuku ai nou.” O ka
inoa o ke kapa, o ouholowai o
Laa; ua aala loa, no ka mea, ua
hooluuia i na nahelehele aala o
Laa a me Puna, oia ka olapa, ke
kupaoa, ka mokihana, ke apiipii,
a me na mea e ae.
When Kuapakaa came to the
presence of the king with the
kapa and handed it to
Keawenuiaumi, Keawenuiaumi
took it and spread it out. As he
did this he caught the sweet
scent of the olapa. He then
inquired of the boy: “Where did
you get this kapa?” The boy
A hiki aku la o Kuapakaa i mua o
Keawenuiaumi me ke kapa,
haawi aku la, lalau mai la o
Keawenuiaumi i ke kapa, a
kuehuehu ae la, po i ke ala o ka
olapa, honi iho la i ke ala. Alaila,
ninau mai la i ke keiki: “Nohea
keia kapa i loaa ai ia oe?” “No
Molokai nei no,” pela aku ke
replied: “It belongs here in
Molokai.” Keawenuiaumi said:
“There are no kapas in other
places like those of Hawaii; and
they are not common with other
chiefs. I am the only one who
possesses such things. I believe
this is my kapa. It must be that
Pakaa is here.” “It was my
mother that made this kapa for
my own use, for my mother is a
chiefess of Molokai and kapas
are scented on this island, and it
has been kept for my own use.
The name given my kapa is
wailau. 32 That is the best and
most fragrant kapa in this place,
like what you call the ouholowai
of Laa; they smell the same.”
This satisfied the king.
keiki. I mai o Keawenuiaumi:
“Aohe kapa o na wahi e ae e like
me ko Hawaii, aole no hoi i laha i
na ’lii e ae, ia’u wale no; me he
mea ala o kuu kapa no keia, a
eia no paha i anei o Pakaa?” “Na
ko’u makuahine no i kuku i keia
kapa no’u, no ka mea, he ’lii ko’u
makuahine no Molokai, a he
kapa aala no hoi ko keia aina, ua
hooluu ia i na mea aala he nui
loa, a ua malama ia no’u. O ka
inoa o ko’u kapa, o wailau, oia
koonei kapa aala loa, e like me
ko oukou he ouholowai o Laa.
Ua like na aala.” Pau ae la ko ke
’lii manao haohao.
That evening the chiefs came
together with their men and as
they were sitting quite close to
the king, the king said: “If Pakaa
was here, of an evening like this,
he would have my awa ready
with two fresh hinalea. 33 I would
drink the awa and as its effects
come over me, I would feel like
a newly made net, nice and
snug, all night. How I do miss
Pakaa.”
A ahiahi iho la, akoakoa ae la na
’lii me ko lakou mau kanaka, a
kahi hookahi; olelo aku o
Keawenuiaumi: “Ina nei la o
Pakaa, penei keia ahiahi la, o ka
apu awa mai la no, o na hinalea
ola elua. Inu iho la a ona, ooki
iho la ka ona o ka awa, uwi kela
me he koko aha la, a ao ka po;
aloha no hoi o Pakaa.”
When Kuapakaa heard this he
returned to his father, Pakaa,
and said: “My [114]master is in
want of some awa, and he has
expressed his affection for you
and showed that he still
remembers you.” When Pakaa
heard this, he took down the
awa cup, the awa dish, the grass
used for straining awa, the piece
of awa and two portions of awa
already prepared and said to the
boy: “You take these to your
master and show them to him. If
he should ask you to prepare the
awa for him, give your consent.
Then you turn to one side where
it is dark, leave the piece that is
not prepared, take up the
portions that are ready, strain
them into the cup. He will
compliment you for being very
quick, for I was ever ready with
these things when I was with
him. After you have strained the
awa into the cup, hand the cup
to your master, then run as fast
as you can to the pool where we
keep the hinalea and catch two
for your master, for he would
want the fish to take away the
Lohe o Kuapakaa i keia olelo a
ke ’lii, hoi aku la ia olelo ia
Pakaa: “Ua ono kuu [115]haku i
ka awa, a olelo mai nei he aloha
ia oe no ia mau mea i kou wa e
noho ana me ia.” A lohe o Pakaa,
unuhi mai la ia i ka apu, i ke
kanoa, i ka mauu, i ka puawa,
me na mana awa elua i mama
mua ia: “Lawe oe i keia a ko
haku, hoike aku, a i olelo mai
nau e mama, ae aku no. Alaila,
huli ae oe a ma kahi poeleele,
waiho oe i ka puawa okoa, lalau
iho oe i na mana i wali, a hoka
iho i loko o ke kanoa, alaila, e
mahalo kela i ko hikiwawe, no ke
mea, pela wau i ko’u wa e noho
ana me ia. A pau ka awa i ka
hoka, haawi aku oe i ko haku,
alaila, holo mama oe i na hinalea
elua a kaua i hooholo ai i ka
hapunapuna, lawe mai oe i pupu
no ka awa o ko haku, i pau ka
mulea awa o ka waha o ko
haku.”
bitter taste of the awa from his
mouth.”
When Kuapakaa came to the
presence of Keawenuiaumi, he
said: “Here is my awa for you.”
The king looked and saw that it
was quite a large piece, so he
said: “You had better prepare it
for me.” Kuapakaa then turned
into a dark corner, took the
portions already prepared,
strained the same and handed
the cup to the king. The boy
then ran for the fish, the two
hinalea, and shortly after he
returned with them to the king.
A hiki o Kuapakaa i mua o
Keawenuiaumi, olelo aku la: “Eia
kuu wahi awa nou.” Nana mai la
ke ’lii a ike he puawa nui, olelo
mai la: “Nau no e mama.” Huli
ae la o Kuapakaa ma kahi
poeleele a hoka iho la i na mana
i wali mua, haawi aku la i ke ’lii,
a holo aku la i na hinalea elua, a
hoi mai la i mua o
Keawenuiaumi.
Because of these things
performed by the boy,
Keawenuiaumi complimented
him for being quick and for
carrying himself like a person
who has always lived with kings,
and for conducting himself so
well. The king then drank up the
awa and as the effects of it stole
over him, combined with the
weariness of a hard and eventful
day, he fell into a deep sleep.
No keia mau hana a ke keiki,
mahalo iho la o Keawenuiaumi i
ka eleu, me he kanaka makua
ala, ua noho me na ’lii a maa ka
makaukau. Inu iho la ke ’lii a
ona, moe iho la, hui ae la ka ona
o ka awa me ka maluhiluhi o ke
kai, o ka moe ka hana.
Upon seeing this, Kuapakaa
decided to uncover the wind
Nolaila, manao o Kuapakaa, e
huai i ka ipu makani ana ia
calabash, Laamaomao, and to
keep it uncovered, so that the
winds would continue to blow
and the storm hold for days; and
in this way keep the king with
him. So Kuapakaa uncovered
Laamaomao, and the storm kept
up day after day; and by it the
expedition for the search was
postponed. Because of this
storm Keawenuiaumi and his
men were forced to wait for the
abating of the storm until one
month went by, when their food
which had been brought from
Hawaii was exhausted. At this,
the chiefs went before
Keawenuiaumi and told him of
their trouble, that they had run
out of food. When
Keawenuiaumi heard this he sent
a man to go and ask of the boy,
if he had any food. Said the
king: “If he has any food, tell
him that we are without any.”
Laamaomao, i pa ka makani,
mau no ka ino, noho no ke ’lii
me ia. Wehe ae la o Kuapakaa i
ke poi o Laamaomao, a pa iho la
ka ino i kela la i keia la, ma keia
ino i lohi ai ka holo o
Keawenuiaumi. Pela ko lakou kali
ana i ka malie, a hala hookahi
malama, pau ae la ko lakou
koena ai, o ka hele ana mai
Hawaii mai. Ia wa, hele mai na
’lii o Hawaii ia Keawenuiaumi, hai
mai la i ko lakou pilikia nui o ka
pololi, a lohe o Keawenuiaumi, i
ka lakou olelo. Hoouna aku la o
Keawenuiaumi i ke kanaka, e
ninau aku i ke keiki he ai paha
kana, aole paha. Aka, ina he ai,
e olelo aku oe he pilikia ko
kakou.
When the man came before
Kuapakaa he told him what
Keawenuiaumi had said to him.
When Kuapakaa heard this, he
said: “There is food; but you
must go back to the king and tell
him the food is up in the
A hiki aku la ke kanaka i mua o
Kuapakaa, hai aku la i na olelo a
Keawenuiaumi, a lohe o
Kuapakaa, olelo mai la: “He ai
no, eia nae, e hoi oe a hai aku i
ke ’lii ia Keawenuiaumi, he ai no,
aia i uka, e olelo aku oe, eono
uplands. Tell him there are six
chiefs here and I have six small
patches. Furthermore, if you
should go for food, don’t take
the big potatoes only and leave
the small ones; for if you do so
you will not get another chance
to go up there for food.” With
this the messenger returned to
the presence of Keawenuiaumi
and reported to him of what the
boy had said. When
Keawenuiaumi heard this he
ordered his men and the chiefs
to go up for food.
alii, eono kipoipoi. Eia hoi, i kii
oukou i ka ai, mai ohi oukou i ka
mea nui wale no, a haalele i ka
mea liilii, ina oukou e hana pela,
aole oukou e kii hou i ka ai.” Hoi
aku la ka elele a mua o
Keawenuiaumi, olelo aku la i ka
olelo a ke keiki, a lohe o
Keawenuiaumi, kena ae la ia i na
kanaka a me na ’lii e pii i ka ai.
When they came to the uplands,
where the potatoes were
growing they saw that there
were six large patches, each of
very great extent, and were so
long that the other ends could
not be seen. The men then said
to themselves: “How wonderful!
The [116]boy said there were six
small patches, but here there are
six very large patches.” The men
then began to dig up the
potatoes, and after they had dug
up enough, they collected the
potatoes and in obedience to the
boy’s order, they took the large
ones as well as the small ones
A hiki lakou i uka, nana aku la
lakou i na mala uala eono, nui
launa ole, a loihi no hoi ke nana
aku. Olelo ae la kekahi i kekahi:
“Kupanaha, olelo mai nei hoi ua
[117]keiki nei, he mau wahi
kipoipoi wale no, eia ka hoi, he
mau mala nunui.” Koki iho la
lakou, a nui ka ai, hoiliili iho la, e
like me ka olelo a ke keiki mai ka
mea nui a ka mea liilii, a hoi aku
la a hiki i kai, hoa ka umu, a
moa ae la, ai iho la lakou. Hele
mai la o Kuapakaa a hiki olelo
mai la ia lakou: “E auhea oukou
o ka uala nui o ka oukou ia, O ka
mea liilii o ka’u ia.” “Kahaha, aole
and returned with the potatoes
to the beach, lighted the ovens,
and after the potatoes were
cooked, they sat down and ate
their fill.
peia, i uala nui no kekahi au, no
ka mea, nau ka ai.” “Aole,” pela
aku o Kuapakaa, “o ka ai nui na
oukou no ia, o ka ai liilii o ka’u
ia. Penei nae oukou e hana ai; e
ihi oukou a pau ka ili o waho,
alaila, kaulai i ka la a maloo.” O
ke ano o keia, he ao maloo.
After this Kuapakaa came to
them and said: “I want you to
take the large potatoes for your
own use and keep the small
ones for me.” “Why, no, not so;
you must have some of the large
ones, too, because the potatoes
are yours.” “No,” said Kuapakaa,
“you take the large ones and
save the small ones for me. But I
want you to do this: peel the
skin and then set out the
potatoes to dry.” 34 The people
then asked Kuapakaa: “What do
you intend doing with the food,
boy?” Kuapakaa replied: “I am
doing this, because I know you
will eat up those potato patches
and the bad weather of this land
generally comes about this time,
when the sea will be rough,
which will keep you here for
some time, for there are three
bad months yet to come;
Ninau mai la lakou: “Heaha ke
ano o keia hana au e ke keiki?” I
aku o Kuapakaa: “No ko’u
manao, e pau ana kela mau
mala uala ia oukou, a e hiki mai
ana ka manawa ino o keia aina,
e kaikoo ai ka moana o kai, a e
loihi ana no hoi ko oukou noho
ana i anei, no ka mea, ekolu
malama ino i koe, o Makalii,
Kaelo, Kaulua. I Olana paha
hookau ka malie, alaila, oukou
holo, nolaila, e pau ana ka’u ai ia
oukou; aka, i hoi oukou, aole au
e wi ana, aole no hoi e pololi, no
ka mea, ua ola au i ka ai liilii a
oukou e hoiliili nei, loaa hoi ko’u
o e mahiai aku ai i ai na’u.” O
keia olelo a Kuapakaa, he olelo
maalea, he olelo huna, aole ia o
ke ano maoli. Ua ike no o
Kuapakaa, e koi ana no o
Keawenuiaumi, e holo e imi ia
Pakaa, ke malie, nolaila, ua
Makalii, Kaelo and Kaulua. 35 In
the month of Olana, 36 it is
possible that fine weather will
come, then you people will be
able to get away. By that time
my potatoes will all be consumed
by you, but by doing this, saving
and drying out the small
potatoes, I will not be without
food and will not be hungry, for I
shall then live on the small
potatoes which I ask you to keep
for me. With this food I will be
supplied during the time of
planting and care of a new crop.”
This talk by Kuapakaa, although
true, was intended to deceive
them, for Kuapakaa well knew
that Keawenuiaumi was going to
urge that he go along with him
in the search for Pakaa, when
good weather once more
prevailed. The men, in obedience
to this order, faithfully kept all
the small potatoes after every
cooking day.
malama loa na kanaka i ka ai
liilii, i kela umu keia umu ke
kalua ai lakou.
When Keawenuiaumi left Hawaii
on this expedition, he left word
with the chiefs and the common
people that he would take up a
month in the search for Pakaa.
He was, however, mistaken in
Eia nae, ia Keawenuiaumi ma i
holo mai ai mai Hawaii mai, olelo
aku ia i na ’lii o hope a me na
makaainana, hookahi mahina e
holo mai ai e imi ia Pakaa, aka,
ua hala na mahina eha ia lakou
this, for he was in Molokai for
four months. In this prolonged
absence the people of Hawaii
began to mourn for their king,
believing that he was dead. After
staying in Molokai for four
months, the followers of
Keawenuiaumi began to think of
their wives, children and
parents, and there was a general
feeling amongst them that they
abandon the search for Pakaa
and return to Hawaii.
ma Molokai, o ka noho ana. Ma
keia noho loihi ana o
Keawenuiaumi ma, kanikau na
makaainana o Hawaii ia ia, e
manao ana ua make. A hala na
mahina eha i ka noho ana ma
Molokai, hu mai la ke aloha o ka
wahine, ke keiki, a me ka
makua, nolaila, pau ka manao
hele e imi ia Pakaa, o ka hoi
wale no i Hawaii ka pono.
At the expiration of the four
months, during which bad
weather was to prevail as
predicted by Kuapakaa, he
closed the wind calabash of
Laamaomao, and good weather
was once more experienced. He
then said to the people: “This is
Olana, the pleasant month, then
come Welo and Ikiikii (May and
June), the period of time when
the fisherman’s fish line is always
wet. These months are the
pleasant months, and hence the
fisherman’s line is never dry,
because they go out fishing
every day.” He then said to the
chiefs and men: “Bind the
lashings of the canoes, for I
A pau na malama ino eha a
Kuapakaa i olelo ai, popoi iho la
ia i ka ipu makani o Laamaomao,
hookau mai la ka malie. Olelo
aku la ia: “Olana keia o ka
malama malie, o Welo, o Ikiiki, o
ke aho pulu a ka lawaia, he mau
malama malie wale no keia;
nolaila, maloo ole ai ke aho a ka
lawaia, no ka holo mau i kai.” I
aku la ia i na ’lii me na kanaka:
“E hoa na waa a paa, no ka
mea, ua kaohi aku wau ia oukou
no na malama ino eha, a ua
malie, e hoi oukou.” A lohe na ’lii
i keia olelo, makaukau iho la na
waa a paa i ka hoa, hoolana aku
la i loko o ke kai, me ka paa i ka
hekau ia, no ka mea, he huakai
have kept you for four months
because of the bad weather;
now that good weather has
come, you must return home.”
When the chiefs heard this, they
made ready their canoes,
renewed the lashings, and
pushed the canoes out into the
sea and moored them, for the
expedition [118]of kings is ever
alert. Very late that evening,
when it was almost midnight,
Kuapakaa called out in a chant,
as follows:
[119]pulale ka ke ’lii. A ahiahi loa,
Arise! Arise! Arise!
The night is spent, the night is
spent.
All tiredness, soreness and
weariness have vanished;
Also darkness that prevents the
sailing of canoes.
Arise! Arise! Arise!
Hikiliimakaounulau 37 is up,
The star at the end of the land.
Arise, make a move! Arise, make
a move!
E ala! e ala! e ala!
Ua kulu ka po! ua kulu ka po!
Pau ka luhi, ka eha, ka opa,
Ka maka pouli o na waa la.
E ala! e ala! e ala!
Aia i luna o Hikiliimakaounulau,
Ka hoku i ka palena o ka aina.
E ala! e eu! E ala! e eu!
Upon hearing this, the chiefs
said: “How strange! it is not yet
anywheres near daylight, but the
boy is calling us to sail off. This
is only in the early evening.”
Ma keia olelo a ke keiki, olelo ae
la na ’lii: “Kupanaha! Aole hoi i
kokoke aku i ke ao, o ka hea
okoa mai nei no ia e holo, eia no
ka i ke ahiahi okoa.”
aneane e aumoe, kahea aku la o
Kuapakaa ma ka paha penei:
CHAPTER IV.
MOKUNA IV.
Departure from Molokai.—The Names
of the Six Districts of Hawaii.—The
King Desires Kuapakaa to Accompany
Him.—The Boy Consents Under
Conditions.—They Start Off.—
Meeting With Adverse, Cold Winds,
the Two Sailing Masters Fall
Overboard.
Ka Haalele ana ia Molokai.—Na Inoa o
na Moku Hawaii Eono.—Makemake ke
’Lii e Holo pu o Kuapakaa me ia.—Ae ke
keiki Malalo nae o na Kumuaelike.—
Hoomaka Lakou e Holo.—Halawai me
na Makani Anu Pahili, Haule na
Hookele Elua mai ka Waa.
By this expression used by the
chiefs, it was their intention to
delay their sailing until the
change of the Milky Way, after
midnight, when they would
make the start. Hearing this
expression, Kuapakaa again
called out; this time naming the
six different districts of Hawaii,
and also the six chiefs.
O ko na ’lii manao ma keia olelo
a ke keiki, e waiho a huli ka ia i
ke kau o ka po, alaila holo.
Nolaila, hoomaka hou o
Kuapakaa e kahea ma ka inoa o
na moku eono o Hawaii, e pili
ana i na ’lii eono o Hawaii:
THE NAMES OF THE DISTRICTS.
NA INOA O NA AINA.
Arise, Kona, land of the calm
seas!
E ala e Kona, aina kai pohu i ka
hau!
E lele ana ke ao pohu o Keei,
The shady clouds of Keei are
flying.
The clouds are like ridge poles
over Weli.
How long you have indeed slept!
When I mentioned you the fact,
You sit calmly and make no stir.
Make a move, Kohala, arise!
Make a move, Kohala, thou of
the solid step,
Causing Papa the begetter of the
isles, to hearken,
The one who gave birth to
Koolau.
Arise, Hilo!
Hilo of the incessant rains of the
sharp head.
The flower of the lehua is
withered
By the pelting down of the rain,
Prepare the ki leaf 38 in the calm
For the net-fishing of the nehu at
Punahoa.
Arise, Puna!
Puna the land made fragrant by
the hala [120]
From one end to the other,
To the very breadfruit trees of
Kailua
He ao kaupoku ia no Weli,
Weliweli, wale ko’u moena,
Ko’u hai wale ana ia oe,
Nohowale iho la oe, pale ko eu,
Eu e Kohala—e!
E eu e Kohala, ka unupaa,
A haliu o Papa hanau moku,
Ka mea nana i hanau o Koolau,
E ala e! e Hilo e!
O Hilo ua poolipilipi i ka umulau,
Ua mae ka pua o ka lehua
I ka hehihehi a ke kuaua,
E aha lai i ka malie,
Lawaia huki heenehu o Punahoa.
E ala, e Puna e!
O Puna aina ala i ka hala [121]
Mai ke kila no a akiaki,
O na ulu o Kailua,
Aeae kukio makani o Kau.
E ala e Kau e!
Kau nui aina makani,
Ko ke au i Alae
Kapaepae ka waa e holo,
I Kailikii, i Kaulana,
Holo kookahi, holo koolua,
Holo kookolu, holo kooha,
Holo koolima, holo kooono,
Holo koohiku, holo koowalu,
Holo kooiwa, holo kooumi.
Holo na pou, na waa liilii,
That stand unmolested by the
winds of Kau.
Ka waa o na ’lii e holo.
Arise, Kau!
Kau the large windy land,
Land where the current draws to
Alae,
Where the canoes sail here and
there,
To Kailikii, to Kaulana,
Sailing singly, sailing in pairs,
Sailing by threes, sailing by
fours,
Sailing by fives, sailing by sixes,
Sailing by sevens, sailing by
eights,
Sailing by nines, sailing by tens.
They all sail, the small canoes,
The canoes of the chiefs must
sail.
After this call of the boy, the
chiefs and the men arose about
midnight, boarded their canoes
and set sail, and when out at sea
they hove to and awaited for the
canoe of Keawenuiaumi, which
was to come later; for the king
had given them his order to go
to sea and await his coming. In
waiting for the king, the chiefs
allowed their canoes to drift
away; and in drifting they all fell
Mahope o keia olelo kahea a ke
keiki, ala ae la na ’lii a me na
kanaka i ke aumoe, a ee ae la
kela alii, keia alii i kona waa, a
holo aku la, a ka moana lana
mai, koe iho la o Keawenuiaumi
mahope. Ua kauoha ke ’lii ia
lakou, e holo a ka moana kakali
mai ia ia, ma keia holo ana, ua
hookelekele lakou, mai Molokai a
Oahu, e like me ka moku. Ma
keia hookelekele ana o lakou, ua
asleep. The men who were
anxious to get back home then
headed the canoes for Kawaihae
in Kohala, Hawaii; at daylight the
next day, the chiefs awoke and
when they looked about them
they saw that the land in sight
was Hawaii. Instead of getting
angry, they felt happy, for they
knew that they were about to
see their wives and children;
they, however, felt some regrets,
for they loved their king,
Keawenuiaumi.
pau loa i ka hiamoe i luna o na
waa, nolaila, ua holo na waa a
pae ma Kawaihae, i Kohala,
Hawaii. I ke ao ana ae, nana aku
lakou o Hawaii keia aina, olioli
iho la lakou, no ka ike i ka
wahine me ke keiki, aka, ua nui
ko lakou aloha no ke ’lii, no
Keawenuiaumi.
At daylight, a man came to
Kuapakaa from the king with the
request that he go to the king.
When Kuapakaa came before
Keawenuiaumi the king said: “I
have sent for you to ask you that
you accompany me to Kaula and
back.” Kuapakaa replied: “I
cannot go with you, for I would
be leaving my old man by
himself and he is very weak.” But
since the king kept on urging
him, Kuapakaa agreed to
accompany the king. This by the
way was the wish of Kuapakaa.
In giving his consent, Kuapakaa
made his going conditional,
saying: “I am willing to go with
A ao ae la kii aku la ke kanaka ia
Kuapakaa, ma ke kauoha a ke ’lii
e hele mai i mua ona. A hiki o
Kuapakaa i mua o
Keawenuiaumi, olelo mai la: “I
kii aku nei au ia oe, e holo pu
kaua i Kaula a hoi mai.” Olelo
aku o Kuapakaa: “Aole au e hiki,
e haalele iho auanei au i kuu
wahi pupu elemakule, no ka
mea, ua palupalu.” A no ke koi
pinepine a ke ’lii, ae aku la o
Kuapakaa e holo pu, o kona
manao no ia o ka holo pu me
Keawenuiaumi. Nolaila, olelo aku
la o Kuapakaa ia Keawenuiaumi:
“He ae no au e holo pu me oe,
ke ili nae kuu wahi ukana, alaila,
you, if you will take my things
along. If you allow this, I will
accompany you; but if you will
not allow my things to go along,
I will not go with with you.” The
king gave his consent, 39 saying:
“I am willing that you go with
your things.” Keawenuiaumi then
told the men to take the things
belonging to the boy and place
them on the canoe, believing
that this would allow the boy to
accompany him.
holo kaua, a i ole e ili, aole au e
holo me oe.” Ae mai la ke ’lii:
“He ae no au e holo oe a me ko
ukana pu.” Kena ae la o
Keawenuiaumi i na kanaka, e kii
i ka ukana a ke keiki a lawe mai,
no ka mea, ua manao o
Keawenuiaumi o ia ka mea e hiki
ai ke keiki.
When the men came to the
place where the boy’s things
were, they looked and saw a
large log of wood as long as the
double canoe of the king. When
the men saw this log they
expressed their doubts as to its
being able to be carried by the
double canoe for they feared
that it would be too much of a
load. The men, however, took it
up with some difficulty and
placed it on the canoe, which set
the canoe deep in the water. The
boy then pointed to another
thing, a rock, with a groove cut
around it; thus making two
things the boy wished placed in
the canoe. [122]
A hiki na kanaka i kahi o ka
ukana, i nana iho ka hana, he
laau nui, ua like ka loa me na
waa o ke ’lii, o Keawenuiaumi.
Olelo iho la na kanaka, ina paha
e kau keia laau nui i luna o na
waa, o ke komo no ia, no ka nui
launa ole. Amo ae la lakou me
ka hiki inoino loa, a hooili i luna
o na waa, a aneane na waa e
komo no ke kaumaha loa;
kuhikuhi hou ke keiki i kekahi
ukana ana, he pohaku, ua hana
ia a puali, alua ana ukana. [123]
This large log of wood was
hollow and contained food and
various other things. Because of
this large log, the men gave the
boy the name, “The boy of
Kaluakoi with the large package.”
After the things belonging to the
boy had been placed on the
double canoe, Keawenuiaumi
and Kuapakaa, as well as the
rest of the men, boarded it and
set sail.
O keia laau nui, he ukana o loko,
he ai, he ia a me na mea a pau
loa. No keia laau nui, kapa na
kanaka ia ia: “O ke keiki opeope
nui o Kaluakoi.” A pau na ukana
a ke keiki i luna o ka waa, ee
aku la o Keawenuiaumi me
Kuapakaa, a me na mea a pau
loa i luna o ka waa, a holo aku
la.
In setting out, they experienced
pleasant winds, called Kaao;
Kuapakaa at once looked at the
two sailing masters and asked
that they give him one of the
paddles, but they refused,
saying: “We cannot give you one
because this is our sign of
authority. We will be blamed if
we surrender it to you.” By this
Kuapakaa wanted to place the
responsibility upon their own
heads, in case of coming
disaster, for these were the very
men who had made things so
unpleasant for his father, Pakaa,
who was forced to go away from
the presence of Keawenuiaumi.
Ma keia holo ana, he maikai ka
makani, he kaao; ia wa nana aku
la o Kuapakaa i na hookele, a
nonoi aku la i kekahi hoe ia ia,
hoole mai la na hookele: “Aohe
maua e haawi aku ia oe, no ka
mea, o ko maua haawina no ia;
hewa maua ke lilo ia oe.” Ma
keia hana a Kuapakaa he imihala
i na hookele, no ka mea, o na
hookele ko Pakaa mea i hele ai
mai a Keawenuiaumi mai.
The canoe sailed on and passed
to the lee of Oahu, then on into
the sea of Kaieiewaho, 40 where
they saw Kauai; after a time they
went past Waimea. At this place
Kuapakaa uncovered his wind
calabash, Laamaomao and
immediately they were
encompassed by a terrible
storm. In meeting this storm the
king did not worry for he had the
boy with him. When they were
beset with this storm,
Keawenuiaumi asked of the
sailing masters: “What are we to
do?” The two were unable to
make answer, at that time, for
the waves were beating into the
canoe, and it was only being
kept afloat through the exertion
of the bailers. Soon after this the
storm increased and the wind
and rain were terrible; the
thunder and lightning too was
severe, and they began to drift
away until Kauai was almost lost
to their sight.
Holo mai la lakou mai Molokai a
kalewa mawaho o Oahu nei,
malaila aku a ke kai o
Kaieiewaho, ike lakou ia Kauai, a
mahope, holo ana lakou mawaho
o Waimea. Alaila, wehe ae la o
Kuapakaa i ke poi o ka ipu
makani o Laamaomao, a halawai
lakou me ka ino ia wa, i keia
pilikia ana, ua oluolu no ko ke ’lii
manao no ka holo pu ana o ke
keiki me ia. Ma keia ino ana,
ninau aku la o Keawenuiaumi i
na hookele: “Pehea ka pono?”
Aole hiki ia laua ke ekemu mai;
ia wa, e komo ana ka ale iloko o
na waa, aka, ua ikaika na ka liu.
Ia wa, hiki mai ka ino a nui loa,
aole o kana mai ka ua me ka
makani, ka hekili me ka uwila, a
aneane e nalowale o Kauai.
As the storm increased,
Keawenuiaumi turned to the boy
and asked: “What about this
storm?” Kuapakaa answered: “I
have nothing else to meet it,
Ma keia ino i loohia ai ia lakou,
ninau aku la o Keawenuiaumi i
ke keiki: “Pehea ka ino?” I aku o
Kuapakaa: “Aohe a’u pono e ae,
eia wale no, e hoolei ka pohaku
except this rock; it must be cast
out to serve as an anchor to hold
the canoe and in that way
prevent our being blown away
by the wind and lose sight of
land.” At this, Keawenuiaumi
surrendered the entire command
of the canoe to Kuapakaa; it was
his to carry them to destruction
or to safety. Kuapakaa then
opened out one end of the log,
and taking out a rope he
fastened it to the rock, and
threw it into the sea, and they
were held in one place.
nei la i ke kai i heleuma no na
waa e paa ai, e aho ia, aole
kakou e puhi ia e ka makani, a
nalowale ka aina.” Ia wa, hooili
mai la o Keawenuiaumi i na hana
a pau loa ia Kuapakaa, ia ia ka
make, a me ke ola; alaila, unuhi
ae la o Kuapakaa i ke poo o ka
laau a lawe ae la i ke kaula a
nakii iho la i ka pohaku, a hoolei
aku la i loko o ke kai, a paa iho
la lakou i kahi hookahi.
When Kuapakaa saw that the
men and the king were shivering
from the intense cold, that their
hair hung down straight and
every one was suffering, he took
out some palm leaves 41 from the
log and gave the men one
apiece and one to the king; but
he did not give the sailing
masters, Hookeleihilo and
Hookeleipuna, any. Soon after
this he took out food and meat
from the log, and gave some to
the men and to the king; but he
again refused to give anything to
the sailing masters.
A ike o Kuapakaa i ke anu o na
kanaka a me ke ’lii, ua huluhulu
loloa, ua haukeke, alaila, unuhi
ae la ia i ka lau o ka loulu mai
loko ae o ka laau, a haawi
pakahi aku la i na kanaka, a me
ke ’lii, o Keawenuiaumi, i ka ao
loulu, a koe na hookele, oia o
Hookeleihilo a me Hookeleipuna,
aohe o laua ao loulu. Mahope o
keia, haawi aku la o Kuapakaa i
ka ai a me ka ia i na kanaka, a
koe o Hookeleihilo a me
Hookeleipuna, aohe ai a laua.
By this action of Kuapakaa the
two sailing masters were in great
distress, for they were shivering
with the cold and were in great
need of food. Not very long after
this, Hookeleihilo fell overboard,
unable to withstand any longer
the terrible sufferings. At this the
man who sat in front of
Hookeleiho called out:
“Hookeleihilo has fallen
overboard.” Not very long after
this, Hookeleipuna succumbed
and he too fell overboard, dead;
thus were the two sailing
masters disposed of. [124]
Ma keia hana ana a Kuapakaa,
ua pilikia loa na hookele i ke anu
a me ka pololi, aole i liuliu iho,
pahu ana o Hookeleihilo i loko o
ke kai mahope o na waa. Kahea
mai la ke kanaka mamua iho o
Hookeleihilo: “E! Pahu aku la o
Hookeleihilo i loko o ke kai!” Aole
i liuliu iho, make o Hookeleipuna,
pau loa na hookele i ka make.
CHAPTER V.
MOKUNA V.
At Death of Pakaa’s Enemies, Calm
Prevails.—The Boy Is Made Sailing
Master.—He Directs the Canoes to
Hawaii.—The Men Are Made Glad, but
the King Is Sad at Failing to Find
Pakaa.—Kuapakaa Foretells His
Neglect by the King.—Landing at
Kawaihae He Is Deserted.—He Joins
Two Fishermen and Makes a Fair
Catch.—Falling in with a Six-manned
Canoe He Wagers on a Race, Single-
I ka Make ana o ko Pakaa mau Enemi,
Halii ka Malie.—Hoolilo ia ke Keiki i
Hookele.—Kuhi Oia i ka Ihu o ka Waa
i Hawaii.—Hoohauoli ia na Kanaka,
aka, Hookaumaha ia ke Alii i ka Loaa
ole ana o Pakaa.—Wanana o Kuapakaa
i Kona Hoowahawaha ia e ke Alii.—I
ka Pae ana ma Kawaihae, Haalele wale
ia Oia.—Hui oia me Elua Mau Kanaka
Lawaia a Loaa Kana mau wahi I’a.—
Halawai oia me ka Waa Eono Kanaka, a
[125]