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Fundamentals of financial management
Author
Publisher
Thomson/Southwestern
Publication Date
c2007
Edition
Concise 5th ed.
Language
English
Description
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Table of Contents
From the Book - Concise 5th ed.
Preface
Part 1. Introduction to Financial Management
Chapter 1. An Overview of Financial Management
Striking the Right Balance
Putting Things in Perspective
1.1. Forms of Business Organization
1.2. Stock Prices and Shareholder Value
1.3. Intrinsic Values, Stock Prices, and Compensation Plans
1.4. Some Important Trends
Is Shareholder Wealth Maximization a Worldwide Goal?
1.5. Business Ethics
What Companies Are Doing
Consequences of Unethical Behavior
How Should Employees Deal with Unethical Behavior?
Protection for Whistle-Blowers
1.6. Conflicts between Managers and Stockholders
1.7. The Role of Finance in the Organization
Tying it All Together
Part 2. Fundamental Concepts in Financial Management
Chapter 2. Time Value of Money
Will You Be Able to Retire?
Putting Things in Perspective
2.1. Time Lines
2.2. Future Values
Simple versus Compound Interest
1. Step-by-Step Approach
2. Formula Approach
3. Financial Calculators
4. Spreadsheets
Hints on Using Financial Calculators
Graphic View of the Compounding Process
2.3. Present Values
Graphic View of the Discounting Process
2.4. Finding the Interest Rate, I
2.5. Finding the Number of Years, N
2.6. Annuities
2.7. Future Value of an Ordinary Annuity
2.8. Future Value of an Annuity Due
2.9. Present Value of an Ordinary Annuity
2.10. Finding Annuity Payments, Periods, and Interest Rates
Finding Annuity Payments, PMT
Finding the Number of Periods, N
Finding the Interest Rate, I
2.11. Perpetuities
2.12. Uneven Cash Flows
2.13. Future Value of an Uneven Cash Flow Stream
2.14. Solving for I with Uneven Cash Flows
2.15. Semiannual and Other Compounding Periods
2.16. Comparing Interest Rates
2.17. Fractional Time Periods
2.18. Amortized Loans
Tying it All Together
Integrated Case: First National Bank
Web Appendix 2A. Continuous Compounding and Discounting
Chapter 3. Financial Statements, Cash Flow, and Taxes
Doing Your Homework with Financial Statements
Putting Things in Perspective
3.1. A Brief History of Accounting and Financial Statements
3.2. Financial Statements and Reports
3.3. The Balance Sheet
3.4. The Income Statement
3.5. Net Cash Flow
3.6. Statement of Cash Flows
Massaging the Cash Flow Statement
3.7. Statement of Retained Earnings
3.8. Uses and Limitations of Financial Statements
Financial Analysis on the Internet
3.9. Modifying Accounting Data for Investor and Managerial Decisions
Operating Assets and Operating Capital
Operating Cash Flows
Free Cash Flow
3.10. MVA and EVA
3.11. The Federal Income Tax System
Corporate Taxes
Personal Taxes
Interest Paid
Interest Earned
Dividends Paid
Dividends Received
Tax Loss Carry-Back and Carry-Forward
Capital Gains
Depreciation
Small Businesses
Tying it All Together
Integrated Case: D'Leon Inc., Part I
Web Appendix 3A. The Federal Income Tax System
Chapter 4. Analysis of Financial Statements
Lessons Learned from Enron and WorldCom
Putting Things in Perspective
4.1. Ratio Analysis
4.2. Liquidity Ratios
Current Ratio
Quick, or Acid Test, Ratio
4.3. Asset Management Ratios
Inventory Turnover Ratio
Days Sales Outstanding
Fixed Assets Turnover Ratio
Total Assets Turnover Ratio
4.4. Debt Management Ratios
Total Debt to Total Assets
Times-Interest-Earned Ratio
EBITDA Coverage Ratio
4.5. Profitability Ratios
Profit Margin on Sales
Global Perspectives: Global Accounting Standards: Can One Size Fit All?
Return on Total Assets
Basic Earning Power (BEP) Ratio
Return on Common Equity
4.6. Market Value Ratios
Price/Earnings Ratio
Price/Cash Flow Ratio
Market/Book Ratio
4.7. Trend Analysis
4.8. Tying the Ratios Together: The Du Pont Equations
4.9. Comparative Ratios and "Benchmarking"
Looking for Warning Signs within the Financial Statements
4.10. Uses and Limitations of Ratio Analysis
4.11. Problems with ROE
EVA and ROE
4.12. Looking Beyond the Numbers
Tying it All Together
Integrated Case: D'Leon Inc., Part II
Chapter 5. Financial Markets and Institutions
A Strong Financial System Is Necessary for a Growing and Prosperous Economy
Putting Things in Perspective
5.1. An Overview of the Capital Allocation Process
5.2. Financial Markets
Types of Markets
Recent Trends
5.3. Financial Institutions
5.4. The Stock Market
Citigroup Built to Compete in a Changing Environment
The Physical Location Stock Exchanges
The NYSE and Nasdaq Combine Forces with the Leading Online Trading Systems
The Over-the-Counter and the Nasdaq Stock Markets
5.5. The Market for Common Stock
Types of Stock Market Transactions
5.6. Stock Markets and Returns
Stock Market Reporting
Stock Market Returns
5.7. Stock Market Efficiency
Levels of Market Efficiency
Measuring the Market
Implications of Market Efficiency
Is the Stock Market Efficient?
A Closer Look at Behavioral Finance Theory
Tying it All Together
Integrated Case: Smyth Barry & Company, Part I
Part 3. Financial Assets
Chapter 6. Interest Rates
Low Interest Rates Encourage Investment and Stimulate Consumer Spending
Putting Things in Perspective
6.1. The Cost of Money
6.2. Interest Rate Levels
6.3. The Determinants of Market Interest Rates
The Real Risk-Free Rate of Interest, r*
The Nominal, or Quoted, Risk-Free Rate of Interest, r[subscript RF]
Inflation Premium (IP)
Default Risk Premium (DRP)
An Almost Riskless Treasury Bond
Liquidity Premium (LP)
Maturity Risk Premium (MRP)
6.4. The Term Structure of Interest Rates
6.5. What Determines the Shape of the Yield Curve?
The Links between Expected Inflation and Interest Rates: A Closer Look
6.6. Using the Yield Curve to Estimate Future Interest Rates
6.7. Other Factors that Influence Interest Rate Levels
Federal Reserve Policy
Federal Budget Deficits or Surpluses
International Factors
Business Activity
Global Perspectives: Measuring Country Risk
6.8. Investing Overseas
6.9. Interest Rates and Business Decisions
Tying it All Together
Integrated Case: Smyth Barry & Company, Part II
Chapter 7. Bonds and Their Valuation
Sizing Up Risk in the Bond Market
Putting Things in Perspective
7.1. Who Issues Bonds?
7.2. Key Characteristics of Bonds
Par Value
Coupon Interest Rate
Maturity Date
Call Provisions
Sinking Funds
Other Features
7.3. Bond Valuation
7.4. Bond Yields
Yield to Maturity
Yield to Call
Current Yield
7.5. Changes in Bond Values over Time
7.6. Bonds with Semiannual Coupons
7.7. Assessing a Bond's Riskiness
Interest Rate Risk
Reinvestment Rate Risk
Comparing Interest Rate and Reinvestment Rate Risk
7.8. Default Risk
Various Types of Corporate Bonds
Bond Ratings
Bankruptcy and Reorganization
7.9. Bond Markets
Tying it All Together
Intergated Case: Western Money Management Inc.
Web Appendix 7A. Zero Coupon Bonds
Web Appendix 7B. Bankruptcy and Reorganization
Chapter 8. Risk and Rates of Return
No Pain No Gain
Putting Things in Perspective
8.1. Stand-Alone Risk
Probability Distributions
Expected Rate of Return
Measuring Stand-Alone Risk: The Standard Deviation
Using Historical Data to Measure Risk
Measuring Stand-Alone Risk: The Coefficient of Variation
Risk Aversion and Required Returns
The Trade-Off between Risk and Return
8.2. Risk in a Portfolio Context
Expected Portfolio Returns, r[subscript p]
Portfolio Risk
The Benefits of Diversification Are More Important Than Ever
Diversifiable Risk versus Market Risk
The Concept of Beta
Global Perspectives: The Benefits of Diversifying Overseas
8.3. The Relationship between Risk and Rates of Return
Estimating the Market Risk Premium
The Impact of Inflation
Changes in Risk Aversion
Changes in a Stock's Beta Coefficient
8.4. Some Concerns about Beta and the CAPM
8.5. Some Concluding Thoughts: Implications for Corporate Managers and Investors
Tying it All Together
Integrated Case: Merrill Finch Inc.
Web Appendix 8A. Calculating Beta Coefficients
Chapter 9. Stocks and Their Valuation
Searching for the Right Stock
Putting Things in Perspective
9.1. Legal Rights and Privileges of Common Stockholders
Control of the Firm
The Preemptive Right
9.2. Types of Common Stock
9.3. Common Stock Valuation
Definitions of Terms Used in Stock Valuation Models
Expected Dividends as the Basis for Stock Values
9.4. Constant Growth Stocks
Illustration of a Constant Growth Stock
Dividend and Earnings Growth
When Can the Constant Growth Model Be Used?
9.5. Expected Rate of Return on a Constant Growth Stock
9.6. Valuing Stocks Expected to Grow at a Nonconstant Rate
Evaluating Stocks That Don't Pay Dividends
9.7. Valuing the Entire Corporation
The Corporate Valuation Model
Other Approaches to Valuing Common Stocks
Comparing the Total Company and Dividend Growth Models
9.8. Stock Market Equilibrium
Changes in Equilibrium Stock Prices
9.9. Investing in International Stocks
9.10. Preferred Stock
Global Perspectives: Investing in Emerging Markets
Tying it All Together
Integrated Case: Mutual of Chicago Insurance Company
Part 4. Investing in Long-Term Assets: Capital Budgeting
Chapter 10. The Cost of Capital
Creating Value at GE
Putting Things in Perspective
10.1. An Overview of the Weighted Average Cost of Capital
10.2. Basic Definitions
10.3. Cost of Debt, r[subscript d](1 - T)
10.4. Cost of Preferred Stock, r[subscript p]
Funny-Named Preferred-Like Securities
10.5. Cost of Retained Earnings, r[subscript s]
The CAPM Approach
Dividend-Yield-plus-Growth-Rate, or Discounted Cash Flow (DCF), Approach
Bond-Yield-plus-Risk-Premium Approach
How Much Does It Cost to Raise External Capital?
10.6. Cost of New Common Stock, r[subscript e]
Add Flotation Costs to a Project's Cost
Increase the Cost of Capital
When Must External Equity Be Used?
10.7. Composite, or Weighted Average, Cost of Capital, WACC
10.8. Factors That Affect the WACC
Factors the Firm Cannot Control
Factors the Firm Can Control
Global Perspectives: Global Variations in the Cost of Capital
10.9. Adjusting the Cost of Capital for Risk
10.10. Some Other Problems with Cost of Capital Estimates
Tying it All Together
Integrated Case: Coleman Technologies Inc.
Web Appendix 10A. The Cost of New Common Stock and the WACC
Chapter 11. The Basics of Capital Budgeting
Competition in the Aircraft Industry
Putting Things in Perspective
11.1. Generating Ideas for Capital Projects
11.2. Project Classifications
11.3. The Net Present Value (NPV) Criterion
11.4. Internal Rate of Return (IRR)
11.5. Comparison of the NPV and IRR Methods
NPV Profiles
NPV Rankings Depend on the Cost of Capital
Independent Projects
Mutually Exclusive Projects
11.6. Multiple IRRs
11.7. Modified Internal Rate of Return (MIRR)
11.8. Payback Period
11.9. Conclusions on Capital Budgeting Methods
11.10. Decision Criteria Used in Practice
11.11. Using Capital Budgeting Techniques in Other Contexts
11.12. The Post-Audit
Tying it All Together
Integrated Case: Allied Components Company
Chapter 12. Cash Flow Estimation and Risk Analysis
Home Depot Keeps Growing
Putting Things in Perspective
12.1. Background on the Project
12.2. Project Analysis
Input Data, Part 1
Depreciation Schedule, Part 2
Salvage Value Calculations, Part 3
Projected Cash Flows, Part 4
Appraisal of the Proposed Project, Part 5
12.3. Other Points on Cash Flow Analysis
Cash Flow versus Accounting Income
Timing of Cash Flows
Incremental Cash Flows
Replacement Projects
Sunk Costs
Opportunity Costs
Externalities
12.4. Estimating Project Risk
12.5. Measuring Stand-Alone Risk
Sensitivity Analysis
Scenario Analysis
Monte Carlo Simulation
Global Perspectives: Capital Budgeting Practices in the Asian/Pacific Region
12.6. Different Capital Structures
12.7. Introduction to Real Options
12.8. Abandonment/Shutdown Options
12.9. The Optimal Capital Budget
Tying it All Together
Integrated Case: Allied Food Products
Appendix 12A. Tax Depreciation
Web Appendix 12B. Replacement Project Analysis
Web Appendix 12C. Refunding Operations
Web Appendix 12D. Using the CAPM to Estimate the Risk-Adjusted Cost of Capital
Web Appendix 12E. Techniques for Measuring Beta Risk
Web Appendix 12F. Comparing Mutually Exclusive Projects with Unequal Lives
Web Appendix 12G. Real Options: Investment Timing, Growth, and Flexibility
Part 5. Capital Structure and Dividend Policy
Chapter 13. Capital Structure and Leverage
Debt: Rocket Booster or Anchor?
Putting Things in Perspective
13.1. The Target Capital Structure
13.2. Business and Financial Risk
Business Risk
Operating Leverage
Financial Risk
13.3. Determining the Optimal Capital Structure
WACC and Capital Structure Changes
The Hamada Equation
The Optimal Capital Structure
13.4. Capital Structure Theory
Yogi Berra on the M&M Proposition
The Effect of Taxes
The Effect of Potential Bankruptcy
Trade-Off Theory
Signaling Theory
Using Debt Financing to Constrain Managers
13.5. Checklist for Capital Structure Decisions
Global Perspectives: Taking a Look at Global Capital Structures
13.6. Variations in Capital Structures
Tying it All Together
Integrated Case: Campus Deli Inc.
Web Appendix 13A. Degree of Leverage
Chapter 14. Distributions to Shareholders: Dividends and Share Repurchases
Microsoft Shifts Gears and Begins to Unload Part of Its Vast Cash Hoard
Putting Things in Perspective
14.1. Dividends versus Capital Gains: What Do Investors Prefer?
Dividend Irrelevance Theory
Reasons Some Investors Prefer Dividends
Reasons Some Investors May Prefer Capital Gains
14.2. Other Dividend Policy Issues
Information Content, or Signaling, Hypothesis
Clientele Effect
14.3. Establishing the Dividend Policy in Practice
Setting the Target Payout Ratio: The Residual Dividend Model
Global Perspectives: Dividend Yields Around the World
Earnings, Cash Flows, and Dividends
Payment Procedures
14.4. Dividend Reinvestment Plans
14.5. Summary of Factors Influencing Dividend Policy
Constraints
Investment Opportunities
Alternative Sources of Capital
Effects of Dividend Policy on r[subscript s]
14.6. Stock Dividends and Stock Splits
Stock Splits
Stock Dividends
Effect on Stock Prices
14.7. Stock Repurchases
The Effects of Stock Repurchases
Stock Repurchases Soar in 2004
Advantages of Repurchases
Disadvantages of Repurchases
Conclusions on Stock Repurchases
Tying it All Together
Integrated Case: Southeastern Steel Company
Web Appendix 14A. An Example: The Residual Dividend Model
Part 6. Working Capital Management, Forecasting, and Multinational Financial Management
Chapter 15. Working Capital Management
Best Buy Successfully Manages Its Working Capital
Putting Things in Perspective
15.1. Working Capital Terminology
15.2. The Cash Conversion Cycle
Calculating the Targeted CCC
Calculating the Actual CCC
Some Firms Operate with Negative Working Capital!
15.3. Alternative Current Asset Investment Policies
15.4. Alternative Current Asset Financing Policies
Maturity Matching, or "Self-Liquidating," Approach
Aggressive Approach
Conservative Approach
Choosing between the Approaches
15.5. The Cash Budget
15.6. Cash and Marketable Securities
Currency
Demand Deposits
Marketable Securities
15.7. Inventories
Supply Chain Management
15.8. Accounts Receivable
Credit Policy
Setting and Implementing the Credit Policy
Monitoring Accounts Receivable
15.9. Accounts Payable (Trade Credit)
15.10. Bank Loans
Promissory Note
Line of Credit
Revolving Credit Agreement
Costs of Bank Loans
15.11. Commercial Paper
15.12. Accruals (Accrued Liabilities)
15.13. Use of Security in Short-Term Financing
Tying it All Together
Integrated Case: Ski Equipment Inc.
Web Appendix 15A. Inventory Management
Web Appendix 15B. Short-Term Loans and Bank Financing
Chapter 16. Financial Planning and Forecasting
Forecasting Apple's Future
Putting Things in Perspective
16.1. Strategic Planning
16.2. The Sales Forecast
16.3. The AFN Equation
Key Determinants of External Funds Requirements
Excess Capacity Adjustments
16.4. Forecasted Financial Statements
Initial Forecast: "Business as Usual"
16.5. Using Regression to Improve Financial Forecasts
16.6. Using Individual Ratios in the Forecasting Process
Modifying Accounts Receivable
Modifying Inventories
Other "Special Studies"
Tying it All Together
Integrated Case: New World Chemicals Inc.
Web Appendix 16A. Forecasting Financial Requirements When Financial Ratios Change
Chapter 17. Multinational Financial Management
U.S. Firms Look Overseas to Enhance Shareholder Value
Putting Things in Perspective
17.1. Multinational or Global Corporations
17.2. Multinational versus Domestic Financial Management
17.3. The International Monetary System
International Monetary Terminology
Current Monetary Arrangements
17.4. Foreign Exchange Rate Quotations
Cross Rates
Interbank Foreign Currency Quotations
17.5. Trading in Foreign Exchange
Spot Rates and Forward Rates
17.6. Interest Rate Parity
17.7. Purchasing Power Parity
17.8. Inflation, Interest Rates, and Exchange Rates
Hungry for a Big Mac? Go to China!
Stock Market Indices Around the World
17.9. International Money and Capital Markets
International Credit Markets
International Stock Markets
17.10. International Capital Budgeting
17.11. International Capital Structures
17.12. Multinational Working Capital Management
Cash Management
Credit Management
Inventory Management
Tying it All Together
Integrated Case: Citrus Products Inc.
Appendixes
Appendix A. Solutions to Self-Test Questions and Problems
Appendix B. Answers to Selected End-of-Chapter Problems
Appendix C. Selected Equations and Data
Web Appendix C. Selected Equations and Data
Index
Cyberproblems
Cyberproblem CP1-1. Executive Compensation
Cyberproblem CP2-1. Online Financial Calculators
Cyberproblem CP3-1. Examining the Financial Report-3M
Cyberproblem CP4-1. Using Ratio Analysis as a Tool-Brady Corporation
Cyberproblem CP5-1. World Financial Markets
Cyberproblem CP6-1. Yield Curves and Interest Rates
Cyberproblem CP7-1. BondsOnline Educated Investor Center
Cyberproblem CP8-1. Evaluating Portfolio Risk and Return
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9780324319835
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