Financial management for decision makers

Description

Front Cover Half Title Page Title Page Copyright Page Contents Preface Publisher's acknowledgements 1 The world of financial management Introduction Learning outcomes The finance function Structure of the book Modern financial management Why do businesses exist? Balancing risk and return Behaving ethically Protecting shareholders' interests Shareholder involvement Summary Key terms References Further reading Critical review questions 2 Financial planning Introduction Learning outcomes Planning for the future The role of projected financial statements Preparing projected financial statements The sales forecast Preparing the projected statements: a worked example Projected cash flow statement Projected income statement Projected statement of financial position (balance sheet) Per-cent-of-sales method Long-term cash flow projections Projected financial statements and decision making Taking account of risk Financial planning and gearing Financial gearing Operating gearing Combined gearing effect Summary Key terms Further reading Critical review questions Exercises 3 Analysing and interpreting financial statements Introduction Learning outcomes Financial ratios Financial ratio classifications The need for comparison Calculating the ratios A brief overview Profitability Efficiency Relationship between profitability and efficiency Liquidity Financial gearing Investment ratios Financial ratios and the problem of overtrading Key performance indicators Trend analysis Using ratios to predict financial failure Limitations of ratio analysis Summary Key terms References Further reading Critical review questions Exercises 4 Making capital investment decisions Introduction Learning outcomes The nature of investment decisions Investment appraisal methods Accounting rate of return (ARR) Payback period (PP) Net present value (NPV) Why NPV is better Internal rate of return (IRR) Some practical points The main methods summarised Investment appraisal in practice Investment appraisal and strategic planning The investment appraisal process Investment decisions and human behaviour Summary Key terms References Further reading Critical review questions Exercises 5 Making capital investment decisions: further issues Introduction Learning outcomes Investment decisions when funds are limited Comparing projects with unequal lives The ability to delay The problem of inflation The problem of risk Sensitivity analysis Scenario analysis Risk preferences of investors Risk-adjusted discount rate Expected net present value (ENPV) Event tree diagrams Risk and the standard deviation The standard deviation and the normal distribution The expected value–standard deviation rule Simulations Measuring probabilities Portfolio effects and risk reduction Summary Key terms Further reading Critical review questions Exercises 6 Financing a business 1: sources of finance Introduction Learning outcomes Sources of finance External sources of finance External sources of long-term finance Attitudes towards the level of borrowing External sources of short-term finance Long-term versus short-term borrowing Internal sources of finance Internal sources of long-term finance Internal sources of short-term finance Summary Key terms Further reading Critical review questions Exercises 7 Financing a business 2: raising long-term finance Introduction Learning outcomes The Stock Exchange Stock market efficiency Are the stock markets really efficient? Share issues Long-term finance for the smaller business Business angels Government assistance The Alternative Investment Market (AIM) Summary Key terms References Further reading Critical review questions Exercises 8 The cost of capital and the capital structure decision Introduction Learning outcomes Cost of capital Weighted average cost of capital (WACC) Specific or average cost of capital? Limitations of the WACC approach Cost of capital – some evidence The capital structure debate Gearing and signalling Summary Key terms References Further reading Critical review questions Exercises 9 Making distributions to shareholders Introduction Learning outcomes Paying dividends Dividend distributions in practice Dividend policy and shareholder wealth The importance of dividends Factors determining the level of dividends Dividend policy and management attitudes: some evidence Dividend smoothing in practice What should managers do? Alternatives to cash dividends Summary Key terms References Further reading Critical review questions Exercises 10 Managing working capital Introduction Learning outcomes What is working capital? The scale of working capital Managing inventories Inventories management models Managing trade receivables Managing cash Managing trade payables Summary Key terms Further reading Critical review questions Exercises 11 Measuring and managing for shareholder value Introduction Learning outcomes The quest for shareholder value Creating shareholder value The need for new forms of measurement Net present value (NPV) analysis Managing the business with shareholder value analysis Implications of SVA Economic value added (EVAA®) EVAA®-based ratios EVAA® in practice EVAA® and SVA compared EVAA® or SVA? Market value added (MVA) The link between MVA and EVAA® Limitations of MVA Total shareholder return (TSR) Criticisms of the shareholder value approach Measuring the value of future growth Shareholder value and directors' rewards Summary Key terms References Further reading Critical review questions Exercises 12 Business mergers and share valuation Introduction Learning outcomes Mergers and takeovers Merger and takeover activity The rationale for mergers Wealth-enhancing motives for mergers Other motives for mergers Forms of purchase consideration Merger synergies - a case study Mergers and financial outcomes Who benefits? The merger puzzle Ingredients for successful mergers Rejecting a takeover bid Due diligence Protecting shareholders and the public Mergers and conglomerates Restructuring a business: divestments and demergers The valuation of shares Summary Key terms References Further reading Critical review questions Exercises 13 International aspects of financial management Introduction Learning outcomes The internationalisation of business Internationalisation and risk reduction Internationalisation and shareholders' wealth Foreign exchange A theoretical explanation of relative exchange rates Foreign exchange markets and market efficiency Problems of internationalisation Dealing with transaction risk Economic risk Translation risk International investment appraisal International investment at the portfolio level International investment and agency cost Summary Key terms References Further reading Critical review questions Exercises Appendix A Present value table Appendix B Annual equivalent factor table Appendix C Solutions to self-assessment questions Appendix D Solutions to critical review questions Appendix E Solutions to selected exercises Glossary of key terms Index Back Cover