Financial management for decision makers

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