Finance for Executives Managing for Value Creation,9780324117752

Finance for Executives Managing for Value Creation

by ;
ISBN13: 9780324117752
ISBN10: 0324117752
Format: Hardcover
Pub. Date: 2001-06-20
Publisher(s): South-Western College Pub
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Summary

This thorough and analytically sound introduction to financial management is designed especially for the experienced exec. Employing the appropriate level of both practicality and rigor for the executive audience, the book emphasizes rigorous analysis with direct application to decision-making. Using a practical approach, Finance for Executives is organized around the underlying principle that firms should be managed to create value for their owners. Hawawini and Viallet have extensive expertise teaching this topic to executives: The material in their book has been used by thousands of managers worldwide. Filling the gap between introductory accounting and finance manuals for nonfinancial managers and advanced books on corporate finance, Finance for Executives serves as an excellent - yet concise - reference.

Table of Contents

PART I INTRODUCTION
Financial Management and Value Creation: An Overview
1(36)
The Key Question: Will Your Decision Create Value?
2(3)
The Fundamental Finance Principle
5(4)
Applying the Fundamental Finance Principle
9(5)
The Role of Financial Markets
14(4)
The Business Cycle
18(2)
HLC's Financial Statements
20(5)
How Profitable is a Firm?
25(1)
How Much Cash Does a Firm Generate?
26(2)
How Risky is a Firm?
28(2)
Is Value Created?
30(1)
Summary
31(1)
Further Reading
32(1)
Review Problems
33(4)
Understanding Balance Sheets and Income Statements
37(30)
Financial Accounting Statements
37(3)
The Balance Sheet
40(10)
The Income Statement
50(4)
Reconciling Balance Sheets and Income Statements
54(2)
The Structure of the Owners' Equity Account
56(1)
Summary
57(3)
Appendix 2.1 Specimen Financial Statements
60(1)
Polo Ralph Lauren's Balance Sheets and Income Statements
60(5)
Further Reading
65(1)
Review Problems
65(2)
PART II FINANCIAL DIAGNOSIS AND MANAGEMENT
Assessing Liquidity and Operational Efficiency
67(40)
The Managerial Balance Sheet
68(7)
The Components of Capital Employed
75(2)
The Matching Strategy
77(2)
A Measure of Liquidity Based on the Funding Structure of Working Capital Requirement
79(2)
Improving Liquidity Through Better Management of the Operating Cycle
81(8)
Traditional Measures of Liquidity
89(2)
Summary
91(11)
Appendix 3.1 Financing Strategies
93(3)
Appendix 3.2 Polo Ralph Lauren's Liquidity and Operational Efficiency
96(6)
Further Reading
102(1)
Review Problems
102(5)
Measuring Cash Flows
107(34)
Cash Flows and Their Sources
108(3)
Preparing a Detailed Cash Flow Statement
111(8)
Two Variations of the Cash Flow Statement
119(4)
Bankers' Cash Flow versus Net Operating Cash Flow
123(1)
Managerial Implications
124(2)
Summary
126(11)
Appendix 4.1 Obtaining the Net Operating Cash Flow From Balance Sheet and Income Statement Accounts
127(5)
Appendix 4.2 Polo Ralph Lauren's Cash Flows
132(5)
Further Reading
137(1)
Review Problems
137(4)
Diagnosing Profitability, Risk, and Growth
141(44)
Measures of Profitability
142(1)
Return on Equity
143(14)
Other Measures of Profitability
157(1)
Financial Leverage and Risk
158(4)
Self-Sustainable Growth
162(5)
Summary
167(13)
Appendix 5.1 Factors Affecting a Firm's Operating Profitability
169(4)
Appendix 5.2 The Relationship Between A Firm's Roe and Its Aftertax Roic
173(1)
Appendix 5.3 Polo Ralph Lauren's Profitability
174(6)
Further Reading
180(1)
Review Problems
180(5)
PART III INVESTMENT DECISIONS
Using the Net Present Value Rule to Make Value-Creating Investment Decisions
185(36)
The Capital Investment Process
186(2)
Would You But this Parcel of Land?
188(2)
The Net Present Value Rule
190(6)
Applying the Net Present Value Rule to a Capital Investment Decision
196(2)
Why the NPV Rule is a Good Investment Rule
198(7)
Special Cases of Capital Budgeting
205(4)
Limitations of the Net Present Value Criterion
209(4)
Summary
213(5)
Appendix 6.1 Calculation of the Present Value of an Annuity and the Constant Annual-Equivalent Cash Flow of a Project's Cash-Flow Stream
215(3)
Further Reading
218(1)
Review Problems
218(3)
Alternatives to the Net Present Value Rule
221(22)
The Payback Period
222(4)
The Discounted Payback Period
226(3)
The Internal Rate of Return (IRR)
229(7)
The Profitability Index (PI)
236(3)
Summary
239(1)
Further Reading
239(1)
Review Problems
239(4)
Identifying and Estimating a Project's Cash Flows
243(24)
The Actual Cash-Flow Principle
243(1)
The With/Without Principle
244(2)
The Designer Desk Lamp Project
246(3)
Identifying a Project's Relevant Cash Flows
249(6)
Estimating a Project's Relevant Cash Flows
255(6)
Should SMC Launch the New Product?
261(2)
Summary
263(1)
Further Reading
264(1)
Review Problems
265(2)
PART IV FINANCING DECISIONS
Raising Capital and Valuing Securities
267(44)
Estimating the Amount of Required External Funds
268(4)
The Financial System: Its Structure and Functions
272(7)
How Firms Issue Securities
279(6)
Debt Capital: Characteristics and Valuation
285(14)
Equity Capital: Characteristics and Valuation
299(5)
Summary
304(4)
Appendix 9.1 The Bond Valuation Formula
305(2)
Appendix 9.2 The Valuation Formula for the Constant Growth Dividend Model
307(1)
Further Reading
308(1)
Review Problems
308(3)
Estimating the Cost of Capital
311(36)
Identifying Proxy or Pure-Play Firms
313(1)
Estimating the Cost of Debt
313(2)
Estimating the Cost of Equity: The Divided Discount Model
315(2)
Estimating the Cost of Equity: The Capital Asset Pricing Model
317(12)
Estimating the Cost of Capital of a Firm
329(4)
Estimating the Cost of Capital of a Project
333(10)
Summary
343(1)
Further Reading
344(1)
Review Problems
345(2)
Designing a Capital Structure
347(40)
The Capital Structure Decision: No Corporate Taxes and No Financial Distress Costs
348(5)
Effect of Changes in Capital Structure on the Firm's Value: The Pizza Theory
353(6)
The Capital Structure Decision: Corporate Income Taxes and No Financial Distress Costs
359(8)
The Capital Structure Decision When Financial Distress is Costly
367(3)
Formulating a Capital Structure Policy
370(12)
Summary
382(2)
Further Reading
384(1)
Review Problems
384(3)
PART V BUSINESS DECISIONS
Valuing and Acquiring a Business
387(48)
Alternative Valuation Methods
388(2)
Valuing a Firm's Equity Using Comparables
390(7)
Valuing a Firm's Assets and Equity Using the Discounted Cash Flow Approach
397(5)
Estimating the DCF Value of OS Distributers' Assets and Equity
402(7)
Estimating the Acquisition Value of OS Distributors
409(10)
Estimating the Leveraged Buyout Value of OS Distributors
419(9)
Summary
428(4)
Appendix 12.1 The Divided Discount Model Approach to the Valuation of a Firm's Equity
431(1)
Further Reading
432(1)
Review Problems
433(2)
Making Value-Creating Decisions in An International Environment
435(52)
The Firm's Risk Exposure from Foreign Operations
436(3)
The Foreign Exchange Market
439(3)
Hedging Contractual Exposure to Currency Risk
442(12)
Hedging Long-Term Contractual Exposure to Currency Risk with Swaps
454(1)
The Relationships Among Exchange Rates, Inflation Rates, and Interest Rates
455(5)
Analyzing an International Investment Project
460(9)
Managing Country Risk
469(2)
Summary
471(12)
Appendix 13.1 Translating Financial Statements With the Monetary/Nonmonetary Method and the Current Method
473(4)
Appendix 13.2 The Parity Relations
477(6)
Further Reading
483(1)
Review Problems
484(3)
Managing for Value Creation
487(40)
Measuring Value Creation
488(7)
Identifying the Drivers of Value Creation
495(5)
Linking Operating Performance and Remuneration to Value Creation
500(8)
Linking the Capital Budgeting Process to Value Creation
508(4)
Putting it all Together. The Financial Strategy Matrix
512(3)
Summary
515(6)
Appendix 14.1 Adjusting Book Values to Estimate the Amount of Invested Equity Capital and Operating Profit
517(3)
Appendix 14.2 Estimating Market Value Added (MVA) When Future Cash Flows Are Expected to Grow at a Constant Rate in Perpetuity
520(1)
Further Reading
521(1)
Review Problems
522(5)
Glossary 527(24)
Answers to Review Problems 551(48)
Index 599

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