Financial Management Concepts and Applications

by Foerster, Stephen

• ISBN13: 9780132936644
• ISBN10: 013293664X
• Edition: 1st
• Format: Paperback
• Copyright: 2014-01-13
• Publisher: Pearson

Summary

For courses in Corporate Finance

A balanced overview of financial management theory and practice

Finance is one of the key drivers of a firm’s activities, and a critical component to understanding business in general. Financial Management: Concepts and Applications is designed to help students with no prior knowledge grasp the applications and relevance of finance. Author Stephen Foerster reveals the practical side of finance, rather than just its theoretical concepts, and shows how finance intersects with many other areas of business. Thoroughly integrated with the text, MyFinanceLab places personalized practice opportunities just a few clicks away and provides a truly interactive learning experience.

This program provides a better teaching and learning experience—for you and your students. It will help you to:

• Personalize learning with MyFinanceLab: This online homework, tutorial, and assessment program provides students the help they need, when they need it, and allows unlimited practice.
• Encourage students to focus on the big picture: A thematic approach helps students achieve a holistic view of how finance impacts many aspects of business.
• Highlight applications of finance: A strong emphasis on applications helps students see the relevance of finance, and keeps them interested in the course.
• Foster thorough understanding via learning aids: Various tools, throughout the text and at the end of each chapter, support students as they learn and review.

Note: If you are purchasing the standalone text or electronic version, MyFinanceLab does not come automatically packaged with the text. To purchase MyFinanceLab please visit www.myfinancelab.com or you can purchase a package of the physical text + MyFinanceLab by searching for 0133578089 / 9780133578089. MyFinanceLab¿ is not a self-paced technology and should only be purchased when required by an instructor.

Table of Contents

Brief TOC

1. Overview of Financial Management
2. Sizing Up a Business: A Non-Financial Perspective
3. Understanding Financial Statements
4. Measuring Financial Performance
5. Managing Day-To-Day Cash Flow
6. Projecting Financial Requirements and Managing Growth
7. Time Value of Money Basics and Applications
8. Making Investment Decisions
9. Overview of Capital Markets: Long-Term Financing Instruments
10. Assessing the Cost of Capital: What Investors Require
11. Understanding Financing and Payout Decisions
12. Designing an Optimal Capital Structure
13. Measuring and Creating Value
14. Comprehensive Case Study: Wal-Mart Stores, Inc.



Comprehensive TOC

1. Overview of Financial Management

• 1.1: Financial Management and the Cash Flow Cycle
• 1.2: The Role of Financial Managers
• 1.3: A Non-Financial Perspective of Financial Management
• 1.4: Financial Management’s Relationship with Accounting and Other Disciplines
• 1.5: Types of Firms
• 1.6: A Financial Management Framework
• 1.7: Relevance for Managers
• 1.8: Summary
• 1.9: Additional Readings
• 1.10: End of Chapter Problems

2. Sizing Up a Business: A Non-Financial Perspective

• 2.1: Sizing Up The Overall Economy

o 2.1.1: GDP Components
o 2.1.2: Sector-Related Fluctuations
o 2.1.3:  Inflation and Interest Rates
o 2.1.4: Capital Markets
o 2.1.5: Economic Size-Up Checklist

• 2.2: Sizing Up the Industry

o 2.2.1: Industry Life Cycles
o 2.2.2: The Competitive Environment
o 2.2.3: Opportunities and Risks
o 2.2.4: Industry Size-up Checklist

• 2.3: Sizing Up Operations Management and Supply Risk
• 2.4: Sizing Up Marketing Management and Demand Risk
• 2.5: Sizing Up Human Resource Management and Strategy
• 2.6: Sizing Up Home Depot: An Example
• 2.7: Relevance for Managers
• 2.8 Summary
• 2.9: Additional Readings and Information
• 2.10: End of Chapter Problems

3. Understanding Financial Statements

• 3.1: Understanding Balance Sheets

o 3.1.1: Understanding Assets
o 3.1.2: Understanding Liabilities
o 3.1.3: Understanding Equity

• 3.2: Understanding Income Statements

o 3.2.1: Understanding Revenues, Costs, Expenses, and Profits
o 3.2.2: Connecting a Firm’s Income Statement and Balance Sheet

• 3.3: Understanding Cash Flow Statements

o 3.3.1: Cash Flows Related to Operating Activities
o 3.3.2: Cash Flows from Investing Activities
o 3.3.3: Cash Flows from Financing Activities

• 3.4: Relevance for Managers
• 3.5: Summary
• 3.6: Additional Readings and Sources of Information
• 3.7: End of Chapter Problems

4. Measuring Financial Performance

• 4.1: Performance Measures

o 4.1.1: Return on Equity
o 4.1.2: Profitability Measures
o 4.1.3: Resource Management Measures
o 4.1.4: Liquidity Measures
o 4.1.5: Leverage Measures
o 4.1.6: Application: Home Depot

• 4.2: Reading Annual Reports
• 4.3: Relevance for Managers
• 4.4: Summary
• 4.5: Additional Readings and Sources of Information
• 4.6: End of Chapter Problems

5. Managing Day-To-Day Cash Flow

• 5.1: Cash Flow Cycles

• 5.2: Working Capital Management

o 5.2.1: Managing Inventory
o 5.2.2: Managing Accounts Receivable
o 5.2.3: Managing Accounts Payable
o 5.2.4: Application: Home Depot

• 5.2.4.1: Orange Computers and Little Orange Computers
• 5.2.4.2: Home Depot

• 5.3: Short-Term Financing

o 5.3.1: Bank Loans
o 5.3.2: Commercial Paper
o 5.3.3: Banker’s Acceptance

• 5.4: Relevance for Managers
• 5.5: Summary
• 5.6: Additional Readings
• 5.7: End of Chapter Problems

6. Projecting Financial Requirements and Managing Growth

• 6.1: Generating Pro Forma Income Statements

o 6.1.1: Establishing the Cost of Goods Sold and Gross Profit
o 6.1.2: Establishing Expenses
o 6.1.3: Establishing Earnings

• 6.2: Generating Pro Forma Balance Sheets

o 6.2.1: Establishing Assets
o 6.2.2: Establishing Liabilities and Equity

• 6.3: Generating Pro Forma Cash Budgets

o 6.3.1: Establishing Cash Inflows
o 6.3.2: Establishing Cash Outflows
o 6.3.3: Establishing Net Cash Flows

• 6.4: Performing Sensitivity Analysis

o 6.4.1: Sales Sensitivity
o 6.4.1: Interest Rate Sensitivity
o 6.4.3: Working Capital Sensitivity

• 6.5: Understanding Sustainable Growth and Managing Growth
• 6.6: Relevance for Managers
• 6.7: Summary
• 6.8: Additional Readings and Resources
• 6.9: Problems

7. Time Value of Money Basics and Applications

• 7.1: Exploring Time Value of Money Concepts

o 7.1.1: Future Values
o 7.1.2: Present Values
o 7.1.3: Annuities
o 7.1.4: Perpetuities

• 7.2: Applying Time Value of Money Concepts to Financial Securities

o 7.2.1: Bonds
o 7.2.2: Preferred Shares
o 7.2.3: Common Equity

• 7.3: Relevance for Managers
• 7.4: Summary
• 7.5: Additional Readings
• 7.6: End of Chapter Problems

8. Making Investment Decisions

• 8.1: Understanding the Decision-Making Process
• 8.2: Capital Budgeting Techniques

o 8.2.1: Payback

• 8.2.1.1: Strengths and Weaknesses of the Payback Method

o 8.2.2: Net Present Value

• 8.2.2.1: Strengths and Weaknesses of the Net Present Value Method

o 8.2.3: Internal Rate of Return

• 8.2.3.1: Strengths and Weaknesses of the Internal Rate of Return Method
• 8.2.3.2: Modified Internal Rate of Return

• 8.3: Capital Budgeting Extensions

o 8.3.1: Profitability Index
o 8.3.2: Equivalent Annual Cost and Project Lengths
o 8.3.3: Mutually Exclusive Projects and Capital Rationing

• 8.4: Relevance for Managers
• 8.5: Summary
• 8.6: Additional Readings
• 8.7: End of Chapter Problems

9. Overview of Capital Markets: Long-Term Financing Instruments

• 9.1: Bonds

o 9.1.1: Changing Bond Yields
o 9.1.2: Bond Features
o 9.1.3: Bond Ratings

• 9.2: Preferred Shares
• 9.3: Common Shares

o 9.3.1: Historical Returns

• 9.4: Capital Markets Overview

o 9.4.1: Private versus Public Markets
o 9.4.2: Venture Capital and Private Equity
o 9.4.3: Initial Offerings versus Seasoned Issues
o 9.4.4: Organized Exchanges versus Over-The-Counter Markets
o 9.4.5: Role of Intermediaries

• 9.5: Market Efficiency

o 9.5.1: Weak Form
o 9.5.2: Semi-strong Form
o 9.5.3: Strong Form
o 9.5.4: U.S. Stock Market Efficiency

• 9.6: Relevance for Managers
• Appendix: Understanding Bond and Stock Investment Information
• 9.7: Summary
• 9.8: Additional Readings
• 9.9: End of Chapter Problems

10. Assessing the Cost of Capital: What Investors Require

• 10.1: Understanding the Cost of Capital: An Example
• 10.2: Understanding the Implications of the Cost of Capital
• 10.3: Defining Risk
• 10.4: Estimating the Cost of Debt
• 10.5: Estimating the Cost of Preferred Shares
• 10.6: Estimating the Cost of Equity

o 10.6.1: Dividend Model Approach
o 10.6.2: Capital Asset Pricing Model

• 10.6.2.1: Risk-Free Rate
• 10.6.2.2: Market Risk Premium
• 10.6.2.3: Beta

• 10.7: Estimating Component Weights
• 10.8: Home Depot Application
• 10.9: Hurdle Rates
• 10.10: Relevance for Managers
• 10.11: Summary
• 10.12: Additional Readings
• 10.13: Problems

11. Understanding Financing and Payout Decisions

• 11.1: Capital Structure Overview
• 11.2: Understanding the Modigliani-Miller Argument: Why Capital Structure Does Not Matter
• 11.3: Relaxing the Assumptions: Why Capital Structure Does Matter

o 11.3.1: Understanding the Impact of Corporate Taxes
o 11.3.2: Understanding the Impact of Financial Distress
o 11.3.3: Combining Corporate Taxes and Financial Distress Costs
o 11.3.4: Impact of Asymmetric Information

• 11.4: Understanding Payout Policies

o 11.4.1: Paying Dividends
o 11.4.2: Repurchasing Shares
o 11.4.3: Do Dividend Policies Matter?

• 11.5: Relevance for Managers
• 11.6: Summary
• 11.7: Additional Resources
• 11.8: End of Chapter Problems
• Appendix: Why Dividend Policy Doesn’t Matter: Example

12. Designing an Optimal Capital Structure

• 12.1: Factor Affecting Financing Decisions: The FIRST Approach

o 12.1.1: Maximizing Flexibility
o 12.1.2: Impact on EPS: Minimizing Cost

• 12.1.2.1: A Simple Valuation Model
• 12.1.2.2: Earnings before Interest and Taxes Break-Even: What Leverage Really Means
• 12.1.2.3: Does Issuing Equity Dilute the Value of Existing Shares?

o 12.1.3: Minimizing Risk
o 12.1.4: Maintaining Shareholder Control
o 12.1.5: Optimal Training

• 12.2: Tradeoff Assessment: Evaluating FIRST Criteria
• 12.3: Relevance for Managers
• 12.4: Summary
• 12.5: Additional Resource
• 12.6: End of Chapter Problems

13.  Measuring and Creating Value

• 13.1: An Overview of Measuring and Creating Value
• 13.2: Measuring Value: The Book Value Plus Adjustments Method

o 13.2.1: Pros and Cons of the Book Value of Equity Plus Adjustments Method

• 13.3: Measuring Value: The Discount Cash Flow Analysis Method

o 13.3.1: Estimating Free Cash Flows
o 13.3.2: Estimating the Cost of Capital
o 13.3.3: Estimating the Present Value of Free Cash Flows
o 13.3.4: Estimating the Terminal Value
o 13.3.5: Estimating the Value of Equity
o 13.3.6: Pros and Cons of the Free Cash Flow to the Firm Approach

• 13.4: Measuring Value: Relative Valuations and Comparable Analysis

o 13.4.1: The Price-Earnings Method

• 13.4.1.1: Pros and Cons of the Price-Earnings Approach

o 13.4.2: The Enterprise Value-to-EBITDA Method

• 13.4.2.1: Pros and Cons of the EV/EBITDA Approach

• 13.5: Creating Value and Value-Based Management
• 13.6: Valuing Mergers and Acquisitions

o 13.6.1: Valuing Comparable M&A Transactions

• 13.7: Relevance for Managers
• 13.8: Summary
• 13.9: Additional Readings
• 13.10: End of Chapter Problems

14. Comprehensive Case Study: Wal-Mart Stores, Inc.

• 14.1: Sizing Up Wal-Mart

o 14.1.1: Analyzing the Economy
o 14.1.2: Analyzing the Industry
o 14.1.3: Analyzing Walmart’s Strengths and Weaknesses in Operations, Marketing, Management, and Strategy

• 14.1.3.1: Analyzing Walmart’s Operations
• 14.1.3.2: Analyzing Walmart’s Marketing
• 14.1.3.3: Analyzing Walmart’s Management and Strategy

o 14.1.4: Analyzing Walmart’s Financial Health

• 14.2: Projecting Walmart’s Future Performance

o 14.2.1: Projecting Walmart’s Income Statement
o 14.2.2: Projecting Walmart’s Balance Sheet
o 14.2.3: Examining Alternate Scenarios

• 14.3: Assessing Walmart’s Long-Term Investing and Financing

o 14.3.1: Assessing Walmart’s Investments
o 14.3.2: Assessing Walmart’s Capital Raising and the Cost of Capital

• 14.4: Valuing Walmart

o 14.4.1: Measuring Walmart’s Economic Value Added
o 14.4.2: Estimating Walmart’s Intrinsic Value: The DCF Approach
o 14.4.3: Estimating Walmart’s Intrinsic Value: Comparable Analysis
o 14.4.4: Creating Value and Overall Assessment of Walmart

• 14.5: Relevance for Managers and Final Comments
• 14.6: Additional Readings and Sources of Information
• 14.7: End of Chapter Problems