Financial Times Handbook of Corporate Finance A Business Companion to Financial Markets, Decisions and Techniques

by Arnold, Glen

• ISBN13: 9780273726562
• ISBN10: 0273726560
• Edition: 2nd
• Format: Paperback
• Copyright: 2010-10-01
• Publisher: FT Press

Summary

THE authoritative introduction to the principles of corporate finance and the financial markets. bull; bull;An explanation of value-based management. bull;Mergers and problem of merger failures. bull;Investment appraisal techniques. bull;How to enhance shareholder value. bull;How the finance and money markets really work. bull;Controlling foreign exchange rate losses. bull;How to value a company. The second edition of this bestselling companion to finance has been thoroughly updated to ensure that your decisions continue to be informed by sound business principles. New sections include corporate governance, the impact of taxation on investment strategies, using excess return as a new value metric, up-to-date statistics that reflect the latest returns on shares, bonds, and merger activities and a jargon-busting glossary to help you understand words, phrases, and concepts.

Author Biography

Glen Arnold is a businessman, investor and a professor of finance at Salford University. He’s the author of Corporate Financial Management, now  in its fourth edition, Essentials of Corporate Financial Management, The Financial Times Guide to Value Investing, now in its second edition, and the market leading, The Financial Times Guide to Investing also in its second edition.

Table of Contents

Table of Contents

CONTENTS

Introduction

·         Some of the financial issues covered

·         The scope of corporate finance

 

Chapter 1. What is the firm’s objective?

• A common purpose
• The assumed objective of finance
• Why should we aim for shareholder wealth?
• What is shareholder wealth?
• Profit maximisation is not the same as shareholder wealth maximisation
• Getting manager’s objectives aligned with shareholder’s objectives
• What happens if control over directors is weak?
• Conclusion

 

 

PART 1 – IINVESTING IN PROJECTS? 

 

Chapter 2. State-of-the-art project assessment techniques

• How do you know whether an investment generates value for shareholders?
• State-of-the-art technique 1: net present value
• State-of-the-art technique 2: internal rate of return
• Choosing between NPV and IRR
• Appendix 2.1 Mathematical tools for finance

 

Chapter 3. Traditional appraisal techniques 

• What appraisal techniques businesses actually use
• Payback
• Accounting rate of return
• Internal rate of return: reason for continued popularity

 

Chapter 4. Investment decision-making in companies 

• The managerial art of investment selection
• More tricky issues in real world project appraisal
• The stages of investment decision making

 

Chapter 5. Allowing for risk in project appraisal 

• What is risk?
• Adjusting for risk through the discount rate
• Sensitivity analysis
• Scenario analysis
• Probability analysis
• Problems with using probability analysis
• Evidence of risk analysis in practice

 

PART 2 SHAREHOLDER VALUE 

Chapter 6. Value managed companies versus earnings managed companies

• The pervasiveness of the value approach
• Case studies: FT100 companies creating value and destroying value
• Why shareholder value?
• Three steps to value
• Earnings-based management’s failings
• ROCE has failings
• Focusing on earnings is not the same as value
• How a business creates value
• The five actions to create value

 

Chapter 7. Value through strategy

• Value principles touch every corner of the business
• Strategic business unit management
• The firm’s objective
• Strategic assessment
• Strategic choice
• Strategy implementation
• What use is the head office?
• Targets and motivation

 

Chapter 8. Value creation within strategic business units

·         Using cash flow to measure value

·         Shareholder value analysis

·         Economic profit

·         Economic value added (EVA)

·         Cash flow return on investment

 

Chapter 9. Entire firm value measurement 

• Total shareholder return
• Wealth added index
• Market added value
• Market to book ratio

 

Chapter 10. What is the company’s cost of capital?

• A word of warning
• The required rate of return
• Two sides of the same coin
• The weighted average cost of capital
• The cost of equity capital
• The cost of retained earnings
• Debt capital
• The cost of preference share capital
• Hybrid securities
• Calculating the weights
• The WACC with three or more types of finance
• Classic error
• What do mangers actually do?
• Implementation issues
• Which risk-free rate
• Fundamental beta

 

Chapter 11. Mergers: impulse, regret and success

• The merger decision
• You say merger, I say acquisition
• Merger statistics
• What drives firms to merge?
• Do the shareholders of acquiring firms gain from mergers?
• Managing mergers

 

Chapter 12. The merger process

• The City code on takeovers and mergers
• Action before the bid
• The bid
• After the bid
• Defence tactics
• Paying for the targets shares: cash or shares?

 

Chapter 13. Valuing companies

• The two skills
• Valuation using net asset value
• Income flow is the key
• Dividend valuation methods
• How do you estimate future growth?
• Price-earnings ratio methods
• Valuation using cash flow
• Valuing unquoted shares
• Unusual companies
• Managerial control changes the valuation

 

Chapter 14. What pay-outs should we make to shareholders?

• Defining the problem
• Theorists in their hypothetical world
• The other extreme – dividends as residual
• What about the world in which we live?
• Some muddying factors
• Scrip dividends
• Share buy-backs and special dividends
• A round-up of the arguments

 

PART 3 – FINANCE RAISING

 

Chapter 15. Debt finance available to firms of all sizes

• Contrasting debt finance with equity
• Bank borrowing
• Overdraft
• Trade credit
• Factoring
• Hire purchase
• Leasing
• Bills of exchange
• Acceptance credits

 

Chapter 16. Debt finance from the financial markets

• Bonds
• Syndicated loans
• Credit ratings
• Mezzanine debt and high yield debt
• Convertible bonds
• Valuing bonds
• International sources of debt finance
• Medium-term notes
• Commercial paper
• Project finance
• Sales and leaseback
• Securitization

 

Chapter 17. Raising equity capital

• What is equity capital?
• Preference shares
• Floating on the Official List
• What manager need to consider
• Methods of issue
• Timetable of a new offer
• How does flotation on AIM differ
• The cost of new issues
• Rights issues
• Other equity issues
• Scrip issues
• Warrants
• Equity finance for unquoted firms
• Disillusionment and dissatisfaction with quotation
• Appendix  - Arguments for and against flotation

 

PART 4 – MANAGING RISK

 

Chapter 18. The financial risks managers have to deal with

• Types of risk
• Risk in the financial structure
• The dangers of gearing
• What do we mean by gearing?
• Agency costs
• Pecking order
• Some further thoughts on debt finance

 

Chapter 19. Options 

• What is a derivative
• A long history
• What is an option
• Share options
• Index options
• Corporate uses of options
• Real options

 

Chapter 20. Using futures, forwards and swaps to manage risk 

• Futures
• Short-term interest rate futures
• Forwards
• Forward agreements
• A comparison of options, futures and FRAs
• Caps
• Swaps
• Derivative users
• Over-the-counter and exchange traded derivatives

Chapter 21. Managing exchange rate risk

• The impact of currency rate changes on the firm
• Volatility in foreign exchange
• The currency markets
• Understanding the exchange rate tables in the FT
• Covering in the forward market
• Types of foreign exchange risk
• Managing risk
• Hedging strategies
•  Managing translation risk
• Managing economic risk