Understanding Financial Management A Practical Guide

by Baker, H. Kent; Powell, Gary

• ISBN13: 9780631231004
• ISBN10: 0631231005
• Edition: 1st
• Format: Paperback
• Copyright: 2005-06-17
• Publisher: Wiley-Blackwell

Summary

Understanding Financial Management is designed for those who want to gain a understanding of the fundamental concepts and techniques used in financial management. An underlying premise of the book is that the objective of the firm is to maximize value or wealth. Drawing on a wealth of experience in the academic and professional worlds, the authors discuss how firms can accomplish this objective by making appropriate investment and financing decisions.Bridging the gap between financial theory and practice, the authors present fundamental concepts of in an intuitive and nontechnical way, and provide numerous practical financial tips to readers. The focus is on current practice, using results from recent surveys to show the most popular techniques and approaches used by financial managers today.

Author Biography

H. Kent Baker, University Professor of Finance, is the author of more than 150 articles for academic and professional journals including the Journal of Finance, Financial Management, The Financial Review, Journal of Financial Research, the Journal of Economics and Business, Harvard Business Review and many others.

Gary E. Powell is an Associate Professor of Finance at Towson University.

Table of Contents

List of Figures	ix
List of Tables	xi
About the Authors	xiv
Preface	xvi
Acknowledgments	xx
Part I The Foundation	1	(154)
Introduction to Financial Management	3	(15)
Financial Management and the Financial Manager	4	(4)
Corporate Form of Business Organization	8	(2)
The Goal of Financial Management	10	(2)
Accounting Profit versus Economic Profit	12	(2)
The Agency Relationship	14	(1)
Organization of the Book	15	(3)
Interpreting Financial Statements	18	(27)
Basics of Annual Reports and Financial Statements	18	(2)
Balance Sheet	20	(5)
Income Statement	25	(6)
Statement of Cash Flows	31	(4)
Statement of Retained Earnings	35	(1)
Common-size Statements	35	(4)
Notes to Financial Statements	39	(1)
Quality of Earnings	40	(1)
Other Issues	41	(4)
Interpreting Financial Ratios	45	(28)
Financial Ratio Analysis	46	(1)
Liquidity Ratios	47	(5)
Debt Management Ratios	52	(4)
Asset Management Ratios	56	(5)
Profitability Ratios	61	(5)
Market Value Ratios	66	(3)
Uses of Financial Ratios	69	(1)
Limitations of Financial Ratio Analysis	70	(3)
The Time Value of Money	73	(30)
Central Concepts in Finance	74	(1)
Future Value of a Present Amount	75	(5)
Present Value of a Future Amount	80	(3)
Future Value of an Annuity	83	(3)
Present Value of an Annuity	86	(5)
Present Value of a Perpetuity	91	(1)
Compounding Frequencies	91	(3)
Nominal and Effective Interest Rates	94	(1)
Solving for an Unknown Interest Rate	95	(3)
Other Time Value Applications	98	(5)
Valuation	103	(52)
Valuation Fundamentals	104	(6)
Bond Characteristics and Features	110	(5)
Bond Valuation	115	(6)
Bond Pricing Relationships	121	(5)
Interest Rate Risk	126	(3)
Bond Yields	129	(5)
Bond Trading and Price Reporting	134	(2)
Preferred Stock Features and Valuation	136	(4)
Common Stock Characteristics and Features	140	(2)
Common Stock Valuation	142	(13)
Part II Working Capital Management Decisions	155	(34)
Working Capital Management	157	(32)
Introduction to Working Capital Management	158	(1)
Approaches to Working Capital Management	159	(4)
Operating and Cash Conversion Cycles	163	(2)
Cash Management	165	(12)
Accounts Receivable Management	177	(4)
Inventory Management	181	(8)
Part III Long-term Investment Decisions	189	(132)
Capital Investments and Cash Flow Analysis	191	(36)
Capital Investment Decisions	192	(2)
Project Classifications	194	(1)
Capital Budgeting Process	195	(4)
Guidelines for Estimating Project Cash Flows	199	(6)
Cash Flow Components	205	(9)
Tax Effects of Selling Depreciable Assets	214	(3)
Applying Cash Flow Analysis	217	(4)
Capital Budgeting for the Multinational Corporation	221	(6)
Capital Budgeting	227	(51)
Project Classifications and Analysis	228	(2)
Net Present Value	230	(5)
Profitability Index	235	(3)
Internal Rate of Return	238	(4)
Modified Internal Rate of Return	242	(4)
Payback Period	246	(4)
Discounted Payback Period	250	(2)
Summary of Capital Budgeting Techniques	252	(2)
Mutually Exclusive Project Decisions	254	(15)
Capital Rationing Decisions	269	(3)
Capital Budgeting Techniques in Theory and Practice	272	(6)
Risk Analysis	278	(43)
Types of Risk in Capital Budgeting	279	(6)
Assessing Single-Project Risk	285	(9)
Assessing Market Risk	294	(8)
Adjusting for Risk	302	(11)
Risk Analysis in Multinational Corporations	313	(2)
Risk Analysis in Theory and Practice	315	(6)
Part IV Long-term Financing Decisions	321	(132)
Raising Funds and Cost of Capital	323	(46)
Financial Markets	324	(3)
Investment Banks	327	(1)
The Decision to Go Public	328	(3)
Different Methods of Issuing New Securities	331	(4)
Public Offer	335	(4)
Private Placement	339	(2)
Costs of Issuing New Securities	341	(1)
Cost of Capital Concept	342	(3)
Cost of Capital Components	345	(13)
Weighted Average Cost of Capital	358	(3)
Marginal Cost of Capital	361	(8)
Capital Structure	369	(32)
The Financing Mix	370	(1)
Understanding Financial Risk	371	(4)
Capital Structure and the Value of the Firm	375	(6)
Modigliani--Miller Theorem with Corporate Taxes	381	(5)
The Costs of Financial Distress	386	(2)
Tradeoff Theory of Optimal Capital Structure	388	(3)
Pecking Order Theory of Capital Structure	391	(3)
Stakeholder Theory of Capital Structure	394	(2)
Capital Structure in Practice	396	(1)
Bankruptcy	397	(4)
Dividend Policy	401	(52)
Dividends and Dividend Policy	402	(5)
The Dividend Puzzle	407	(10)
Factors Influencing the Dividend Decision	417	(6)
Dividend Policies	423	(6)
Stock Repurchases	429	(5)
Cash Dividends versus Stock Repurchases	434	(2)
Dividend Reinvestment Plans	436	(4)
Stock Dividends	440	(6)
Stock Splits and Reverse Splits	446	(7)
Glossary	453	(16)
Index	469