Financial Analysis Tools and Techniques: A Guide for Managers

by Helfert, Erich

• ISBN13: 9780071378345
• ISBN10: 0071378340
• eBook ISBN(s): 9780071395410
• Additional ISBN(s): 9780786311200
• Edition: 1st
• Format: Hardcover
• Copyright: 2001-10-02
• Publisher: McGraw Hill
• More Book Details
• Purchase Benefits

Summary

Praise forFinancial Analysis Tools and Techniques:"Bona fide treasury for executives, managers, entrepreneurs. Have long used this great work in corporate & university programs. Uniquely makes the arcane clear."shy;shy;Allen B. Barnes, Provost, IBM Advanced Business Institute"A candidate for every consultant-to-management's bookshelf. Its beauty lies in the dynamic model of the business system and its management decision framework."shy;shy;Stanley Press CMC, Book review inC2M Consulting to Management Journal"Goes a long way to remove the mystery from business finance. Approach allows managers from all areas to understand how their decisions impact shareholder value."shy;shy;Stephen E. Frank, Chairman and Chief Executive Officer, Southern California Edison"Helfert has rare ability to make financial concepts understandable to those lacking financial background. His finance seminars exceeded our high expectations."shy;shy;L. Pendleton Siegel, Chairman and Chief Executive Officer, Potlatch Corporation"Commend the clarity, organization and currency of contents. There is no other book available that does the task in such an understandable and accessible way."shy;shy;Dr. Thomas F. Hawk, Frostburg State University"Helfert's excellent overviews and simplified models effectively broadened our managers' understanding of their fiscal responsibility to HP and our shareholders."shy;shy;Robert P. Wayman, Executive Vice President, Chief Financial Officer, Hewlett-Packard Company"The book has become a classic, and Helfert has been of substantial help to my company in teaching our people how to think about the numbers which drive it."shy;shy;Robert J. Saldich, President and Chief Executive Officer, Raychem Corporation"Helfert has contributed to the development of financial skills of TRW managers through his book, case studies and presentations, and highly rated instruction."shy;shy;Peter S. Hellman, President and Chief Operating Officer, TRW Inc."Helfert has the ability to make financial concepts understandable, and his credibility and content added significantly to the success of our educational effort."shy;shy;Giulio Agostini, Senior Vice President Finance, and Office Administration, 3M Corporation"Helfert's writing and teaching have become a mainstay for us, and his business and strategic sense have been recognized as valuable guides to our process."shy;shy;William H. Clover, Ph.D., Manager of Training, and AMOCO Learning CenterConcepts and tools for making sound business decisionsFinancial Analysis Tools and Techniques, a business-focused revision of Erich Helfert's perennial college bestsellerTechniques of Financial Analysis, is a quick, easy read for nonfinancial managers and an excellent refresher and reference for finance professionals. This practical, hands-on guide provides a new introductory chapter that gives context to today's valuation turmoil and helps professionals understand the economic drivers of a business and the importance of cash flow.The book's overriding theme is that any business should be viewed as a dynamic, integrated system of cash flowsshy;shy;one that can be activated and managed by investment decisions. Topics, discussed in clear, comprehensive, and easy-to-understand detail, include: Increasing shareholder value through value-based management (VBM) Interpreting pro forma financial statements

Author Biography

Erich A. Helfert, DBA, is an internationally recognized management consultant in corporate finance, strategic planning, and executive education in financial/economic decision making and value creation. The cofounder, chairman, and CEO of Modernsoft, Inc.­­developers of the knowledge-based financial analysis and business modeling software Financial Genome­­Dr. Helfert is the former corporate planning vice president at Crown Zellerbach Corporation, and previously was a faculty member of the Harvard Business School. He is the author of all ten editions of the best-selling college text Techniques of Financial Analysis.

Table of Contents

Preface	xvii
Introduction	xxi
The Challenge of Financial/Economic Decision-making	1	(20)
Lessons for the Millennium	2	(5)
The New Economy	2	(1)
Some Key Questions	3	(3)
The Basics Never Change	6	(1)
The Economic Manager	7	(3)
Understanding Business Economics	8	(1)
Appropriate Economic Tools	9	(1)
The Practice of Financial/Economic Analysis	10	(5)
Day to Day Decisions and Operational Planning	10	(1)
Supporting Strategy Development	11	(1)
Performance Assessment and Incentives	12	(2)
Valuation and Investor Communications	14	(1)
The Value Creating Company	15	(6)
Relevant Decision Information	15	(2)
Economic Incentives	17	(1)
Total Systems Management	18	(3)
A Systems Context for Financial Management	21	(38)
A Dynamic Perspective of Business	22	(15)
Decision Context	22	(4)
The Business System	26	(3)
Investment Decisions	29	(2)
Operating Decisions	31	(2)
Financing Decisions	33	(3)
Interrelationship of Strategy and Value Creation	36	(1)
The Nature of Financial Statements	37	(13)
The Balance Sheet	38	(2)
The Income Statement	40	(2)
The Cash Flow Statement	42	(4)
The Statement of Changes in Shareholders' (Owners') Equity	46	(4)
The Context of Financial Analysis	50	(5)
Key Issues	55	(2)
Analytical Support	57	(2)
Managing Operating Funds	59	(36)
Funds Flow Cycles	61	(9)
The Funds Cycle for Manufacturing	64	(3)
The Funds Cycle for Sales	67	(2)
The Funds Cycle for Services	69	(1)
Variability of Funds Flows	70	(8)
Growth/Decline Variations	70	(4)
Seasonal Variations	74	(1)
Cyclical Variations	75	(2)
Generalized Funds Flow Relationships	77	(1)
Interpreting Funds Flow Data	78	(11)
Funds Management and Shareholder Value	89	(2)
Cash Management	89	(1)
Working Capital Management	90	(1)
Investment Management	91	(1)
Key Issues	91	(2)
Analytical Support	93	(2)
Assessment of Business Performance	95	(66)
Ratio Analysis and Performance	95	(2)
Management's Point of View	97	(18)
Operational Analysis	98	(9)
Resource Management	107	(5)
Profitability	112	(3)
Owners' Point of View	115	(11)
Investment Return	116	(5)
Disposition of Earnings	121	(2)
Market Indicators	123	(3)
Lenders' Point of View	126	(6)
Liquidity	126	(2)
Financial Leverage	128	(2)
Debt Service	130	(2)
Ratios as a System	132	(5)
Elements of Return on Assets	133	(1)
Elements of Return on Equity	134	(3)
Integration of Financial Performance Analysis	137	(2)
Some Special Issues	139	(6)
Inventory Costing	140	(1)
Depreciation Methods	141	(3)
The Impact of Inflation	144	(1)
Key Issues	145	(2)
Analytical Support	147	(14)
Projection of Financial Requirements	161	(30)
Pro Forma Financial Statements	163	(11)
Pro Forma Income Statement	164	(3)
Pro Forma Balance Sheet	167	(4)
Pro Forma Cash Flow Statement	171	(3)
Cash Budgets	174	(4)
Operating Budgets	178	(3)
Sales Budget	179	(2)
Production Budget	181	(1)
Interrelationship of Financial Projections	181	(3)
Financial Modeling	184	(2)
Sensitivity Analysis	186	(1)
Key Issues	187	(2)
Analytical Support	189	(2)
Dynamics and Growth of the Business System	191	(32)
Leverage	192	(17)
Operating Leverage	193	(9)
Target Profit Analysis	202	(1)
Financial Leverage	203	(6)
Financial Growth Plans	209	(11)
Basic Financial Growth Model	210	(4)
Sustainable Growth and the Sustainable Growth Equation	214	(3)
Integrated Financial Plan	217	(3)
Key Issues	220	(2)
Analytical Support	222	(1)
Cash Flows and the Time Value of Money	223	(32)
The Time Value of Money	224	(7)
Discounting, Compounding, and Equivalence	224	(7)
Components of Analysis	231	(3)
Net Investment	232	(1)
Net Operating Cash Inflows	232	(1)
Economic Life	233	(1)
Terminal (Residual) Value	233	(1)
Methods of Analysis	234	(16)
Simple Measures	234	(3)
Economic Investment Measures	237	(1)
Net Present Value	237	(5)
Present Value Payback	242	(2)
Profitability Index (BCR)	244	(1)
Internal Rate of Return (IRR, Yield)	245	(2)
Annualized Net Present Value	247	(3)
Applying Time-Adjusted Measures	250	(1)
Key Issues	250	(2)
Analytical Support	252	(3)
Analysis of Investment Decisions	255	(42)
Strategic Perspective	256	(3)
Decisional Framework	259	(7)
Problem Definition	260	(1)
Nature of the Investment	261	(1)
Future Costs and Benefits	262	(1)
Incremental Cash Flows	263	(1)
Relevant Accounting Data	264	(1)
Sunk Costs	265	(1)
Refinements of Investment Analysis	266	(11)
A Machine Replacement	266	(1)
Net Investment Refined	267	(1)
Operating Cash Inflows Refined	268	(3)
Unequal Economic Lives	271	(1)
Capital Additions and Recoveries	272	(1)
Analytical Framework	272	(3)
A Business Expansion	275	(2)
Mutually Exclusive Alternatives	277	(3)
Maintain versus Replace	277	(2)
Full-Fledged versus Economy Solution	279	(1)
Comparing Different Scenarios	280	(2)
Dealing with Risk and Changing Circumstances	282	(7)
Specifying Risk	283	(1)
Ranges of Estimates	284	(1)
Business Investments as Options	285	(2)
Probabilistic Simulation	287	(1)
Risk-Adjusted Return Standards	288	(1)
When to Use Investment Measures	289	(2)
Some Further Considerations	291	(2)
Leasing---A Financing Choice	291	(1)
Accelerated Depreciation	292	(1)
Inflation and Investment Analysis	292	(1)
Accuracy	293	(1)
Key Issues	293	(2)
Analytical Support	295	(2)
Cost of Capital and Business Decisions	297	(28)
Decisional Context	298	(2)
Investment Decisions	298	(1)
Operating Decisions	299	(1)
Financing Decisions	300	(1)
Cost of Operating Funds	300	(4)
Cost of Long-term Debt	304	(1)
Cost of Shareholders' Equity	305	(7)
Preferred Stock	305	(1)
Common Equity	306	(6)
Weighted Cost of Capital	312	(5)
Cost Choices	312	(1)
Weighting the Proportions	313	(2)
Calculating the Weighted Cost of Capital	315	(2)
Cost of Capital and Return Standards	317	(5)
Cost of Capital as a Cutoff Rate	318	(1)
Risk Categories	319	(2)
Cost of Capital in Multibusiness Companies	321	(1)
Multiple Rate Analysis	322	(1)
Key Issues	322	(2)
Analytical Support	324	(1)
Analysis of Financing Choices	325	(32)
Framework for Analysis	326	(4)
Cost of Incremental Funds	326	(1)
Risk Exposure	327	(1)
Flexibility	328	(1)
Timing	328	(1)
Control	329	(1)
The Choice	330	(1)
Techniques of Calculation	330	(9)
Current Performance	331	(1)
Long-Term Debt in the Capital Structure	332	(3)
Preferred Stock in the Capital Structure	335	(1)
Common Stock in the Capital Structure	336	(3)
Range of Earnings Chart	339	(6)
The Optimal Capital Structure	345	(2)
Some Special Forms of Financing	347	(5)
Leasing	347	(3)
Convertible Securities	350	(1)
Stock Rights	351	(1)
Warrants	352	(1)
Key Issues	352	(2)
Analytical Support	354	(3)
Valuation and Business Performance	357	(34)
Definitions of Value	358	(5)
Economic Value	358	(1)
Market Value	359	(1)
Book Value	360	(1)
Liquidation Value	360	(1)
Breakup Value	361	(1)
Reproduction Value	361	(1)
Collateral Value	361	(1)
Assessed Value	362	(1)
Appraised Value	362	(1)
Going Concern Value	362	(1)
Shareholder Value	363	(1)
Value to the Investor	363	(15)
Bond Values	363	(5)
Preferred Stock Values	368	(4)
Common Stock Values	372	(6)
Specialized Valuation Issues	378	(2)
Rights and Warrants	378	(1)
Options	379	(1)
Business Valuation	380	(8)
Valuing the Equity	381	(1)
Valuing the Total Company	382	(5)
Using Shortcuts in Valuing an Ongoing Business	387	(1)
Key Issues	388	(1)
Analytical Support	389	(2)
Managing for Shareholder Value	391	(34)
Shareholder Value Creation in Perspective	392	(4)
Evolution of Value-Based Methodologies	396	(15)
A Review of Key Measures	398	(4)
Economic Profit and CFROI	402	(9)
Creating Value in Restructuring and Combinations	411	(6)
Restructuring and Value	411	(3)
Combinations and Synergy	414	(1)
Combinations and Share Values	415	(2)
Integration of Value Analysis	417	(4)
Perspectives	418	(1)
Expectations	419	(1)
Time Period	419	(1)
Cash Flow Pattern	419	(1)
Ongoing Values	420	(1)
Comparables	420	(1)
Negotiations	421	(1)
Key Issues	421	(2)
Analytical Support	423	(2)
Appendix I Financial Analysis Using Financial Genome	425	(8)
Appendix II Glossary of Key Terms and Concepts	433	(16)
Appendix III Financial Information and On-Line Sources	449	(14)
Appendix IV Basic Inflation Concepts	463	(6)
Appendix V Some Issues in Multinational Financial Analysis	469	(8)
Index	477