Financial Management A Primer

by Foerster, Stephen Robert

• ISBN13: 9780393704365
• ISBN10: 039370436X
• Edition: 00
• Format: Paperback
• Copyright: 2003-02-17
• Publisher: W. W. Norton & Company

Summary

This clever book, by longtime M.B.A. teacher and consultant Stephen R. Foerster, is the answer to every student's and manager's dream. Finally, here is a short and simple text that makes arcane financial data and reports crystal clear for the non-finance specialist. Managers working in the post-Enron, post-WorldCom business world cannot afford to remain fuzzy about the financial environment in which their firms operate. Financial Management eliminates the fuzziness. Book jacket.

Author Biography

Stephen R. Foerster received his M.A. and Ph.D. from the University of Pennsylvania (the Wharton School). He also obtained his Chartered Financial Analysts (C.F.A.) designation and currently teaches at the Richard Ivey School of Business, The University of Western Ontario. Foerster is an active researcher in the area of capital markets, He has taught financial management to undergraduates, M.B.A.s, Executive M.B.A.s, and non-financial executives in public and custom in-house programs in the United States and Canada, and he has consulted extensively at financial and non-financial companies

Table of Contents

List of Figures	xv
Preface	xix
Overview of Finance	1	(8)
What Is Financial Management?	1	(3)
Relationship with Accounting	4	(1)
Finance as Part of a Business	4	(1)
Road Map of Remaining Chapters	5	(2)
Additional Readings	7	(2)
Business Size-Up: A Nonfinancial Perspective	9	(20)
A Business Assessment Framework	10	(1)
Economic Size-up	11	(3)
Industry Analysis	14	(4)
Industry Life Cycles	14	(1)
Industry Competitive Environment	15	(1)
Industry Opportunities and Risks	16	(1)
Key Industry Success Factors	17	(1)
Firm Operations Management and Supply Risks	18	(2)
Firm Marketing Management and Demand Risk	20	(2)
Firm Human Resources Management and Strategy	22	(2)
Importance for Financial Analysis	24	(1)
Size-up Example	25	(2)
Summary	27	(1)
Additional Readings	28	(1)
Self-Study Problems	28	(1)
Financial Size-Up: Ratio Analysis and Performance Measures	29	(20)
Balance Sheets	29	(4)
Income Statements	33	(5)
Cash Flow Statements	38	(2)
Performance Measures	40	(7)
Return on Equity	40	(1)
Profitability Measures	41	(1)
Resource Management Measures	42	(2)
Liquidity and Leverage Measures	44	(3)
Application: Coca-Cola	47	(1)
Summary	47	(1)
Additional Readings	48	(1)
Self-Study Problems	48	(1)
Day-to-Day Cash Flow Management	49	(10)
Cash Flow Cycles	49	(4)
Cash Flows Related to Operating Activities	53	(4)
Sustainable Growth	57	(1)
Summary	58	(1)
Additional Readings	58	(1)
Self-Study Problems	58	(1)
Projecting Financial Requirements: Pro Forma Financial Statements	59	(28)
Sustainable Growth Example	59	(11)
Pro Forma Income Statement	70	(4)
Pro Forma Balance Sheet	74	(2)
Pro Forma Cash Budgets	76	(3)
Sensitivity Analysis and Spreadsheet Applications	79	(5)
Sensitivity Analysis	79	(2)
Spreadsheet Applications	81	(3)
Summary	84	(1)
Additional Readings	85	(1)
Self-Study Problems	85	(2)
Overview of Capital Markets: Long-Term Financing Decisions	87	(14)
Bonds	87	(4)
Bond Features	88	(1)
Bond Ratings	89	(2)
Common Shares	91	(1)
Preferred Shares	91	(1)
Capital Markets Overview	92	(3)
Private versus Public	92	(1)
Initial Offerings versus Seasoned Issues	93	(1)
Organized Exchanges versus Over-the-Counter Markets	94	(1)
Role of Intermediaries	94	(1)
Understanding Financial Information	95	(2)
Bond Tables	95	(1)
Stock Tables	96	(1)
Market Efficiency	97	(2)
Summary	99	(1)
Additional Readings	99	(1)
Self-Study Problems	100	(1)
Assessing the Cost of Capital: What Investors Require	101	(18)
Simple Cost of Capital Example	101	(2)
Cost of Capital Implications	103	(2)
Cost of Debt	105	(2)
Cost of Preferred Shares	107	(1)
Cost of Equity	108	(3)
Dividend Model Approach	108	(1)
Capital Asset Pricing Model	109	(1)
Risk-Free Rate	110	(1)
Market Risk Premium	110	(1)
Beta	111	(1)
Component Weights	111	(2)
Hurdle Rates	113	(1)
Coca-Cola Application	114	(1)
Summary	115	(1)
Additional Readings	116	(1)
Self-Study Problems	116	(3)
Designing an Optimal Capital Structure: The Debt-Equity Decision	119	(18)
Modigliani-Miller Argument: Why Capital Structure Does Not Matter	119	(2)
Relaxing the Assumptions: Why Capital Structure Does Matter	121	(3)
Impact of Corporate Taxes	122	(1)
Impact of Bankruptcy	123	(1)
Combining Corporate Taxes and Bankruptcy Costs	123	(1)
Minimizing Cost	124	(5)
A Simple Valuation Model	125	(1)
EBIT Break-even: What Leverage Really Means	125	(4)
Minimizing Risk	129	(1)
Business Risk	129	(1)
Financial Risk	130	(1)
Maximizing Flexibility	130	(1)
Maintaining Control	131	(1)
Optimal Timing	132	(1)
Evaluating the Criteria	132	(1)
Application: A Firm's Decision to Change Its Capital Structure	133	(2)
Summary	135	(1)
Additional Readings	135	(1)
Self-Study Problems	136	(1)
The Investment Decision and Time Value of Money Concepts	137	(30)
Overview of the Decision-Making Process	137	(2)
Time Value of Money Concepts	139	(13)
Future Values	140	(2)
Time Lines	142	(1)
Present Values	143	(2)
Using Financial Calculators and Spreadsheets	145	(3)
Annuities	148	(4)
Time Value of Money Applications	152	(7)
Bond Example	152	(2)
Preferred Share Example	154	(2)
Common Equity Example	156	(3)
Capital Budgeting Techniques	159	(5)
Payback	159	(1)
Net Present Value	160	(2)
Internal Rate of Return	162	(2)
Summary	164	(1)
Additional Readings	164	(1)
Self-Study Problems	165	(2)
Valuation: Measurement and Creation of Value	167	(20)
Valuation Overview	167	(1)
Measuring Firm Value	168	(9)
Discounted Cash Flow Analysis	168	(7)
Price-Earnings and Comparable Analyses	175	(2)
Other Valuation Methods	177	(1)
Value Creation and Value-Based Management	177	(8)
The EVA Approach	178	(4)
Mergers and Acquisitions and Other Restructuring	182	(3)
Summary	185	(1)
Additional Readings	185	(1)
Self-Study Problems	185	(2)
Comprehensive Case Study: Wal-Mart Stores	187	(20)
Putting It All Together	187	(1)
Wal-Mart Case Study	188	(17)
Wal-Mart Size-up	189	(7)
Assessing Wal-Mart's Future Performance	196	(3)
Wal-Mart's Long-Term Financing	199	(3)
Wal-Mart Valuation	202	(3)
Final Comments	205	(2)
Appendix A Glossary	207	(8)
Appendix B Solutions to Selected Self-Study Problems	215	(12)
Appendix C Present Value and Future Value Tables	227	(6)
List of Supplemental Case Studies	233	(2)
Index	235