1Preface
975.5.2 The Quick (or Acid-Test) Ratio
2Chapter 1. The Financial Environment
985.5.3 Other Liquidity Ratios
31.1 Introduction
995.5.4 Long-Term Solvency
41.2 Corporate finance and financial strategy
1005.5.5 Total Debt Ratio
51.3 Types of business entity
1015.6 A Brief Digression: Total Capitalization versus Total Assets
61.4 Partnerships
1025.6.1 Times Interest Earned
71.5 Limited companies
1035.6.3 Asset Management, or Turnover, Measures
81.6 Private limited companies (Ltd)
1045.6.4 Inventory Turnover and Days’ Sales in Inventory
91.7 Public limited companies (plc)
1055.6.5 Profitability Measures
101.8 Business organizational structures
1065.6.6 Return on Assets
111.9 Accounting
1075.6.7 Return on Equity
121.10 Financial management
1085.6.8 Market Value Measures
131.11 Financial statements
1095.7 USING FINANCIAL STATEMENT INFORMATION
141.11.1 Balance Sheet
1105.7.1 Why Evaluate Financial Statements?
151.11.2 Valuation of Assets
1115.7.2 Internal Uses
161.11.3 Income Statement (or Profit and Loss Account)
1125.7.3 External Uses
171.11.4 Cash Flow Statement
1135.8 Choosing a Benchmark
181.11.5 Users of Financial Information
1145.8.1 Time-Trend Analysis
191.12 Accountability and financial reporting
1155.8.2 Peer Group Analysis
201.13 Managing corporate finance
1165.9 Problems with Financial Statement Analysis
211.14 Underlying principles of corporate finance : 1.14.1 Shareholder Wealth Maximization
1175.10 WHAT IS FINANCIAL PLANNING? : 5.10.1 Growth as a Financial Management Goal
221.15 Cash flow : 1.15.1 Risk
1185.11 Dimensions of Financial Planning
231.16 EXERCISE
1195.12 EXERCISE
24Chapter 2. Corporate Objectives
120Chapter 6. Valuation of Future Cash Flows
252.1 The objective of decision making
1216.1 FUTURE VALUE AND COMPOUNDING
262.2 Choosing the Right Objective
1226.1.1 Investing for a Single Period
272.3 The Classical Objective
1236.1.2 Investing for More Than One Period
282.4 Multiple Stakeholders and Conflicts of Interest
1246.2 PRESENT VALUE AND DISCOUNTING
292.5 Potential Side Costs of Value Maximization
1256.2.1 The Single-Period Case
302.6 Why Corporate Finance Focuses on Stock Price Maximization
1266.2.2 Present Values for Multiple Periods
312.7 Maximize Stock Prices: The Best-Case Scenario
1276.3 Determining the Discount Rate
322.8 Maximize Stock Prices: Real-World Conflicts of Interest
1286.4 FUTURE AND PRESENT VALUES OF MULTIPLE CASH FLOWS
332.9 Stockholders and Managers
1296.4.1 Present Value with Multiple Cash Flows
342.9.1 The Annual Meeting
1306.4.2 A Note on Cash Flow Timing
352.9.2 The Board of Directors
1316.5 COMPARING RATES: THE EFFECT OF COMPOUNDING
362.9.3 Ownership Structure
1326.6 LOAN TYPES AND LOAN AMORTIZATION
372.9.4 The Consequences of Stockholder Powerlessness
1336.7 SUMMARY AND CONCLUSIONS
382.10 Stockholders and Bondholders
1346.8 EXERCISE
392.10.1 The Source of the Conflict
135Chapter 7. Capital Budgeting
402.10.2 The Consequences of Stockholder–Bondholder Conflicts
1367.1 NET PRESENT VALUE
412.11 The Firm and Financial Markets
1377.2 Estimating Net Present Value
422.11.1 The Information Problem
1387.3 THE PAYBACK RULE
432.11.2 The Market Problem
1397.3.1 Analyzing the Rule
442.11.3 The Real World: A Pictorial Representation
1407.3.2 Redeeming Qualities of the Rule
452.11.4 A Different System for Disciplining Management (Corporate Governance)
1417.3.3 Summary of the Rule
462.12 Choosing an Alternative Objective
1427.4 THE DISCOUNTED PAYBACK
472.13 Maximize Stock Prices: Salvaging a Flawed Objective
1437.5 THE AVERAGE ACCOUNTING RETURN
482.14 Conflict Resolution: Reducing Agency Problems
1447.6 THE PRACTICE OF CAPITAL BUDGETING
492.14.1 Stockholders and Managers
1457.7 Summary and Conclusions
502.14.2 Making Managers Think More Like Stockholders
1467.8 EXERCISE
512.15 Conclusion
147Chapter 8. Making Capital Investment Decisions
522.16 EXERCISE
1488.1 PROJECT CASH FLOWS
53Chapter 3. The Basics of Risk
1498.2 INCREMENTAL CASH FLOWS
543.1 Introduction
1508.2.1 Sunk Costs
553.2 Equity Risk and Expected Returns
1518.2.2 Opportunity Costs
563.2.1 Measuring Risk
1528.2.3 Side Effects
573.2.2 Rewarded and Unrewarded Risk
1538.2.4 Net Working Capital
583.3 The Components of Risk
1548.2.5 Financing Costs
593.4 Why Diversification Reduces or Eliminates Firm-Specific Risk
1558.2.6 Other Issues
603.5 Identifying the Marginal Investor
1568.3 PRO FORMA FINANCIAL STATEMENTS AND PROJECT CASH FLOWS
613.6 Why is the marginal investor assumed to be diversified? : 3.6.1 Measuring Market Risk
1578.3.1 Getting Started: Pro Forma Financial Statements
623.7 The Risk in Borrowing: Default Risk and the Cost of Debt
1588.3.2 Project Cash Flows
633.8 The Determinants of Default Risk
1598.3.3 Project Operating Cash Flow
643.9 Default Risk and Interest rates
1608.3.4 Project Net Working Capital and Capital Spending
653.10 The Rating Process
1618.3.5 Projected Total Cash Flow and Value
663.11 Determinants of Bond Ratings : 3.11.1 Bond Ratings and Interest Rates
1628.4 MORE ON PROJECT CASH FLOW : 8.4.1 A Closer Look at Net Working Capital
673.12 Conclusion
1638.5 Depreciation : 8.5.1 Modified ACRS Depreciation (MACRS)
683.13 EXERCISE
1648.6 Book Value versus Market Value
69Chapter 4. Risk Measurement and Hurdle Rates in Practice
1658.7 ALTERNATIVE DEFINITIONS OF OPERATING CASH FLOW
704.1 Cost of Equity : 4.1.1 Risk-Free Rate
1668.7.1 The Bottom-Up Approach
714.2 Cash Flows and Risk-Free Rates: The Consistency Principle
1678.7.2 The Top-Down Approach
724.3 Estimating Risk Premiums
1688.7.3 The Tax Shield Approach
734.3.1 Survey Premiums
1698.8 BREAK-EVEN ANALYSIS
744.3.2 Historical Premiums
1708.8.1 Fixed and Variable Costs
754.4 Estimation Issues
1718.8.2 Variable Costs
764.4.1 Time Period Used
1728.8.3 Fixed Costs
774.4.2 Choice of Risk-Free Security
1738.8.4 Total Costs
784.4.3 Arithmetic and Geometric Averages
1748.9 EXERCISE
794.4.4 Country Bond Default Spreads
175Chapter 9. International Corporate Finance
804.4.5 Relative Standard Deviation
1769.1 TERMINOLOGY
814.5 Risk Parameters
1779.2 FOREIGN EXCHANGE MARKETS AND EXCHANGE RATES : 9.2.1 Exchange Rates
824.6 The Costs of Non-equity Financing : 4.6.1 The Cost of Debt
1789.3 PURCHASING POWER PARITY
834.7 Estimating the Default Risk and Default Spread of a Firm
1799.3.1 Relative Purchasing Power Parity
844.8 Conclusion
1809.3.2 The Basic Idea
854.9 EXERCISE
1819.3.3 The Result
86Chapter 5. Financial Statements and Long-Term Financial Planning
1829.4 INTERNATIONAL CAPITAL BUDGETING : 9.4.1 Unremitted Cash Flows
875.1 CASH FLOW AND FINANCIAL STATEMENTS: A CLOSER LOOK
1839.5 EXCHANGE RATE RISK
885.2 Sources and Uses of Cash
1849.5.1 Short-Run Exposure
895.3 The Statement of Cash Flows
1859.5.2 Long-Run Exposure
905.4 STANDARDIZED FINANCIAL STATEMENTS
1869.5.3 Managing Exchange Rate
915.4.1 Common-Size Statements
1879.6 POLITICAL RISK
925.4.2 Common-Size Balance Sheets
1889.7 SUMMARY AND CONCLUSIONS
935.4.3 Common-Size Income Statements
1899.8 EXERCISE
945.4.4 Common-Size Statements of Cash Flows
190Appendix
955.5 RATIO ANALYSIS
191Glossary
965.5.1 Short-Term Solvency, or Liquidity, Measures
192Index
