Corporate Finance: Theory and Practice, 3rd Edition

Introduction: Contrasts, Shocks, Threats and Opportunities viii

Preface xiv

Frequently used symbols xviii

1 WHAT IS CORPORATE FINANCE? 1

SECTION I

FINANCIAL ANALYSIS 15

PART ONE

FUNDAMENTAL CONCEPTS IN FINANCIAL ANALYSIS 17

2 CASH FLOW 19

3 EARNINGS 29

4 CAPITAL EMPLOYED AND INVESTED CAPITAL 45

5 WALKING THROUGH FROM EARNINGS TO CASH FLOW 58

6 GETTING TO GRIPS WITH CONSOLIDATED ACCOUNTS 73

7 HOW TO COPE WITH THE MOST COMPLEX POINTS IN FINANCIAL ACCOUNTS 92

PART TWO

FINANCIAL ANALYSIS AND FORECASTING 119

8 HOW TO PERFORM A FINANCIAL ANALYSIS 121

9 MARGIN ANALYSIS: STRUCTURE 154

10 MARGIN ANALYSIS: RISKS 176

11 WORKING CAPITAL AND CAPITAL EXPENDITURES 191

12 FINANCING 213

13 RETURN ON CAPITAL EMPLOYED AND RETURN ON EQUITY 227

14 CONCLUSION OF FINANCIAL ANALYSIS 246

SECTION II

INVESTORS AND MARKETS 253

PART ONE

INVESTMENT DECISION RULES 255

15 THE FINANCIAL MARKETS 257

16 THE TIME VALUE OF MONEY AND NET PRESENT VALUE 278

17 THE INTERNAL RATE OF RETURN 295

PART TWO

THE RISK OF SECURITIES AND THE REQUIRED RATE OF RETURN 313

18 RISK AND RETURN 315

19 THE REQUIRED RATE OF RETURN 347

20 THE TERM STRUCTURE OF INTEREST RATES 366

PART THREE

FINANCIAL SECURITIES 377

21 BONDS 379

22 OTHER DEBT PRODUCTS 407

23 SHARES 418

24 OPTIONS 439

25 HYBRID SECURITIES 460

26 SELLING SECURITIES 481

SECTION III

VALUE 511

27 VALUE AND CORPORATE FINANCE 513

28 MEASURING VALUE CREATION 532

29 INVESTMENT CRITERIA 551

30 THE COST OF CAPITAL 569

31 RISK AND INVESTMENT ANALYSIS 587

32 VALUATION TECHNIQUES 602

SECTION IV

CORPORATE FINANCIAL POLICIES 633

PART ONE

CAPITAL STRUCTURE POLICIES 635

33 CAPITAL STRUCTURE AND THE THEORY OF PERFECT CAPITAL MARKETS 637

34 CAPITAL STRUCTURE, TAXES AND ORGANISATION THEORIES 649

35 DEBT, EQUITY AND OPTIONS THEORY 670

36 WORKING OUT DETAILS: THE DESIGN OF THE CAPITAL STRUCTURE 689

PART TWO

EQUITY CAPITAL 721

37 RETURNING CASH TO SHAREHOLDERS 723

38 DISTRIBUTION IN PRACTICE: DIVIDENDS AND SHARE BUY-BACKS 740

39 SHARE ISSUES 758

SECTION V

FINANCIAL MANAGEMENT 773

PART ONE

CORPORATE GOVERNANCE AND FINANCIAL ENGINEERING 775

40 CHOICE OF CORPORATE STRUCTURE 777

41 INITIAL PUBLIC OFFERINGS (IPOS) 798

42 CORPORATE GOVERNANCE 809

43 TAKING CONTROL OF A COMPANY 822

44 MERGERS AND DEMERGERS 844

45 LEVERAGED BUYOUTS (LBOS) 861

46 BANKRUPTCY AND RESTRUCTURING 876

PART TWO

MANAGING CASH FLOWS, WORKING CAPITAL AND FINANCIAL RISKS 889

47 MANAGING CASH FLOWS 891

48 MANAGING WORKING CAPITAL 910

49 MANAGING FINANCIAL RISKS 922

Epilogue–Finance and Strategy 949

Top 20 Largest Listed Companies 957

Contents 965

Index 973