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The AMA Handbook of Financial Risk Management

The AMA Handbook of Financial Risk Management

Author: John Hampton
Publisher: Amacom
ISBN: 9780814417447
Published In: April 2011
Format: Hardback , 336 pages
Jurisdiction: International ? Disclaimer:
Countri(es) stated herein are used as reference only

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Contents
Author

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Managing financial risks comes down to understand ing how to reduce a complex business environment into workable concepts and models. The AMA Handbook of Financial Risk Management provides readers with the tools they need for dealing with the most important areas of financial decision making.

Filled with strategies, principles, and measurement techniques, the book shows readers how to:

Categorize financial risks
Reduce risks from cash flow and budget exposures
Analyze operating risks
Understand assessments or risk and return
Manage risks in capital investment decisions

Providing both explanations and practical applications, the book clarifies the factors that affect the value of a firm, considerations such as time and the proper use of debt, and risks inherent in the capital structure of the firm and the valuation of business combinations. This is a comprehensive guide that enables risk managers and anyone involved in the financial management of an organization to know what factors are at stake and how to protect their bottom line.

Part 1. Introduction to Financial Risk 1

Chapter 1. Categorizing Financial Risks 3

The Enterprise Risk Management Framework 3

Risk Categories 5

Financial Risk Management 14

Conclusion 16

Part 2. Accounting, Cash Flow, and Budget Exposures 17

Chapter 2. Risks from Financial Accounting 19

Overview of Accounting 19

Accounting Principles 19

Categories of Accounts 21

Trial Balance 24

Financial Statements 25

Conclusion 28

Chapter 2 Appendixes 28

Chapter 3. Managing Operating Cash Flows 33

The Cash Flow Statement 33

Cash Flow Exposures 37

Conclusion 40

Chapter 3 Appendixes 40

Chapter 4. Operating Budgets 53

Nature of Budgeting 53

Forecasting Revenues 54

Life-Cycle Stages in Budgeting 57

Risks in Revenue Forecasting 60

Expense Allocations 63

Accounting Budgets 66

Cash Budgeting 67

Details of Budgeting 70

Conclusion 72

Chapter 4 Appendixes 73

Part 3. Analyzing Operating Risks 85

Chapter 5. Profit Planning 87

Planning 87

Breakeven Analysis 89

Profit-Volume Analysis 92

Marginal Analysis 93

Future Earnings per Share 95

Conclusion 99

Chapter 5 Appendixes 99

Chapter 6. Leverage 111

Return on Investment Leverage 111

Operating Leverage 116

Financial Leverage 118

Weaknesses of Profit Planning 121

Conclusion 121

Chapter 6 Appendixes 122

Chapter 7. Financial Analysis 129

Ratio Analysis 129

Liquidity Ratios 132

Profitability Ratios 136

Other Ratios 138

Determining Financial Norms 142

Conclusion 142

Chapter 7 Appendixes 143

Part 4. Relationship of Risk and Return 149

Chapter 8. Time Value of Money 151

Short-Term Financing 151

Intermediate-Term Financing 155

The Amortization Schedule 157

Conclusion 161

Chapter 8 Appendixes 162

Chapter 9. Risk and Required Return 171

Nature of Risk 171

Capital Asset Theory 178

Risk and Required Return 181

Financial and Operational Risks 183

Conclusion 186

Chapter 9 Appendixes 186

Part 5. Nature of a Capital Investment Decision 193

Chapter 10. Capital Budgeting Cash Flows 195

Foundation of Capital Budgeting 196

Cash Flows 201

Conclusion 207

Chapter 10 Appendix 208

Chapter 11. Capital Budgeting Returns 211

Payback Method 211

Present Value Techniques 212

Internal Rate of Return Method 213

Net Present Value (NPV) Method 215

Midyear Discount Factors for Cash Flows 217

Conclusion 221

Chapter 11 Appendixes 221

Part 6. Factors That Affect the Value of a Firm 233

Chapter 12. Valuation of Common Stock 235

Common Stock and Equity Markets 235

Valuation Concepts 237

Value of Common Stock 240

Comparative Approaches to Valuation 244

Conclusion 245

Chapter 12 Appendixes 245

Chapter 13. Capital Structure of the Firm 253

Capital Structure 253

Weighted Average Cost of Capital (WACC) 254

Required Return at the Margin 257

Contribution of Miller and Modigliani 260

Optimal Capital Structure 263

Conclusion 266

Chapter 13 Appendixes 266

Chapter 14. Valuation of Business Combinations 271

Business Combinations 271

Pyramiding 273

Takeover Strategies 276

Conclusion 280

Chapter 14 Appendixes 280

Index 293

John J. Hampton (Litchfield, CT) is the KPMG Professor of Business and Director of Graduate Business Programs at St. Peter's College, and former Executive Director of the Risk and Insurance Management Society (RIMS). He is the author of Fundamentals of Enterprise Risk Management (978-0-8144-1492-7).