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Understanding Financial Management: A Practical Guide

ISBN: 978-0-631-23100-4
504 pages
June 2005, Wiley-Blackwell
Understanding Financial Management: A Practical Guide (0631231005) cover image
Designed for those who want to gain an understanding of the fundamental concepts and techniques used in financial management. An underlying premise of the book is that the objective of the firm is to maximize value or wealth. Drawing on a wealth of experience in the academic and professional worlds, the authors discuss how firms can accomplish this objective by making appropriate investment and financing decisions.

Bridging the gap between financial theory and practice, the authors present fundamental concepts in an intuitive and nontechnical way, and provide numerous practical financial tips to readers. The focus is on current practice, using results from recent surveys to show the most popular techniques and approaches used by financial managers today.

A range of instructor’s resources are available at the accompanying website. Visit www.blackwellpublishing.com/baker for full details.

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List of Figures.

List of Tables.

About the Authors.

Preface.

Acknowledgments.

Part I: The Foundation.

Chapter 1 Introduction to Financial Management.

1.1 Financial Management and the Financial Manager.

1.2 Corporate Form of Business Organization.

1.3 The Goal of Financial Management.

1.4 Accounting Profit versus Economic Profit.

1.5 The Agency Relationship.

1.6 Organization of the Book.

Chapter 2 Interpreting Financial Statements.

2.1 Basics of Annual Reports and Financial Statements.

2.2 Balance Sheet.

2.3 Income Statement.

2.4 Statement of Cash Flows.

2.5 Statement of Retained Earnings.

2.6 Common-size Statements.

2.7 Notes to Financial Statements.

2.8 Quality of Earnings.

2.9 Other Issues.

Chapter 3 Interpreting Financial Ratios.

3.1 Financial Ratio Analysis.

3.2 Liquidity Ratios.

3.3 Debt Management Ratios.

3.4 Asset Management Ratios.

3.5 Profitability Ratios.

3.6 Market Value Ratios.

3.7 Uses of Financial Ratios.

3.8 Limitations of Financial Ratio Analysis.

Chapter 4 The Time Value of Money.

4.1 Central Concepts in Finance.

4.2 Future Value of a Present Amount.

4.3 Present Value of a Future Amount.

4.4 Future Value of an Annuity.

4.5 Present Value of an Annuity.

4.6 Present Value of a Perpetuity.

4.7 Compounding Frequencies.

4.8 Nominal and Effective Interest Rates.

4.9 Solving for an Unknown Interest Rate.

4.10 Other Time Value Applications.

Chapter 5 Valuation.

5.1 Valuation Fundamentals.

5.2 Bond Characteristics and Features.

5.3 Bond Valuation.

5.4 Bond Pricing Relationships.

5.5 Interest Rate Risk.

5.6 Bond Yields.

5.7 Bond Trading and Price Reporting.

5.8 Preferred Stock Features and Valuation.

5.9 Common Stock Characteristics and Features.

5.10 Common Stock Valuation.

Part II: Working Capital Management Decisions.

Chapter 6 Working Capital Management.

6.1 Introduction to Working Capital Management.

6.2 Approaches to Working Capital Management.

6.3 Operating and Cash Conversion Cycles.

6.4 Cash Management.

6.5 Accounts Receivable Management.

6.6 Inventory Management.

Part III: Long-term Investment Decisions.

Chapter 7 Capital Investments and Cash Flow Analysis.

7.1 Capital Investment Decisions.

7.2 Project Classifications.

7.3 Capital Budgeting Process.

7.4 Guidelines for Estimating Project Cash Flows.

7.5 Cash Flow Components.

7.6 Tax Effects of Selling Depreciable Assets.

7.7 Applying Cash Flow Analysis.

7.8 Capital Budgeting for the Multinational Corporation.

Chapter 8 Capital Budgeting.

8.1 Project Classifications and Analysis.

8.2 Net Present Value.

8.3 Profitability Index.

8.4 Internal Rate of Return.

8.5 Modified Internal Rate of Return.

8.6 Payback Period.

8.7 Discounted Payback Period.

8.8 Summary of Capital Budgeting Techniques.

8.9 Mutually Exclusive Project Decisions.

8.10 Capital Rationing Decisions.

8.11 Capital Budgeting Techniques in Theory and Practice.

Chapter 9 Risk Analysis.

9.1 Types of Risk in Capital Budgeting.

9.2 Assessing Single-Project Risk.

9.3 Assessing Market Risk.

9.4 Adjusting for Risk.

9.5 Risk Analysis in Multinational Corporations.

9.6 Risk Analysis in Theory and Practice.

Part IV: Long-term Financing Decisions.

Chapter 10 Raising Funds and Cost of Capital.

10.1 Financial Markets.

10.2 Investment Banks.

10.3 The Decision to Go Public.

10.4 Different Methods of Issuing New Securities.

10.5 Public Offer.

10.6 Private Placement.

10.7 Costs of Issuing New Securities.

10.8 Cost of Capital Concept.

10.9 Cost of Capital Components.

10.10 Weighted Average Cost of Capital.

10.11 Marginal Cost of Capital.

Chapter 11 Capital Structure.

11.1 The Financing Mix.

11.2 Understanding Financial Risk.

11.3 Capital Structure and the Value of the Firm.

11.4 Modigliani–Miller Theorem with Corporate Taxes.

11.5 The Costs of Financial Distress.

11.6 Tradeoff Theory of Optimal Capital Structure.

11.7 Pecking Order Theory of Capital Structure.

11.8 Stakeholder Theory of Capital Structure.

11.9 Capital Structure in Practice.

11.10 Bankruptcy.

Chapter 12 Dividend Policy.

12.1 Dividends and Dividend Policy.

12.2 The Dividend Puzzle.

12.3 Factors Influencing the Dividend Decision.

12.4 Dividend Policies.

12.5 Stock Repurchases.

12.6 Cash Dividends versus Stock Repurchases.

12.7 Dividend Reinvestment Plans.

12.8 Stock Dividends.

12.9 Stock Splits and Reverse Splits.

Glossary.

Index

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H. Kent Baker, University Professor of Finance, is the author of more than 150 articles for academic and professional journals including the Journal of Finance, Financial Management, The Financial Review, Journal of Financial Research, the Journal of Economics and Business, Harvard Business Review and many others.


Gary E. Powell is an Associate Professor of Finance at Towson University.

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  • Designed for those who want to gain a understanding of the fundamental concepts and techniques used in financial management
  • Presents fundamental concepts of in an intuitive and nontechnical way
  • Provides numerous practical financial tips to readers
  • Uses recent surveys to show the most popular techniques and approaches used by financial managers today

  • Accompanied by a range of instructor’s resources available www.blackwellpublishing.com/baker.

See More
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