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Corporate Finance: Theory and Practice, 3rd Edition

ISBN: 978-1-119-96006-5
1024 pages
November 2011
Corporate Finance: Theory and Practice, 3rd Edition (1119960061) cover image
Corporate Finance: Theory and Practice, 3rd Edition, the website www.vernimmen.com and the Vernimmen.com newsletter are all written and created by an author team who are both investment bankers/corporate financiers and academics.

This book covers the theory and practice of Corporate Finance from a truly European perspective.  It shows how to use financial theory to solve practical problems and is written for students of corporate finance and financial analysis and practising corporate financiers.  Corporate Finance: Theory and Practice, 3rd Edition is split into four sections covering the basics of financial analysis; the basic theories behind valuing a firm; the major types of financial securities (equity, debt & options) and, finally, financial management; how to organise a company’s equity capital, buying and selling companies, M&A, bankruptcy and cash flow management.

Key features include:

  • A section on financial analysis – a Corporate Financier must understand a company based on a detailed analysis of its accounts.  Large numbers neglected this approach during the last stock market bubble and were caught in the crash that inevitably followed.  How many investors took the trouble to read Enron’s annual report?  Those who did found that it spoke volumes!
  • End of Chapter Summary, Questions and Answers, Glossary, European Case Studies
  • A supporting Website http://www.vernimmen.com with free access to statistics, a glossary & lexicon; articles, notes on financial transactions, basic financial figures for more than 10,000 European and US listed companies, thesis topics, a bibliography; case studies, Q&A; A letter box for your questions to the authors – a reply guaranteed within 72 hours
  • A free monthly newsletter on Corporate Finance sent out to subscribers to the site.
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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

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