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Corporate Finance: Theory and Practice, 4th Edition



Corporate Finance: Theory and Practice, 4th Edition

Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi

ISBN: 978-1-118-84929-3 October 2014 1000 Pages


Merging theory and practice into a comprehensive, highly-anticipated text

Corporate Finance continues its legacy as one of the most popular financial textbooks, with well-established content from a diverse and highly respected author team. Unique in its features, this valuable text blends theory and practice with a direct, succinct style and commonsense presentation. Readers will be introduced to concepts in a situational framework, followed by a detailed discussion of techniques and tools. This latest edition includes new information on venture finance and debt structuring, and has been updated throughout with the most recent statistical tables. The companion website provides statistics, graphs, charts, articles, computer models, and classroom tools, and the free monthly newsletter keeps readers up to date on the latest happenings in the field. The authors have generously made themselves available for questions, promising an answer in seventy-two hours.

Emphasizing how key concepts relate to real-world situations is what makes Corporate Finance a valuable reference with real relevance to the professional and student alike. Readers will gain insight into the methods and tools that shape the industry, allowing them to:

  • Analyze investments with regard to hurdle rates, cash flows, side costs, and more
  • Delve into the financing process and learn the tools and techniques of valuation
  • Understand cash dividends and buybacks, spinoffs, and divestitures
  • Explore the link between valuation and corporate finance

As the global economy begins to recover, access to the most current information and statistics will be required. To remain relevant in the evolving financial environment, practitioners will need a deep understanding of the mechanisms at work. Corporate Finance provides the expert guidance and detailed explanations for those requiring a strong foundational knowledge, as well as more advanced corporate finance professionals.

Preface viii

Frequently Used Symbols xii

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 44

5 Walking Through from Earnings to Cash Flow 57

6 Getting to Grips with Consolidated Accounts 71

7 How to Cope with the Most Complex Points in Financial Accounts 89

Part Two Financial Analysis and Forecasting 115

8 How to Perform a Financial Analysis 117

9 Margin Analysis: Structure 143

10 Margin Analysis: Risks 166

11 Working Capital and Capital Expenditures 181

12 Financing 202

13 Return on Capital Employed and Return on Equity 216

14 Conclusion of Financial Analysis 236

Section II Investors and Markets 243

Part One Investment Decision Rules 245

15 The Financial Markets 247

16 The Time Value of Money and Net Present Value 268

17 The Internal Rate of Return 285

Part Two The Risk of Securities and the Required Rate of Return 299

18 Risk and Return 301

19 The Required Rate of Return 329

Part Three Financial Securities 347

20 Bonds 349

21 Other Debt Products 371

22 Shares 386

23 Options 406

24 Hybrid Securities 428

25 Selling Securities 446

Section III Value 471

26 Value and Corporate Finance 473

27 Measuring Value Creation 492

28 Investment Criteria 510

29 The Cost of Capital 528

30 Risk and Investment Analysis 545

31 Valuation Techniques 558

Section IV Corporate Financial Policies 589

Part One Capital Structure Policies 591

32 Capital Structure and the Theory of Perfect Capital Markets 593

33 Capital Structure, Taxes and Organisation Theories 605

34 Debt, Equity and Options Theory 622

35 Working Out Details: The Design of The Capital Structure 641

Part Two Equity Capital 659

36 Returning Cash to Shareholders 661

37 Distribution in Practice: Dividends and Share Buy-Backs 677

38 Share Issues 695

39 Implementing a Debt Policy 708

Section V Financial Management 725

Part One Corporate Governance and Financial Engineering 727

40 Setting Up a Company or Financing Start-Ups 729

41 Choice of Corporate Structure 748

42 Initial Public Offerings (iPOs) 770

43 Corporate Governance 783

44 Taking Control of a Company 797

45 Mergers and Demergers 820

46 Leveraged Buyouts (LBOs) 837

47 Bankruptcy and Restructuring 852

Part Two Managing Working Capital, Cash Flows and Financial Risks 867

48 Managing Working Capital 869

49 Managing Cash Flows 881

50 Managing Financial Risks 900

Epilogue—Finance and Strategy 925

Top 20 Largest Listed Companies 933

Contents 941

Index 951