Cover image for Corporate Finance, 4th Edition

Corporate Finance, 4th Edition

Author Antonio Salvi , Yann Le Fur , Maurizio Dallocchio , Pascal Quiry , Pierre Vernimmen
Release Date: 2014/11/01
ISBN: 9781118849330
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Book Description

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.

Table of Contents

  1. Cover
  2. Praise Page
  3. Title Page
  4. Copyright
  5. About the authors
  6. Preface
  7. Frequently used symbols
  8. Section I: Financial Analysis
  9. Chapter 1: What is corporate finance?
    1. Section 1.1 The financial manager is first and foremost a salesman …
    2. Section 1.2 … of financial securities …
    3. Section 1.3 … valued continuously by the financial markets
    4. Section 1.4 Most importantly, he is a negotiator …
    5. Section 1.5 … who never forgets to do an occasional reality check!
    6. Section 1.6 … he is also now a risk manager
    7. Summary
    8. Bibliography
  10. Part One: Fundamental concepts in financial analysis
  11. Chapter 2: Cash flow
    1. Section 2.1 Classifying company cash flows
    2. Section 2.2 Operating and investment cycles
    3. Section 2.3 Financial resources
    4. Summary
    5. Bibliography
  12. Chapter 3: Earnings
    1. Section 3.1 Additions to wealth and deductions from wealth
    2. Section 3.2 Different income statement formats
    3. Summary
    4. Bibliography
  13. Chapter 4: Capital employed and invested capital
    1. Section 4.1 The balance sheet: definitions and concepts
    2. Section 4.2 A capital-employed analysis of the balance sheet
    3. Section 4.3 A solvency-and-liquidity analysis of the balance sheet
    4. Section 4.4 A detailed example of a capital-employed balance sheet
    5. Summary
    6. Bibliography
  14. Chapter 5: Walking through from earnings to cash flow
    1. Section 5.1 Analysis of earnings from a cash flow perspective
    2. Section 5.2 Cash flow statement
    3. Summary
    4. Bibliography
  15. Chapter 6: Getting to grips with consolidated accounts
    1. Section 6.1 Consolidation methods
    2. Section 6.2 Consolidation-related issues
    3. Section 6.3 Technical aspects of consolidation
    4. Summary
    5. Bibliography
  16. Chapter 7: How to cope with the most complex points in financial accounts
    1. Section 7.1 Accruals
    2. Section 7.2 Cash assets
    3. Section 7.3 Construction contracts
    4. Section 7.4 Convertible bonds and loans
    5. Section 7.5 Currency translation adjustments
    6. Section 7.6 Deferred tax assets and liabilities
    7. Section 7.7 Dilution profit and losses
    8. Section 7.8 Financial hedging instruments
    9. Section 7.9 Impairment losses
    10. Section 7.10 Intangible fixed assets
    11. Section 7.11 Inventories
    12. Section 7.12 Leases
    13. Section 7.13 Off-balance-sheet commitments
    14. Section 7.14 Pensions and other employee benefits
    15. Section 7.15 Preference shares17
    16. Section 7.16 Provisions
    17. Section 7.17 Stock options
    18. Section 7.18 Tangible assets
    19. Section 7.19 Treasury shares
    20. Bibliography
  17. Part Two: Financial Analysis and Forecasting
  18. Chapter 8: How to perform a financial analysis
    1. Section 8.1 What is financial analysis?
    2. Section 8.2 Economic analysis of companies
    3. Section 8.3 An assessment of a company's accounting policy
    4. Section 8.4 Standard financial analysis plan
    5. Section 8.5 The various techniques of financial analysis
    6. Section 8.6 Ratings
    7. Section 8.7 Scoring techniques
    8. Section 8.8 Expert systems
    9. Summary
    10. Bibliography
  19. Chapter 9: Margin analysis: structure
    1. Section 9.1 How operating profit is formed
    2. Section 9.2 How operating profit is allocated
    3. Section 9.3 Standard income statements (individual and consolidated accounts)
    4. Section 9.4 Financial assessment
    5. Section 9.5 Case study: Indesit
    6. Summary
  20. Chapter 10: Margin analysis: risks
    1. Section 10.1 How operating leverage works
    2. Section 10.2 A more refined analysis provides greater insight
    3. Section 10.3 From analysis to forecasting: the concept of normative margin
    4. Section 10.4 Case study: Indesit3
    5. Summary
    6. Bibliography
  21. Chapter 11: Working capital and capital expenditures
    1. Section 11.1 The nature of working capital
    2. Section 11.2 Working capital turnover ratios
    3. Section 11.3 Reading between the lines of working capital
    4. Section 11.4 Analysing capital expenditures (capex)
    5. Section 11.5 Case study: Indesit3
    6. Summary
    7. Bibliography
  22. Chapter 12: Financing
    1. Section 12.1 A dynamic analysis of the company's financing
    2. Section 12.2 A static analysis of the company's financing
    3. Section 12.3 Case study: Indesit6
    4. Summary
    5. Bibliography
  23. Chapter 13: Return on capital employed and return on equity
    1. Section 13.1 Analysis of corporate profitability
    2. Section 13.2 Leverage effect
    3. Section 13.3 Uses and limitations of the leverage effect
    4. Section 13.4 Case study: indesit
    5. Summary
    6. Bibliography
  24. Chapter 14: Conclusion of financial analysis
    1. Section 14.1 Solvency
    2. Section 14.2 Value creation
    3. Section 14.3 Financial analysis without the relevant accounting documents
    4. Section 14.4 Case study: Indesit
    5. Summary
  25. Section II: Investors and Markets
  26. Part One: Investment decision rules
  27. Chapter 15: The financial markets
    1. Section 15.1 The rise of capital markets
    2. Section 15.2 The functions of a financial system
    3. Section 15.3 The relationship between banks and companies
    4. Section 15.4 Theoretical framework: efficient markets
    5. Section 15.5 Another theoretical framework under construction: behavioural finance
    6. Section 15.6 Investors' behaviour
    7. Summary
    8. Bibliography
  28. Chapter 16: The time value of money and net present value
    1. Section 16.1 Capitalisation
    2. Section 16.2 Discounting
    3. Section 16.3 Present value and net present value of a financial security
    4. Section 16.4 What does net present value depend on?
    5. Section 16.5 Some examples of simplification of present value calculations
    6. Summary
    7. Bibliography
  29. Chapter 17: The internal rate of return
    1. Section 17.1 How is internal rate of return determined?
    2. Section 17.2 Internal rate of return as an investment criterion
    3. Section 17.3 The limits of the internal rate of return
    4. Section 17.4 Some more financial mathematics: interest rate and yield to maturity
    5. Summary
    6. Bibliography
  30. Part Two: The risk of securities and the required rate of return
  31. Chapter 18: Risk and return
    1. Section 18.1 Sources of risk
    2. Section 18.2 Risk and fluctuation in the value of a security
    3. Section 18.3 Tools for measuring return and risk
    4. Section 18.4 Market and specific risk
    5. Section 18.5 The beta coefficient
    6. Section 18.6 Portfolio risk
    7. Section 18.7 Choosing among several risky assets and the efficient frontier
    8. Section 18.8 Choosing between several risky assets and a risk-free asset: the capital market line
    9. Section 18.9 How portfolio management works
    10. Summary
    11. Bibliography
  32. Chapter 19: The required rate of return
    1. Section 19.1 Return required by investors: the CAPM
    2. Section 19.2 Properties of the CAPM
    3. Section 19.3 The limits of the CAPM
    4. Section 19.4 Multifactor models
    5. Section 19.5 Fractals and other leads
    6. Section 19.6 Term structure of interest rates
    7. Summary
    8. Bibliography
  33. Part Three: Financial securities
  34. Chapter 20: Bonds
    1. Section 20.1 Basic concepts
    2. Section 20.2 The yield to maturity
    3. Section 20.3 Floating-rate bonds
    4. Section 20.4 The volatility of debt securities
    5. Section 20.5 Default risk and the role of rating
    6. Summary
    7. Bibliography
  35. Chapter 21: Other debt products
    1. Section 21.1 Marketable debt securities
    2. Section 21.2 Bank debt products
    3. Section 21.3 Financing linked to an asset of the firm
    4. Summary
    5. Bibliography
  36. Chapter 22: Shares
    1. Section 22.1 Basic concepts
    2. Section 22.2 Multiples
    3. Section 22.3 Key market data
    4. Section 22.4 How to perform a stock market analysis
    5. Section 22.5 Adjusting per share data for technical factors
    6. Summary
    7. Bibliography
  37. Chapter 23: Options
    1. Section 23.1 Definition and theoretical foundation of options
    2. Section 23.2 Mechanisms used in pricing options
    3. Section 23.3 Analysing options
    4. Section 23.4 Parameters to value options
    5. Section 23.5 Methods for pricing options
    6. Section 23.6 Tools for managing an options position
    7. Summary
    8. Bibliography
  38. Chapter 24: Hybrid securities
    1. Section 24.1 Warrants
    2. Section 24.2 Convertible bonds
    3. Section 24.3 Preference shares
    4. Section 24.4 Other hybrid securities
    5. Summary
    6. Bibliography
  39. Chapter 25: Selling securities
    1. Section 25.1 General principles in the sale of securities
    2. Section 25.2 Initial public offerings
    3. Section 25.3 Capital increases
    4. Section 25.4 Block trades of shares
    5. Section 25.5 Bonds
    6. Section 25.6 Convertible and exchangeable bonds
    7. Section 25.7 Syndicated loans
    8. Summary
    9. Bibliography
  40. Section III: Value
  41. Chapter 26: Value and corporate finance
    1. Section 26.1 The purpose of finance is to create value
    2. Section 26.2 Value creation and markets in equilibrium
    3. Section 26.3 Value and organisation theories
    4. Section 26.4 How can we create value?
    5. Section 26.5 Value and taxation
    6. Summary
    7. Bibliography
  42. Chapter 27: Measuring value creation
    1. Section 27.1 Overview of the different criteria
    2. Section 27.2 NPV, the only reliable criterion
    3. Section 27.3 Financial/accounting criteria
    4. Section 27.4 Market criteria
    5. Section 27.5 Accounting criteria
    6. Section 27.6 Putting things into perspective
    7. Summary
    8. Bibliography
  43. Chapter 28: Investment criteria
    1. Section 28.1 The predominance of NPV and the importance of IRR
    2. Section 28.2 The main lines of reasoning
    3. Section 28.3 Which cash flows are important?
    4. Section 28.4 Other investment criteria
    5. Summary
    6. Bibliography
  44. Chapter 29: The cost of capital
    1. Section 29.1 The cost of capital and the risk of assets
    2. Section 29.2 Alternative methods for estimating the cost of capital
    3. Section 29.3 Some practical applications
    4. Section 29.4 Can corporate managers influence the cost of capital?
    5. Summary
    6. Bibliography
  45. Chapter 30: Risk and investment analysis
    1. Section 30.1 Assessing risk through the business plan
    2. Section 30.2 Assessing risk through a mathematical approach
    3. Section 30.3 The contribution of real options
    4. Summary
    5. Bibliography
  46. Chapter 31: Valuation techniques
    1. Section 31.1 Overview of the different methods
    2. Section 31.2 Valuation by discounted cash flow
    3. Section 31.3 Multiple approach or peer-group comparisons
    4. Section 31.4 The sum-of-the-parts method (SOTP) or net asset value (NAV)
    5. Section 31.5 Comparison of valuation methods
    6. Section 31.6 Premiums and discounts
    7. Summary
    8. Bibliography
  47. Section IV: Corporate Financial Policies
  48. Part One: Capital Structure Policies
  49. Chapter 32: Capital structure and the theory of perfect capital markets
    1. Section 32.1 The value of capital employed
    2. Section 32.2 Debt and equity
    3. Section 32.3 What our grandparents thought
    4. Section 32.4 The capital structure policy in perfect financial markets
    5. Summary
    6. Bibliography
  50. Chapter 33: Capital structure, taxes and organisation theories
    1. Section 33.1 The benefits of debt or the tradeoff model
    2. Section 33.2 Debt to control management
    3. Section 33.3 Signalling and debt policy
    4. Section 33.4 Information asymmetries and the pecking order theory
    5. Summary
    6. Bibliography
  51. Chapter 34: Debt, equity and options theory
    1. Section 34.1 Analysing the firm in light of options theory
    2. Section 34.2 Contribution of options theory to the valuation of equity
    3. Section 34.3 Using options theory to analyse a company's financial decisions
    4. Section 34.4 Resolving conflicts between shareholders and creditors
    5. Section 34.5 Analysing the firm's liquidity
    6. Section 34.6 Conclusion
    7. Summary
    8. Bibliography
  52. Chapter 35: Working out details: the design of the capital structure
    1. Section 35.1 The major concepts
    2. Section 35.2 How to choose a capital structure
    3. Section 35.3 Effects of the financing choice on accounting and financial criteria
    4. Summary
    5. Bibliography
  53. Part Two: Equity capital
  54. Chapter 36: Returning cash to shareholders
    1. Section 36.1 Reinvested cash flow and the value of equity
    2. Section 36.2 Internal financing and financial criteria
    3. Section 36.3 Why return cash to shareholders?
    4. Summary
    5. Bibliography
  55. Chapter 37: Distribution in practice: dividends and share buy-backs
    1. Section 37.1 Dividends
    2. Section 37.2 Exceptional dividends, share buy-backs and capital reduction
    3. Section 37.3 The choice between dividends, share buy-backs and capital reduction
    4. Summary
    5. Bibliography
  56. Chapter 38: Share issues
    1. Section 38.1 A definition of a share issue
    2. Section 38.2 Share issues and finance theory
    3. Section 38.3 Old and new shareholders
    4. Section 38.4 Share issues and financial criteria
    5. Summary
    6. Bibliography
  57. Chapter 39: Implementing a debt policy
    1. Section 39.1 Debt structure
    2. Section 39.2 Covenants
    3. Section 39.3 Renegotiating debt
    4. Section 39.4 Why keep cash on the balance sheet?
    5. Section 39.5 The levers of a good debt policy
    6. Summary
    7. Bibliography
  58. Section V: Financial Management
  59. Part One: Corporate governance and financial engineering
  60. Chapter 40: Setting up a company or financing start-ups
    1. Section 40.1 Financial particularities of the company being set up
    2. Section 40.2 Some basic principles for financing a start-up
    3. Section 40.3 Investors in start-ups
    4. Section 40.4 The organisation of relationships between the entrepreneur and the financial investors
    5. Section 40.5 The financial management of a start-up
    6. Section 40.6 The particularities of valuing young companies
    7. Section 40.7 Example inspired by a real case: Example.com
    8. Summary
    9. Bibliography
  61. Chapter 41: Choice of corporate structure
    1. Section 41.1 Shareholder structure
    2. Section 41.2 How to strengthen control over a company
    3. Section 41.3 Organising a diversified group
    4. Section 41.4 Financial securities' discounts
    5. Summary
    6. Bibliography
  62. Chapter 42: Initial public offerings (IPOs)
    1. Section 42.1 To be or not to be listed?
    2. Section 42.2 Preparation of an IPO
    3. Section 42.3 Execution of the IPO
    4. Section 42.4 Underpricing of IPOs
    5. Section 42.5 How to carry out a successful IPO
    6. Section 42.6 Public to private
    7. Summary
    8. Bibliography
  63. Chapter 43: Corporate governance
    1. Section 43.1 What does corporate governance mean?
    2. Section 43.2 Corporate governance and financial theories
    3. Section 43.3 Value and corporate governance
    4. Summary
    5. Bibliography
  64. Chapter 44: Taking control of a company
    1. Section 44.1 The rise of mergers and acquisitions
    2. Section 44.2 Choosing a negotiating strategy
    3. Section 44.3 Taking over a listed company
    4. Summary
    5. Bibliography
  65. Chapter 45: Mergers and demergers
    1. Section 45.1 All-share deals
    2. Section 45.2 The mechanics of all-share transactions
    3. Section 45.3 Demergers and split-offs
    4. Summary
    5. Bibliography
  66. Chapter 46: Leveraged buyouts (LBOs)
    1. Section 46.1 LBO structures
    2. Section 46.2 The players
    3. Section 46.3 LBOs and financial theory
    4. Summary
    5. Bibliography
  67. Chapter 47: Bankruptcy and restructuring
    1. Section 47.1 Causes of bankruptcy
    2. Section 47.2 The different bankruptcy procedures
    3. Section 47.3 Bankruptcy and financial theory
    4. Section 47.4 Restructuring plans
    5. Summary
    6. Bibliography
  68. Part Two: Managing working capital, cash flows and financial risks
  69. Chapter 48: Managing working capital
    1. Section 48.1 A bit of common sense
    2. Section 48.2 Managing receivables
    3. Section 48.3 Managing trade payables
    4. Section 48.4 Inventory management
    5. Section 48.5 Conclusion
    6. Summary
    7. Bibliography
  70. Chapter 49: Managing cash flows
    1. Section 49.1 The basics
    2. Section 49.2 Cash management
    3. Section 49.3 Cash management within a group
    4. Section 49.4 Investing cash balances
    5. Section 49.5 The changing role of the treasurer
    6. Summary
    7. Bibliography
  71. Chapter 50: Managing financial risks
    1. Section 50.1 Introduction to risk management
    2. Section 50.2 Measuring financial risks
    3. Section 50.3 Principles of financial risk management
    4. Section 50.4 Organised markets – OTC markets
    5. Summary
    6. Bibliography
  72. Epilogue – Finance and Strategy
    1. Section 1 Corporate strategies
    2. Section 2 Shareholders
    3. Section 3 The macroeconomic environment
  73. Top 20 Largest Listed Companies
  74. Index
  75. End User License Agreement
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