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Financial Management: A Practical Guide to Value Creation

Financial Management: A Practical Guide to Value Creation

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Book DescriptionUnderstanding financial management is critical in today’s global marketplace. Financial Management: A Practical Guide to Value Creation is designed for general managers, senior functional managers, and business students interested in the practice of financial management. The book introduces innovative techniques in a practical, intuitive way, but assumes no prior knowledge beyond a rudimentary understanding of financial statements. Unlike most texts, which are conceptual in nature, Financial Management: A Practical Guide to Value Creation ties concepts to reality. In fact, the concepts covered in each chapter are applied to an actual company, which reinforces the reader’s understanding of the subject matter. Practical examples are also integrated to demonstrate how the financial tools and techniques can be used to improve the decision making process.

Financial Management: A Practical Guide to Value Creation underscores the principles of financial management, which are applicable to all companies. The book is organized into five sections. Part I begins with an articulation of the two basic questions that financial managers face: (1) What investments should the company make and (2) how should these capital expenditures be financed? In order to make sound investment decisions, the financial manager must be able to conduct a detailed financial analysis of the company. Through the analysis, the manager will develop an understanding of the company’s past performance and the various forms of financing available for future endeavors. One of the first steps in conducting a detailed analysis is deconstructing the financial statements. As a result, Chapter 2 explains and illustrates how a company’s financial statements are constructed, deconstructed, and interpreted.

Part II reviews the techniques managers use to assess a company’s current "financial health," plan its future development, and make decisions designed to improve its probability for success. Chapter 3 demonstrates the methods used to conduct a detailed financial analysis of a firm’s liquidity position, operational efficiency, and management effectiveness. Chapter 4 explores financial planning and forecasting with particular emphasis on managing a company’s growth potential.

Time value of money is the process of calculating the value of an investment yesterday, today, and tomorrow. Time value concepts underlie virtually every topic in financial management, including capital budgeting and capital structure. In fact, a rudimentary understanding of these concepts is needed when evaluating different capital expenditures and determining the most appropriate financing source. For this reason, Chapters 5 and 6 in Part III are dedicated to time value of money.

Part IV demonstrates how managers make investment decisions (i.e., capital budgeting) that maximize the firm’s value. Chapter 7 explores the net present value (NPV) rule and how to apply this technique to make value-enhancing investment decisions. A number of alternative approaches, including the internal rate of return (IRR), payback period, and profitability index are also explored. Chapter 8 illustrates how to estimate the cash flow generated by an investment proposal and assess the proposal’s capacity to create value. Chapter 9 demonstrates the methods used to estimate the cost of capital, which is used as a hurdle rate in evaluating the cash flows generated by the investment.

The value added through effective investment and financing decisions will make the company more appealing to investors. Part V provides the measures of risk and return used by a company’s various capital providers to evaluate firm performance.

Focused Content. The text emphasizes the concepts of financial management most relevant to sound decision making. Each topic is applied to an actual company, which reinforces the reader’s understanding of the subject matter. Experiential Exercises. Real world exercises provide insight into the realities of financial management and guide the reader through the decision making process. Cutting-edge Software. The accompanying CD-ROM contains a trial version of Crystal Ball Pro, a popular software used in financial management, as well as Excel templates needed to complete the end-of-chapter problems and cases.