CONTENTS

Introduction

·         Some of the financial issues covered

·         The scope of corporate finance

Chapter 1. What is the firm’s objective?

• A common purpose
• The assumed objective of finance
• Why should we aim for shareholder wealth?
• What is shareholder wealth?
• Profit maximisation is not the same as shareholder wealth maximisation
• Getting manager’s objectives aligned with shareholder’s objectives
• What happens if control over directors is weak?
• Conclusion

PART 1 – IINVESTING IN PROJECTS? 

Chapter 2. State-of-the-art project assessment techniques

• How do you know whether an investment generates value for shareholders?
• State-of-the-art technique 1: net present value
• State-of-the-art technique 2: internal rate of return
• Choosing between NPV and IRR
• Appendix 2.1 Mathematical tools for finance

Chapter 3. Traditional appraisal techniques 

• What appraisal techniques businesses actually use
• Payback
• Accounting rate of return
• Internal rate of return: reason for continued popularity

Chapter 4. Investment decision-making in companies 

• The managerial art of investment selection
• More tricky issues in real world project appraisal
• The stages of investment decision making

Chapter 5. Allowing for risk in project appraisal 

• What is risk?
• Adjusting for risk through the discount rate
• Sensitivity analysis
• Scenario analysis
• Probability analysis
• Problems with using probability analysis
• Evidence of risk analysis in practice

PART 2 SHAREHOLDER VALUE 

Chapter 6. Value managed companies versus earnings managed companies

• The pervasiveness of the value approach
• Case studies: FT100 companies creating value and destroying value
• Why shareholder value?
• Three steps to value
• Earnings-based management’s failings
• ROCE has failings
• Focusing on earnings is not the same as value
• How a business creates value
• The five actions to create value

Chapter 7. Value through strategy

• Value principles touch every corner of the business
• Strategic business unit management
• The firm’s objective
• Strategic assessment
• Strategic choice
• Strategy implementation
• What use is the head office?
• Targets and motivation

Chapter 8. Value creation within strategic business units

·         Using cash flow to measure value

·         Shareholder value analysis

·         Economic profit

·         Economic value added (EVA)

·         Cash flow return on investment

Chapter 9. Entire firm value measurement 

• Total shareholder return
• Wealth added index
• Market added value
• Market to book ratio

Chapter 10. What is the company’s cost of capital?

• A word of warning
• The required rate of return
• Two sides of the same coin
• The weighted average cost of capital
• The cost of equity capital
• The cost of retained earnings
• Debt capital
• The cost of preference share capital
• Hybrid securities
• Calculating the weights
• The WACC with three or more types of finance
• Classic error
• What do mangers actually do?
• Implementation issues
• Which risk-free rate
• Fundamental beta

Chapter 11. Mergers: impulse, regret and success

• The merger decision
• You say merger, I say acquisition
• Merger statistics
• What drives firms to merge?
• Do the shareholders of acquiring firms gain from mergers?
• Managing mergers

Chapter 12. The merger process

• The City code on takeovers and mergers
• Action before the bid
• The bid
• After the bid
• Defence tactics
• Paying for the targets shares: cash or shares?

Chapter 13. Valuing companies

• The two skills
• Valuation using net asset value
• Income flow is the key
• Dividend valuation methods
• How do you estimate future growth?
• Price-earnings ratio methods
• Valuation using cash flow
• Valuing unquoted shares
• Unusual companies
• Managerial control changes the valuation

Chapter 14. What pay-outs should we make to shareholders?

• Defining the problem
• Theorists in their hypothetical world
• The other extreme – dividends as residual
• What about the world in which we live?
• Some muddying factors
• Scrip dividends
• Share buy-backs and special dividends
• A round-up of the arguments

PART 3 – FINANCE RAISING

Chapter 15. Debt finance available to firms of all sizes

• Contrasting debt finance with equity
• Bank borrowing
• Overdraft
• Trade credit
• Factoring
• Hire purchase
• Leasing
• Bills of exchange
• Acceptance credits

Chapter 16. Debt finance from the financial markets

• Bonds
• Syndicated loans
• Credit ratings
• Mezzanine debt and high yield debt
• Convertible bonds
• Valuing bonds
• International sources of debt finance
• Medium-term notes
• Commercial paper
• Project finance
• Sales and leaseback
• Securitization

Chapter 17. Raising equity capital

• What is equity capital?
• Preference shares
• Floating on the Official List
• What manager need to consider
• Methods of issue
• Timetable of a new offer
• How does flotation on AIM differ
• The cost of new issues
• Rights issues
• Other equity issues
• Scrip issues
• Warrants
• Equity finance for unquoted firms
• Disillusionment and dissatisfaction with quotation
• Appendix  - Arguments for and against flotation

PART 4 – MANAGING RISK

Chapter 18. The financial risks managers have to deal with

• Types of risk
• Risk in the financial structure
• The dangers of gearing
• What do we mean by gearing?
• Agency costs
• Pecking order
• Some further thoughts on debt finance

Chapter 19. Options 

• What is a derivative
• A long history
• What is an option
• Share options
• Index options
• Corporate uses of options
• Real options

Chapter 20. Using futures, forwards and swaps to manage risk 

• Futures
• Short-term interest rate futures
• Forwards
• Forward agreements
• A comparison of options, futures and FRAs
• Caps
• Swaps
• Derivative users
• Over-the-counter and exchange traded derivatives

Chapter 21. Managing exchange rate risk

• The impact of currency rate changes on the firm
• Volatility in foreign exchange
• The currency markets
• Understanding the exchange rate tables in the FT
• Covering in the forward market
• Types of foreign exchange risk
• Managing risk
• Hedging strategies
•  Managing translation risk
• Managing economic risk

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