Analysis for financial management / Robert C. Higgins.

Format:

Book

Author/Creator:

Higgins, Robert C.

Contributor:

Hazel M. Hussong Fund.

Charles R. Anderson Endowment Fund.

Series:

McGraw-Hill/Irwin series in finance, insurance, and real estate

The McGraw-Hill/Irwin series in finance, insurance, and real estate

Language:

English

Subjects (All):

Corporations--Finance.

Corporations.

Physical Description:

xvi, 430 pages : illustrations ; 24 cm.

Edition:

Eighth edition.

Place of Publication:

Boston : McGraw-Hill Irwin, [2007]

Summary:

The Eighth Edition of Analysis for Financial Management places an emphasis on the managerial applications of financial analysis in such a way that business students and nonfinancial executives understand the practice of financial management. By presenting the standard techniques and modern developments of financial management in a straightforward manner, readers will instinctively understand the featured managerial applications of financial analysis.

Fresh examples are provided throughout the text to highlight new company examples and updated data-keeping the material current and relevant. New Excel problems for this edition can be found in the end of chapter material indicated by an icon in the margin. An increased number of Standard & Poor's problems are provided in the Eighth Edition, giving instructors an easy way to incorporate current, real world data into the classroom. Harley Davidson, Inc., a legendary purveyor of motorcycles, is used as an integrated example throughout the text. Updated annotated website references are now found in the margins of the text, as well as at the end of each chapter.

Contents:

Part 1 Assessing the Financial Health of the Firm 1

Chapter 1 Interpreting Financial Statements 3

The Cash Flow Cycle 3

The Balance Sheet 6

Current Assets and Liabilities 10

Shareholders' Equity 11

The Income Statement 11

Measuring Earnings 12

Sources and Uses Statements 16

The Two-Finger Approach 18

The Cash Flow Statement 18

Financial Statements and the Value Problem 23

Market Value versus Book Value 23

Economic Income versus Accounting Income 26

Imputed Costs 27

Chapter 2 Evaluating Financial Performance 35

The Levers of Financial Performance 35

Return on Equity 36

The Three Determinants of ROE 36

The Profit Margin 38

Asset Turnover 40

Financial Leverage 46

Is ROE a Reliable Financial Yardstick? 52

The Timing Problem 52

The Risk Problem 52

The Value Problem 54

ROE or Market Price? 56

Ratio Analysis 56

Using Ratios Effectively 59

Ratio Analysis of Harley-Davidson, Inc. 60

Appendix International Differences in Financial Structure 70

Comparisons among Foreign Companies Trading on U.S. Markets 70

Public Companies 72

The Move Toward International Accounting Standards 74

Part 2 Planning Future Financial Performance 85

Chapter 3 Financial Forecasting 87

Pro Forma Statements 87

Percent-of-Sales Forecasting 88

Interest Expense 94

Seasonality 95

Pro Forma Statements and Financial Planning 95

Computer-Based Forecasting 96

Coping with Uncertainty 100

Sensitivity Analysis 100

Scenario Analysis 101

Simulation 102

Cash Flow Forecasts 104

Cash Budgets 105

The Techniques Compared 108

Planning in Large Companies 108

Chapter 4 Managing Growth 119

Sustainable Growth 120

The Sustainable Growth Equation 120

Too Much Growth 123

Balanced Growth 123

Biosite, Inc. 's Sustainable Growth Rate 124

"What If" Questions 126

What to Do When Actual Growth Exceeds Sustainable Growth 126

Sell New Equity 127

Increase Leverage 128

Reduce the Payout Ratio 129

Profitable Pruning 129

Outsourcing 130

Pricing 131

Is Merger the Answer? 131

Too Little Growth 131

What to Do When Sustainable Growth Exceeds Actual Growth 133

Ignore the Problem 133

Return the Money to Shareholders 134

Buy Growth 135

Sustainable Growth and Inflation 135

Sustainable Growth and Pro Forma Forecasts 136

New Equity Financing 137

Why Don't U.S. Corporations Issue More Equity? 140

Part 3 Financing Operations 147

Chapter 5 Financial Instruments and Markets 149

Financial Instruments 150

Bonds 151

Common Stock 157

Preferred Stock 160

Financial Markets 163

Private Equity Financing 163

Initial Public Offerings 166

Seasoned Issues 161

Issue Costs 110

Efficient Markets 172

What Is an Efficient Market? 173

Implications of Efficiency 116

Appendix Forward Contracts, Options, and the Management of Corporate Risks 177

Forward Markets 178

Hedging in Money and Capital Markets 182

Hedging with Options 182

Limitations of Financial Market Hedging 185

Valuing Options 181

Chapter 6 The Financing Decision 197

Financial Leverage 199

Measuring the Effects of Leverage on a Business 203

Leverage and Risk 204

Leverage and Earnings 201

How Much to Borrow 210

Irrelevance 210

Tax Benefits 212

Distress Costs 212

Flexibility 217

Market Signaling 219

Management Incentives 222

The Financing Decision and Growth 222

Selecting a Maturity Structure 226

Inflation and Financing Strategy 226

Appendix The Irrelevance Proposition 227

No Taxes 221

Taxes 229

Part 4 Evaluating Investment Opportunities 237

Chapter 7 Discounted Cash Flow Techniques 239

Figures of Merit 240

The Payback Period and the Accounting Rate of Return 241

The Time Value of Money 242

Equivalence 246

The Net Present Value 241

The Benefit-Cost Ratio 249

The Internal Rate of Return 249

A Few Applications and Extensions 253

Mutually Exclusive Alternatives and Capital Rationing 256

The IRR in Perspective 257

Determining the Relevant Cash Flows 258

Depreciation 260

Working Capital and Spontaneous Sources 262

Sunk Costs 263

Allocated Costs 264

Excess Capacity 265

Financing Costs 261

Appendix Mutually Exclusive Alternatives and Capital Rationing 269

What Happened to the Other $578,000? 270

Unequal Lives 271

Capital Rationing 273

The Problem of Future Opportunities 215

A Decision Tree 215

Chapter 8 Risk Analysis in Investment Decisions 283

Risk Defined 285

Risk and Diversification 287

Estimating Investment Risk 289

Three Techniques for Estimating Investment Risk 290

Including Risk in Investment Evaluation 291

Risk-Adjusted Discount Rates 291

The Cost of Capital 293

The Cost of Capital Defined 294

Cost of Capital for Harley-Davidson, Inc. 296

The Cost of Capital in Investment Appraisal 305

Multiple Hurdle Rates 306

Four Pitfalls in the Use of Discounted Cash Flow Techniques 308

The Enterprise Perspective versus the Equity Perspective 309

Inflation 311

Real Options 312

Excessive Risk Adjustment 315

Economic Value Added 317

EVA and Investment Analysis 318

EVA's Appeal 319

A Cautionary Note 320

Appendix Asset Beta and Adjusted Present Value 321

Beta and Financial Leverage 321

Using Asset Beta to Estimate Equity Beta 322

Asset Beta and Adjusted Present Value 323

Chapter 9 Business Valuation and Corporate Restructuring 335

Valuing a Business 337

Assets or Equity? 337

Dead or Alive? 338

Minority Interest or Control? 340

Discounted Cash Flow Valuation 340

Free Cash Flow 342

The Terminal Value 342

A Numerical Example 346

Problems with Present Value Approaches to Valuation 348

Valuation Based on Comparable Trades 349

Lack of Marketability 353

The Market for Control 354

The Premium for Control 354

Financial Reasons for Restructuring 356

The Empirical Evidence 363

The Daimler-Chrysler Merger 365

Appendix The Venture Capital Method of Valuation 368

The Venture Capital Method-One Financing Round 369

The Venture Capital Method-Multiple Financing Rounds 372

Why Do Venture Capitalists Demand Such High Returns? 374

Appendix A Present Value of $1 383

Appendix B Present Value of an Annuity of $1 385

Suggested Answers to Odd-Numbered Problems 399.

Notes:

Includes bibliographical references and index.

Local Notes:

Acquired for the Penn Libraries with assistance from the Charles R. Anderson Endowment Fund.

Acquired for the Penn Libraries with assistance from the Hazel M. Hussong Fund.

ISBN:

0073041807

007325858X

OCLC:

61278701

Publisher Number:

9780073041803

9780073258584