Additional Information
Book Details
Abstract
Financial Management for Decision Makers provides you with an introduction into the world of financial management. Assuming no previous knowledge of financial management, this book gradually builds your knowledge of the subject and how to apply these theories into practice.
Alongside the book, you can visit the new Financial Management for Decision Makers companion website at www.pearsoned.co.uk/atrill to access a comprehensive range of student-learning resources, including additional questions, web links for further reading and a glossary of key terms.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover\r | Cover | ||
| Title Page\r | iii | ||
| Copyright Page\r | iv | ||
| Contents\r | v | ||
| Preface | xiii | ||
| Acknowledgements | xiv | ||
| 1 The world of financial management | 1 | ||
| Introduction | 1 | ||
| Learning outcomes | 1 | ||
| The finance function | 2 | ||
| Structure of the book | 4 | ||
| Modern financial management | 4 | ||
| Why do businesses exist? | 5 | ||
| Balancing risk and return | 14 | ||
| Behaving ethically | 15 | ||
| Protecting shareholders’ interests | 18 | ||
| Shareholder involvement | 22 | ||
| Summary | 29 | ||
| Key terms | 30 | ||
| References | 30 | ||
| Further reading | 30 | ||
| Review questions | 31 | ||
| 2 Financial planning | 33 | ||
| Introduction | 33 | ||
| Learning outcomes | 33 | ||
| Planning for the future | 34 | ||
| The role of projected financial statements | 35 | ||
| Preparing projected financial statements | 36 | ||
| The sales forecast | 36 | ||
| Preparing the projected statements: a worked example | 37 | ||
| Projected cash flow statement | 38 | ||
| Projected income statement | 42 | ||
| Projected statement of financial position (balance sheet) | 43 | ||
| Projected financial statements and decision making | 44 | ||
| Per-cent-of-sales method | 46 | ||
| Long-term cash flow projections | 50 | ||
| Taking account of risk | 53 | ||
| Financial planning and gearing | 56 | ||
| Financial gearing | 56 | ||
| Operating gearing | 64 | ||
| Combined gearing effect | 70 | ||
| Summary | 72 | ||
| Key terms | 74 | ||
| Further reading | 74 | ||
| Review questions | 75 | ||
| Exercises | 75 | ||
| 3 Analysing and interpreting financial statements | 83 | ||
| Introduction | 83 | ||
| Learning outcomes | 83 | ||
| Financial ratios | 84 | ||
| Financial ratio classifications | 84 | ||
| The need for comparison | 86 | ||
| Calculating the ratios | 87 | ||
| A brief overview | 89 | ||
| Profitability | 89 | ||
| Efficiency | 96 | ||
| Relationship between profitability and efficiency | 101 | ||
| Liquidity | 103 | ||
| Financial gearing | 105 | ||
| Investment ratios | 107 | ||
| Financial ratios and the problem of overtrading | 116 | ||
| Trend analysis | 117 | ||
| Using ratios to predict financial failure | 118 | ||
| Limitations of ratio analysis | 123 | ||
| Summary | 128 | ||
| Key terms | 129 | ||
| References | 130 | ||
| Further reading | 130 | ||
| Review questions | 130 | ||
| Exercises | 130 | ||
| 4 Making capital investment decisions | 139 | ||
| Introduction | 139 | ||
| Learning outcomes | 139 | ||
| The nature of investment decisions | 140 | ||
| Investment appraisal methods | 142 | ||
| Accounting rate of return (ARR) | 143 | ||
| Payback period (PP) | 148 | ||
| Net present value (NPV) | 151 | ||
| Why NPV is better | 160 | ||
| Internal rate of return (IRR) | 161 | ||
| Some practical points | 166 | ||
| Investment appraisal in practice | 170 | ||
| Investment appraisal and strategic planning | 174 | ||
| The investment appraisal process | 174 | ||
| Investment decisions and human behaviour | 180 | ||
| Summary | 181 | ||
| Key terms | 183 | ||
| References | 183 | ||
| Further reading | 183 | ||
| Review questions | 184 | ||
| Exercises | 184 | ||
| 5 Making capital investment decisions: further issues | 191 | ||
| Introduction | 191 | ||
| Learning outcomes | 191 | ||
| Investment decisions when funds are limited | 192 | ||
| Comparing projects with unequal lives | 196 | ||
| The ability to delay | 199 | ||
| The problem of inflation | 200 | ||
| The problem of risk | 201 | ||
| Sensitivity analysis | 203 | ||
| Scenario analysis | 210 | ||
| Simulations | 211 | ||
| Risk preferences of investors | 213 | ||
| Risk-adjusted discount rate | 216 | ||
| Expected net present value (ENPV) | 218 | ||
| Event tree diagrams | 221 | ||
| Risk and the standard deviation | 224 | ||
| The standard deviation and the normal distribution | 228 | ||
| The expected value–standard deviation rule | 228 | ||
| Measuring probabilities | 229 | ||
| The limits of probability analysis | 229 | ||
| Portfolio effects and risk reduction | 231 | ||
| Summary | 239 | ||
| Key terms | 241 | ||
| Further reading | 242 | ||
| Review questions | 242 | ||
| Exercises | 242 | ||
| 6 Financing a business 1: sources of finance | 247 | ||
| Introduction | 247 | ||
| Learning outcomes | 247 | ||
| Sources of finance | 248 | ||
| External sources of finance | 248 | ||
| External sources of long-term finance | 249 | ||
| Attitudes towards the level of borrowing | 263 | ||
| External sources of short-term finance | 272 | ||
| Long-term versus short-term borrowing | 277 | ||
| Internal sources of finance | 278 | ||
| Internal sources of long-term finance | 279 | ||
| Internal sources of short-term finance | 280 | ||
| Summary | 286 | ||
| Key terms | 287 | ||
| Further reading | 288 | ||
| Review questions | 288 | ||
| Exercises | 288 | ||
| 7 Financing a business 2: raising long-term finance | 293 | ||
| Introduction | 293 | ||
| Learning outcomes | 293 | ||
| The Stock Exchange | 294 | ||
| Stock market efficiency | 299 | ||
| Are the stock markets really efficient? | 305 | ||
| Share issues | 309 | ||
| Long-term finance for the smaller business | 317 | ||
| Business angels | 326 | ||
| Government and EU assistance | 329 | ||
| The Alternative Investment Market (AIM) | 330 | ||
| Summary | 334 | ||
| Key terms | 336 | ||
| References | 336 | ||
| Further reading | 337 | ||
| Review questions | 337 | ||
| Exercises | 337 | ||
| 8 The cost of capital and the capital structure decision | 343 | ||
| Introduction | 343 | ||
| Learning outcomes | 343 | ||
| Cost of capital | 344 | ||
| Weighted average cost of capital (WACC) | 359 | ||
| Specific or average cost of capital? | 362 | ||
| Limitations of the WACC approach | 363 | ||
| Cost of capital – some evidence | 364 | ||
| The capital structure debate | 366 | ||
| Gearing and signalling | 376 | ||
| Summary | 377 | ||
| Key terms | 379 | ||
| References | 379 | ||
| Further reading | 379 | ||
| Review questions | 379 | ||
| Exercises | 380 | ||
| 9 Making distributions to shareholders | 387 | ||
| Introduction | 387 | ||
| Learning outcomes | 387 | ||
| Paying dividends | 388 | ||
| Dividend distributions in practice | 390 | ||
| Dividend policy and shareholder wealth | 391 | ||
| The importance of dividends | 398 | ||
| Factors determining the level of dividends | 403 | ||
| Dividend policy and management attitudes: some evidence | 407 | ||
| Dividend smoothing in practice | 409 | ||
| What should managers do? | 410 | ||
| Alternatives to cash dividends | 411 | ||
| Summary | 420 | ||
| Key terms | 422 | ||
| References | 422 | ||
| Further reading | 422 | ||
| Review questions | 423 | ||
| Exercises | 423 | ||
| 10 Managing working capital | 427 | ||
| Introduction | 427 | ||
| Learning outcomes | 427 | ||
| What is working capital? | 428 | ||
| The scale of working capital | 429 | ||
| Managing inventories | 432 | ||
| Inventories management models | 437 | ||
| Managing trade receivables | 443 | ||
| Managing cash | 454 | ||
| Managing trade payables | 462 | ||
| Summary | 466 | ||
| Key terms | 469 | ||
| Further reading | 469 | ||
| Review questions | 469 | ||
| Exercises | 470 | ||
| 11 Measuring and managing for shareholder value | 475 | ||
| Introduction | 475 | ||
| Learning outcomes | 475 | ||
| The quest for shareholder value | 476 | ||
| Creating shareholder value | 476 | ||
| The need for new forms of measurement | 477 | ||
| Net present value (NPV) analysis | 479 | ||
| Managing the business with shareholder value analysis | 486 | ||
| Implications of SVA | 487 | ||
| Economic value added (EVA®) | 488 | ||
| EVA®-based ratios | 493 | ||
| EVA® in practice | 494 | ||
| EVA® and SVA compared | 495 | ||
| EVA® or SVA? | 497 | ||
| Market value added (MVA) | 499 | ||
| The link between MVA and EVA® | 501 | ||
| Limitations of MVA | 502 | ||
| Total shareholder return | 504 | ||
| Criticisms of the shareholder value approach | 507 | ||
| Measuring the value of future growth | 508 | ||
| Shareholder value and directors’ rewards | 510 | ||
| Summary | 515 | ||
| Key terms | 517 | ||
| References | 517 | ||
| Further reading | 517 | ||
| Review questions | 518 | ||
| Exercises | 518 | ||
| 12 Business mergers and share valuation | 523 | ||
| Introduction | 523 | ||
| Learning outcomes | 523 | ||
| Mergers and takeovers | 524 | ||
| Merger and takeover activity | 524 | ||
| The rationale for mergers | 525 | ||
| Wealth-enhancing motives for mergers | 526 | ||
| Other motives for mergers | 531 | ||
| Forms of purchase consideration | 533 | ||
| Mergers and financial outcomes | 536 | ||
| Who benefits? | 539 | ||
| The merger puzzle | 542 | ||
| Ingredients for successful mergers | 543 | ||
| Rejecting a takeover bid | 543 | ||
| Restructuring a business: divestments and demergers | 547 | ||
| The valuation of shares | 550 | ||
| Summary | 563 | ||
| Key terms | 565 | ||
| References | 565 | ||
| Further reading | 566 | ||
| Review questions | 566 | ||
| Exercises | 566 | ||
| Appendix A Present value table | 575 | ||
| Appendix B Annual equivalent factor table | 577 | ||
| Appendix C Solutions to self-assessment questions | 579 | ||
| Appendix D Solutions to review questions | 591 | ||
| Appendix E Solutions to selected exercises | 601 | ||
| Glossary | 625 | ||
| Index | 635 |